By Rae Wee and Amanda Cooper
SINGAPORE/LONDON (Reuters) -Global stocks began an event-filled week on a strong footing on Monday, as investors took heart from growing expectations of a Federal Reserve rate cut in December even as policymakers remain divided over such a move.
Markets are gearing up for potential catalysts, including the release of U.S. retail sales and producer prices data due later in the week, while British finance minister Rachel Reeves is set to unveil her highly anticipated budget on Wednesday.
Geopolitical developments are also in focus. The U.S. and Ukraine are continuing work on a plan to end the war with Russia after agreeing to modify an earlier proposal that was seen by Kyiv and its European allies as too favourable to Moscow.
That weighed on oil prices as a deal could theoretically release more Russian supply through an easing of sanctions.
EUROPEAN STOCKS CATCH UP
Stocks in Europe rallied in early trading, playing catch-up with the late bounce on Wall Street on Friday, following days of turbulence driven in part by worries over lofty tech valuations.
The STOXX 600, which ended last week with a loss of 2.2%, was up 0.5%.
Shares in defence companies slid, but their decline was offset by gains in tech, drugmakers and banks.
Nasdaq futures and S&P 500 futures rose 0.8% and 0.55% respectively, while overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1%.
The latest gains came after influential Fed policymaker John Williams said on Friday that interest rates could fall “in the near term”, raising the possibility of another cut in December.
“We expect another Fed cut in December, followed by two more moves in March and June 2026 that take the funds rate to 3-3.25%,” said Goldman Sachs chief economist Jan Hatzius in a note.
“The risks for next year are tilted toward more cuts, as the news on underlying inflation has been favourable and the deterioration in the job market … might be difficult to contain via the modest cyclical growth acceleration we expect.”
Fed funds futures now point to a roughly 60% chance that the Fed will cut by 25 basis points next month.
DATA FOG PERSISTS
A record U.S. government shutdown that ended earlier this month has muddied the outlook for U.S. rates, as policymakers grapple with gaps in data that would normally guide their view of the world’s largest economy.
The U.S. Bureau of Labor Statistics said on Friday it had cancelled the release of October’s consumer price report because the shutdown had prevented the collection of data.
Generali Investments senior economist Paolo Zanghieri said he and his team believed the market was pricing in more rate cuts than the Fed might deliver.
“We see the chance of a cut next month as 50/50. Given limited new data, it would be reasonable for the Fed to wait until January, while signalling an easing bias,” he said.
“More importantly, market expectations for nearly four cuts next year, based on hopes for rapid disinflation, appear too optimistic. We expect only 50 basis points of easing by summer,” he added.
ON ALERT FOR YEN INTERVENTION
The main focus in the currency market was on the yen, which was pinned near a 10-month low, as the dollar gained another 0.3% to trade at 156.86 yen. In November so far, the Japanese currency has lost around 1.8% in value, making it the worst-performing major currency against the dollar this month.
Traders have been alert to the risk of intervention from Japanese authorities to prop up the yen, which has come under pressure from growing worries about the nation’s fiscal health and low domestic rates.
Finance Minister Satsuki Katayama ramped up her verbal efforts to support the currency last week, which seems to have put a floor under the currency for now.
“Dollar/yen will definitely be going upwards even if you try to intervene. So I think they will have to live with this. The only way for them to do it is intervention to stop the pace maybe, but I don’t think they can stop the direction,” said Saktiandi Supaat, regional head of FX research and strategy for global markets at Maybank.
The dollar was weaker against most other currencies, given the rising expectations for the Fed to cut rates next month, with the euro up 0.16% to $1.15295. The pound was flat at $1.3098 ahead of Wednesday’s budget announcement.
In commodities, Brent crude futures fell 0.5% to $62.27 a barrel, while spot gold was steady at $4,064 an ounce. [GOL/]
(Reporting by Rae Wee; Editing by Shri Navaratnam, Lincoln Feast and Gareth Jones)
