Stocks rally stalls as rate-cut optimism fades: Markets Wrap

by Robert Brand and Allegra Catelli

US equity futures and European stocks retreated as some of the euphoria around expectations of Federal Reserve interest rate cuts eased, with concerns about tariffs and their impact on inflation and corporate profits back in focus.

The Stoxx Europe 600 index fell about 0.3% after closing just short of an all-time high Friday. Liquidity may be lower than usual, with UK markets closed for a holiday. Danish renewable-energy company Orsted A/S plunged after President Donald Trump’s administration halted construction on an almost-finished offshore wind farm. Dutch coffee firm JDE Peet’s NV soared after a takeover offer.

Futures on the S&P 500 edged lower after the gauge jumped the most since May on Friday in the wake of Fed Chair Jerome Powell’s dovish tilt at Jackson Hole.

Traders see an 84% chance of a Fed rate cut next month after Powell signaled that the central bank may ease before inflation fully returns to target amid a softening hiring environment. That optimism faces key tests this week, including a US inflation reading and Nvidia Corp.’s results.

“The path ahead is not so straightforward,” said Daniel Murray, chief executive officer of EFG Asset Management. “While easier monetary policy is usually welcomed by markets, the context also matters and there remains significant uncertainty regarding the macro and corporate environments.”

 Sentiment had been weak heading into Friday, with the S&P 500 falling for five straight sessions, its longest losing streak since January, as Wall Street pared bets that the Fed was about to reduce borrowing costs. 

Powell’s comments halted those concerns, sending the equity benchmark soaring more than 1.5% to notch a third straight weekly advance, with last month’s record high in sight. A plunge in short-end Treasury rates sent the US yield curve to its steepest since 2021 on Friday.

“The limited move in long-dated yields has led to a steepening in the curve, perhaps for fear that the Fed is prioritizing the jobs market, while letting inflation run hot above the 2% target,” said Matthew Ryan, head of market strategy at Ebury Partners Ltd. “Rising fears surrounding Federal Reserve independence, and President Trump’s influence on monetary policy, are not exactly helping matters.”

A gauge of the dollar was steady after posting its third straight weekly loss.  There will be no cash trading in in US Treasuries in London due to the bank holiday. 

What Bloomberg strategists say:

Currency traders are curbing the enthusiasm that broke out among dollar bears after Jerome Powell’s Jackson Hole speech opened the door for the Fed to cut rates. That underscores the potential that this week’s inflation data and further economic prints before the mid-September FOMC mean it’s far from certain that policymakers will resume easing then.

—Garfield Reynolds, MLIV Team Leader.

Powell, in what was likely his final Jackson Hole speech at the helm of the Fed, detailed the cloudy signals coming from the economy. 

While the effect of tariffs on prices is now visible, there are still questions about whether that will reignite inflation in a more persistent way, he said. 

He called the labor market’s current status — with both falling demand for, and declining supply of workers — “curious.”

“It’s clear that Fed is prioritizing the job weakness concern over inflation and that’s their stance now,” said Jin Yuejue, Hong Kong-based multi-asset solutions investment specialist at JPMorgan Asset Management. Still, the signal from the speech is “quite clear” that the Fed is ready to pivot, she said.

Then there’s Nvidia, which is set to report quarterly earnings on Wednesday after the market close. Traders are hoping it can soothe fears about AI spending and effectively confirm that the stock market’s latest rally isn’t just a technology bubble.

Nvidia’s size — it has the biggest weighting in the S&P 500 at almost 8% — and its position at the center of AI development have made it a bellwether of the broader market. The tech giant’s chips are everywhere, with 40% of its revenue coming from tech giants including Meta Platforms Inc., Microsoft Corp., Alphabet Inc. and Amazon.com Inc.

Some of the main moves in markets: 

Stocks

• The Stoxx Europe 600 fell 0.3% as of 9:10 a.m. London time
• S&P 500 futures fell 0.1%
• Nasdaq 100 futures fell 0.2%
• Futures on the Dow Jones Industrial Average fell 0.2%
• The MSCI Asia Pacific Index rose 1%
• The MSCI Emerging Markets Index rose 1.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.1% to $1.1701
• The Japanese yen fell 0.3% to 147.33 per dollar
• The offshore yuan rose 0.3% to 7.1517 per dollar
• The British pound fell 0.2% to $1.3504

Cryptocurrencies

• Bitcoin fell 1.4% to $111,216.51
• Ether fell 4.4% to $4,577.97

Bonds

• The yield on 10-year Treasuries was little changed at 4.26%
• Germany’s 10-year yield advanced three basis points to 2.75%
• Britain’s 10-year yield declined four basis points to 4.69%

Commodities

• Brent crude rose 0.1% to $67.80 a barrel
• Spot gold fell 0.2% to $3,366.44 an ounce

This story was produced with the assistance of Bloomberg Automation.

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