World Shares Close to Document on Rely All the way down to Fed Minimize: Markets Wrap

(Bloomberg) — A gauge of global stocks traded near its record high Monday as the prospect of Federal Reserve interest rate cuts on the horizon stoked sentiment.

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The MSCI All Country World index climbed for a second session, as benchmarks in Australia and Hong Kong gained. The moves came as Chair Jerome Powell signaled in a Jackson Hole speech that the “time has come” to pivot to monetary easing. The Fed’s dovish tilt also lifted the yen against the dollar, as Asian-domiciled funds added to existing short positions on the greenback. Japanese stocks declined due to the stronger local currency, while contracts for US and European equities slipped.

The positioning for lower US borrowing costs is rippling through financial markets, while the greenback is broadly falling and investors are piling into sovereign debt. The yield on 10-year US Treasuries slipped two basis points to 3.78% on Monday.

“It should be risk-on,” said Chamath De Silva, head of fixed income at Betashares Holdings in Sydney. “Powell has confirmed that we’ll shortly be entering an easing cycle and that the fight against inflation is done, so I expect a bit of an everything rally, stocks and bonds both performing well.”

Haven buying in response to rising tensions in the Middle East was a driver in addition to the Fed wagers. Oil advanced 0.7% as the region braced for escalating conflict after an Israeli strike on Hezbollah targets in southern Lebanon.

The Bloomberg Asia Dollar Index kicked off the week by advancing to its highest since January. The Korean won climbed, while Singapore’s dollar advanced to its strongest in almost a decade as traders weighed the difference between the local monetary authority’s relatively hawkish policy outlook compared with that of the Fed.

Powell’s keenly awaited Jackson Hole speech constitutes a turning point in the Fed’s two-year battle to slow inflation, and means officials are likely to cut the benchmark interest rate from its highest in more than two decades. While the world’s largest economy is showing signs of cooling — warranting a pivot — there’s no sign yet of an outright contraction.

“My view is that the US is heading toward a soft landing” and Asian exports are doing well, said Khoon Goh, head of Asia research at ANZ Group Holdings Ltd. “I think we’re set to see a strong rally, rebound in Asian currencies during this Fed easing cycle.”

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Elsewhere in Asia, the People’s Bank of China left the rate on its one-year policy loans, or the medium-term lending facility, at 2.3%, after a slashing the rate by 20 basis points in July. The PBOC has signaled that it’s de-emphasizing the medium-term lending facility’s role as a policy tool, while elevating the seven-day reverse repurchase rate to greater prominence.

The decision underscores Beijing’s cautious approach in supporting the economy, even as China reported a rare contraction in bank loans amid weak demand. The PBOC has been walking a fine line of stimulating growth and cooling a government-bond buying spree to limit financial risks in recent months.

Authorities in China have also initiated stress tests with financial institutions on their bond investments, to make sure they can handle any market volatility should a record-breaking rally reverse, according to state-run media.

In commodities, iron ore extended a rebound with China’s huge inventories of the material continuing to draw down, in a tentative sign that a period of severe oversupply is starting to ease.

Meanwhile, gold steadied near a record high after Powell affirmed expectations of cuts. The precious metal has surged more than 20% this year in a blistering rally driven by Fed hopes, haven demand due to geopolitical risks, as well as buying from central banks and Asian consumers.

Key events this week:

• US durable goods, Monday

• China industrial profits, Tuesday

• Germany GDP, Tuesday

• Hong Kong trade, Tuesday

• Australia CPI, Wednesday,

• Nvidia Corp. earnings, Wednesday

• US GDP, Initial Jobless Claims Thursday

• US personal income, spending, PCE price data, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 2:55 p.m. Tokyo time

• Nikkei 225 futures (OSE) fell 0.9%

• Japan’s Topix fell 0.9%

• Australia’s S&P/ASX 200 rose 0.6%

• Hong Kong’s Hang Seng rose 0.8%

• The Shanghai Composite fell 0.3%

• Euro Stoxx 50 futures fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro fell 0.1% to $1.1178

• The Japanese yen rose 0.1% to 144.16 per dollar

• The offshore yuan was little changed at 7.1215 per dollar

• The Australian dollar fell 0.3% to $0.6774

• The British pound fell 0.1% to $1.3199

Cryptocurrencies

• Bitcoin fell 0.4% to $64,005.13

• Ether fell 0.9% to $2,746.3

Bonds

• The yield on 10-year Treasuries declined two basis points to 3.78%

• Japan’s 10-year yield declined two basis points to 0.880%

• Australia’s 10-year yield declined six basis points to 3.86%

Commodities

• West Texas Intermediate crude rose 0.7% to $75.35 a barrel

• Spot gold fell 0.1% to $2,509.92 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Georgina McKay.

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