World stocks have edged up and the dollar has slid after global equities enjoyed their best week in nine months on expectations the US economy will dodge a recession and cooling inflation will kick off a cycle of interest rate cuts.
The prospect of lower borrowing costs saw gold hover near historic highs and the dollar dip against the euro, while the yen made a sudden lunge higher that weighed on the Nikkei.
MSCI’s broadest index of world stocks edged up 0.2 per cent on Monday.
The Nikkei index .N225 closed 1.77 per cent lower at 37,388.62, snapping a five-day winning run that pushed it up 8.7 per cent last week.
Chinese blue chips firmed 0.4 per cent.
A preliminary takeover offer from Canada’s Alimentation Couche-Tard sent the 7-Eleven convenience store chain Seven & I holdings surging 23 per cent to a daily limit high, though no decision to accept the offer has been taken.
In the US, Federal Reserve members Mary Daly and Austan Goolsbee were out over the weekend to flag the possibility of easing in September, while minutes of the last policy meeting due this week should underline the dovish outlook.
Fed chair Jerome Powell speaks in Jackson Hole on Friday and investors assume he will acknowledge the case for a cut.
“Everything points to this Friday. We’ll be looking for any indication that rate cuts might be on the way. The next question is, how big will those rate cuts be?” said Paul O’Neill, chief investment officer of wealth management firm, Bentley Reid.
Futures are fully priced for a quarter-point move, and imply a 25 per cent chance of 50 basis points, with much depending on what the next payrolls report shows.
Analysts at Goldman Sachs downshifted their US recession expectations to a 20 per cent chance and could push them lower if the August jobs report due in September “looks reasonably good”, a note said on Friday.
Before the busy week, broad European shares opened flat on Monday while the blue-chip FTSE 100 index fell 0.3 per cent and Germany’s ticked down 0.2 per cent.
Aerospace and defence stocks inched 1.3 per cent lower, tracking losses in European defence stocks following reports the German federal government would reject new military aid requests for Ukraine due to spending cuts.
Investors are anticipating flash Purchasing Managers’ Index data for France, Germany, Britain, and the Eurozone later this week.
US futures remained flat.
The Fed is hardly alone in contemplating looser policy, with Sweden’s central bank expected to cut rates this week, and possibly by an outsized 50 basis points.
In currency markets, the dollar lapsed 1.0 per cent to 146.12 yen while the euro firmed to $US1.1040, just below last week’s peak of $US1.1047.
A softer dollar combined with lower bond yields helped gold hold about $US2,503 an ounce, and near a record peak of $US2,509.
Oil prices dipped again as concerns about Chinese demand continued to weigh on sentiment.
Brent fell about 60 cents to $US79.08 a barrel, while US crude lost 70 cents to $US75.95 a barrel.