Stocks hovered near record highs and the dollar steadied as a new week began, with investors focused on the Federal Reserve’s upcoming policy decision.
The MSCI All Country World Index held steady in early trading after closing at a record Friday. MSCI’s Asia equity index also traded near a record high. Shares in South Korea gained 0.5% amid a change to the capital gains tax threshold for stock investors, while those in Australia fell by 0.6%. There will be no cash trading in Treasuries during Asian hours as Japan is closed for a holiday.
Oil was little changed as traders weighed moves to crack down on Russian flows against forecasts for a surplus later in the year. French bond futures opened mostly steady in Asian trading after Fitch Ratings downgraded France to A+ from AA-.
The key question for investors this week is whether Fed officials will push back against market bets on a series of interest-rate cuts extending into next year. In addition to the Fed’s decision on Wednesday, the Bank of Canada, the Bank of England and the Bank of Japan are also set to announce policy decisions this week.
“The week is going to be all about central bank decisions. Of course, the biggest one will be the Fed, which is all but certain to cut interest rates by 25 basis points,” wrote Kyle Rodda, a senior market analyst at Capital.com in Melbourne. “The question is how aggressive the Fed is with this easing, with the markets effectively pricing in a cut at each of the final three meetings of the year.”
Traders on Monday will also be closely parsing a slew of Chinese data to help gauge the health of the world’s second-largest economy. Retail sales growth may have quickened from a year ago while industrial output may have slowed, according to Bloomberg surveys.
“We expect another soft set of numbers from today’s Chinese August ‘data dump’ which can provide some temporary support for dollar-yuan,” Commonwealth Bank of Australia strategists led by Joseph Capurso wrote in a note to clients.
The US-China talks are focused on trade, the economy and the status of ByteDance Ltd.’s TikTok, which faces a deadline this week to reach a deal to continue operations in the US. Officials were also expected to lay the groundwork for a potential meeting between President Donald Trump and Xi Jinping as soon as October.
Still, the Fed’s policy meeting will remain the key focus as markets question whether officials push back against bets of easing at each remaining meeting this year. A quarter-point reduction is seen as a sure thing when the Fed announces its policy decision Wednesday, with a small potential for a half-point move amid signs US job growth is slowing rapidly.
The Fed is likely to deliver a dovish cut with at least one member in favor of a 50 basis point reduction, and new forecasts that imply a steeper easing path to guard against a weakening labor market, said Elias Haddad, a senior market strategist at Brown Brothers Harriman. “A dovish Fed policy stance can drag US dollar lower and support risk assets.”
Trump predicted a “big cut” from the Federal Reserve this week ahead of a pivotal meeting at which the central bank’s governors are expected to ease policy for the first time in nine months.
“I think you have a big cut,” Trump told reporters on Sunday on his way back to Washington. “It’s perfect for cutting.”
Elsewhere, Fitch Ratings downgraded France to A+ from AA- late Friday. The score is now a notch lower than the UK and on par with Belgium, indicating the upheaval of repeated government collapse has locked the country into an enduring battle to contain a swelling debt burden.
France’s 10-year benchmark bonds offer one of the highest yields in the euro area, akin to Lithuania, Slovakia and Italy. The premium paid over German peers has nearly doubled since President Emmanuel Macron called elections last year, a sign of weaker investor demand.
Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 9:30 a.m. Tokyo time
Hang Seng futures were little changed
Nikkei 225 futures (OSE) fell 0.2%
Australia’s S&P/ASX 200 fell 0.8%
Euro Stoxx 50 futures were little changed
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro fell 0.1% to $1.1722
The Japanese yen was unchanged at 147.68 per dollar
The offshore yuan was little changed at 7.1257 per dollar
The Australian dollar was little changed at $0.6645
Cryptocurrencies
Bitcoin fell 0.5% to $115,247.94
Ether was little changed at $4,616.9
Bonds
The yield on 10-year Treasuries advanced four basis points to 4.06%
Japan’s 10-year yield advanced 1.5 basis points to 1.590%
Australia’s 10-year yield advanced four basis points to 4.25%
Commodities
West Texas Intermediate crude rose 0.1% to $62.78 a barrel
Spot gold fell 0.1% to $3,638.99 an ounce
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