World markets are poised for critical developments as speculation mounts around the Federal Reserve’s upcoming interest rate cut, anticipated to be the first of 2025. This expectation has led to increased stabilization of the U.S. dollar, which is currently trading at four-year lows against the euro prior to the Fed’s decision announcement.
U.S. stock markets exhibited a pause on Tuesday, with futures remaining flat as investors digested a robust 5% annual growth in retail sales for August. This positivity in consumer spending seemed to diminish the likelihood of a more aggressive rate cut this week, leading to a consensus around a 25 basis point reduction. Interestingly, despite the more bullish economic indicators, gold prices experienced a slight retreat. In contrast, demand for U.S. long-term bonds surged, driven by significant interest in a recent 20-year debt auction, pushing the 30-year yield to a 4.62% low, a level not reached in the past four and a half months.
In Hong Kong, shares concluded trading at a four-year high, propelled by anticipated U.S. rate cuts, a declining dollar, and strengthened performance from local technology stocks. With signs indicating a resurgence of foreign investments and growing confidence in China’s artificial intelligence sector, market sentiment has brightened. A recent announcement from President Donald Trump, which ensures the continuity of TikTok’s operations in the U.S., further fueled appetite for risk assets. Looking ahead, discussions are scheduled between the U.S. and Chinese presidents on Friday.
However, the tech giant Nvidia faced challenges, slipping on reports of declining demand in China for its new AI chips, exacerbated by a directive from Chinese regulators instructing major tech companies to refrain from purchasing Nvidia’s products.
The euro made notable gains, reaching a four-year high against a weakening dollar, although the dollar managed to stabilize after a decline to two-month lows. Meanwhile, China’s offshore yuan rallied to its strongest position in the year, coinciding with the best performance since the U.S. elections. Japan’s yen also appreciated, marking its highest value in a month, as traders eagerly await the Bank of Japan’s policy decision. The Canadian dollar found a firm footing as expectations grew for a quarter-point rate cut by the Bank of Canada, following soft inflation data from August.
In the UK, the pending visit from President Trump and the upcoming policy meeting of the Bank of England have kept sterling near two-month highs against the faltering dollar. The UK stock market, along with gilt prices, saw a positive trend as the country and the U.S. announced a technology partnership aimed at enhancing cooperation in AI, quantum computing, and civil nuclear energy. This agreement notably saw major U.S. firms, led by Microsoft, pledging investments of £31 billion ($42 billion) into the UK.
The day’s developments were further overshadowed by Trump’s renewed effort to eliminate quarterly corporate disclosures, an initiative that previously stalled during his first term but may now gain traction with the administration taking a more proactive stance on the Securities and Exchange Commission.
Despite widespread concerns regarding the Federal Reserve’s efficacy in managing inflation, some analysts like Stephen Jen of Eurizon SLJ asset management suggest that the administration may have valid points regarding potential missteps by Chair Jay Powell and his team.
As markets navigate complex dynamics, analysts are questioning the feasibility of continued easing policies, especially with strong GDP growth, rising retail sales, and inflation still trending above target levels.
Key economic events to watch include U.S. housing starts and permits data, the Bank of Canada’s policy meeting, and the Federal Reserve’s policy decision along with updated economic projections, all set to occur today.
