The dollar weakened and bonds rose as traders prepared for the Federal Reserve to reduce interest rates, with opinion divided on how big this week’s cut will be.
Bloomberg’s dollar index slipped to the lowest in more than eight months, while expectations of a narrowing rate differential between the US and Japan propelled the yen to its highest level since July 2023. Treasuries extended their gains, with the yield on the policy-sensitive two-year note falling to the lowest since September 2022.
Stocks kicked off a crucial few days with muted moves, as Europe’s benchmark Stoxx 600 index and US equity futures kept to narrow ranges. There was little reaction in markets to news of a second assassination attempt on former President Donald Trump.
The start of a long-anticipated US easing cycle takes center stage this week, part of a 36-hour monetary roller coaster that includes policy decisions in Brazil, South Africa the UK and Japan. It’s come down to a virtual coin toss for traders on whether the Fed will go for a 25 or 50 basis-point cut.
“There has rarely been so much uncertainty over central bank intentions,” analysts at Edmond de Rothschild wrote in a note. “They are caught between signs of economic weakness and inflation which is stubbornly resisting a return to the 2% target.”
For Joyce Chang, chair of global research at JPMorgan, the Fed has scope to make the bigger move and doing more now would probably send the right signal.
“We are still sticking with a 50 basis-point call, but it is a debate, internally and within the broader market,” Chang said on Bloomberg TV. “When I talk to investors, 25 versus 50 isn’t so much the debate, but really how does the US growth story look.”
The Bank of Japan, meanwhile, is expected to keep rates on hold after roiling global financial markets with an increase at its last meeting.
“The communication from the BOJ will be critical to let market participants know exactly, as clear as they can be, what the next move and the particular timings of the next moves will be,” Katrina Ell, director of economic research Moody’s Analytics, told Bloomberg Television.
Trump is safe after his Secret Service detail opened fire at a man who was wielding an assault rifle at his West Palm Beach, Florida, golf course Sunday, in what the Federal Bureau of Investigation called an apparent assassination attempt.
According to law enforcement officials, Secret Service officers clearing the golf course ahead of Trump spotted a man in the woods with a gun. The suspect — later identified as 58-year-old Ryan Routh, according to federal officials who requested anonymity to discuss an ongoing investigation — fled in a black car but was later detained after a chase.
In Asia, a string of poor Chinese data left traders wondering if authorities would initiate forceful stimulus to buttress the economy. Factory output, consumption and investment all slowed more than forecast for August, while the jobless rate unexpectedly hit a six-month high.
“The recent Chinese economic data paints a grim picture,” said Manish Bhargava, chief executive officer at Straits Investment Management. “While an aggressive stimulus from the PBOC could offer a short-term lift, past measures have been incremental, raising doubts about the potential scale and effectiveness of future interventions.”
Markets in Japan, South Korea and mainland China were closed for a holiday.
In commodities, gold rose to a record high as markets waited for the Fed easing. Elsewhere, oil steadied after its first weekly gain in a month as a drop in Libyan exports was offset by China’s economic woes.
Key events this week:
Some of the main moves in markets:
This story was produced with the assistance of Bloomberg Automation.
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