By Chuck Mikolajczak
NEW YORK (Reuters) -Global stocks advanced for a second session on Monday as growing expectations for a December rate cut from the U.S. Federal Reserve helped to alleviate recent concerns about stretched valuations in the AI sector while longer-dated U.S. Treasury yields eased.
Stocks stumbled last week to their largest weekly percentage drop since early August on market pessimism over the chances of a cut to interest rates, the economic impact of the extended U.S. government shutdown and lingering concerns over high valuations for AI-related companies.
But equities rallied at the end of the trading week after New York Fed President John Williams said interest rates can fall in the near term even as other policymakers insisted borrowing costs should remain steady for now.
Williams’ comments were echoed on Monday by Fed Governor Christopher Waller, who said that available data indicates that the U.S. job market remains weak enough to warrant another quarter-point cut to interest rates.
“The dominant theme for now remains uncertainty. We’re going to remain in a choppy market until December 10, when we get the Fed’s decision and the commentary that goes around it,” said Lilian Chovin, head of asset allocation at Coutts.
Markets are pricing in a 78.9% chance of a cut of 25 basis points at the December meeting, according to CME’s FedWatch Tool, up from 42.4% a week ago.
On Wall Street, U.S. stocks rallied in early trading, led by gains in the communication services sector as Google parent Alphabet jumped more than 5%.
The Dow Jones Industrial Average rose by 147.39 points, or 0.32%, to 46,394.72 while the S&P 500 gained 64.62 points, or 0.97%, to 6,667.61 and the Nasdaq Composite advanced by 393.85 points, or 1.73%, to 22,657.20.
European equities were also higher on interest rate expectations while investors were also encouraged by signs of progress toward a peace deal between Ukraine and Russia.
MSCI’s gauge of stocks across the globe rose by 7.89 points, or 0.81%, to 978.65 and was on track for the biggest daily percentage gain since November 10. The pan-European STOXX 600 index, meanwhile, was 0.42% up after gaining as much as 0.7%.
U.S. retail sales and producer prices data will also be in focus this week as the release of government data resumes after the end of the extended government shutdown. In Britain, British finance minister Rachel Reeves’ eagerly awaited budget is due on Wednesday.
The U.S. and Ukraine were continuing work on a plan to end the war with Russia after agreeing to modify an earlier proposal that was viewed by Kyiv and its European allies as too favourable to Moscow. That weighed on oil prices because a deal could release more Russian oil supply through an easing of sanctions.
Longer-dated U.S. Treasury yields were lower on the interest rate expectations. The yield on benchmark U.S. 10-year notes fell 0.9 basis point to 4.054%.
In currencies, the dollar index, which measures the dollar against a basket of currencies, fell 0.01% to 100.23, with the euro up 0.09% at $1.1521. Sterling weakened by 0.06% to $1.3086.
Markets were also watching for signs of possible Japanese intervention in the yen, which weakened by 0.48% against the dollar to 157.11 per dollar. The Japanese currency is down 1.9% against the dollar this month.
Takuji Aida, an adviser to Prime Minister Sanae Takaichi, said on Sunday that Japan can actively intervene in the currency market to mitigate the negative economic impact of a weak yen.
(Reporting by Chuck MikolajczakAdditional reporting by Johann M Cherian, Pranav Kashyap and Shashwat Chauhan in Bengaluru, Amanda Cooper in London and Rae Wee in SingaporeEditing by Alex Richardson and David Goodman)
