World stock markets hang onto gains as US rate cuts in focus

Global stocks on Friday mostly held onto gains made earlier this week on expectations of a cut to US interest rates.

Wall Street’s S&P 500 and Nasdaq Composite indices struck fresh record highs during morning trading.

Both indices joined the Dow Jones Industrial Average in setting all-time highs on Thursday after US inflation and jobless claims data cemented expectations that the Federal Reserve will trim borrowing costs at its meeting next week.

“Stock markets (are) at record highs on hopes for falling interest rates,” noted Derren Nathan, head of equity research at stockbroker Hargreaves Lansdown.

Markets expect the Fed to cut interest rates by a quarter point next week, and make another two cuts of the same size at its two remaining meetings this year.

Briefing.com analyst Patrick O’Hare said a lack of buying conviction on Wall Street wasn’t notable, but rather the lack of selling conviction despite reaching new all-time highs which could spark concerns about potential overvaluations.

“The market is effectively riding the trend until the price action tells it to jump off that ride,” said O’Hare. “That message hasn’t been delivered yet.”

European stock markets ended flat, while Asia’s main indices made gains.

There were fresh records this week also for the Tokyo and Seoul stock markets, while London on Friday neared a new all-time high, before giving up its gains and ending the day lower.

A drop in the British pound following data showing the UK economy stalled in July had helped support equities for most of the trading session.

Hong Kong led the way among Asia’s top stock markets on Friday, closing up more than one percent thanks to a surge of more than five percent in the share price of Alibaba.

The e-commerce titan’s New York stock had jumped eight percent Thursday, helped by its latest moves in the artificial intelligence sector.

This week saw also more record highs for the price of gold, viewed as a safe haven investment, following escalating tensions over the Israel-Gaza and Russia-Ukraine conflicts.

Russia’s central bank on Friday trimmed its key interest rate to 17 percent as the country risks an economic slowdown.

The Bank of England is next week widely expected to keep its key rate on hold as elevated UK inflation offsets stagnant growth.

The European Central Bank on Thursday held interest rates steady, with eurozone inflation under control and trade tensions having eased, even as France’s political crisis presents policymakers with a fresh challenge.

Oil prices climbed as concerns about additional sanctions targeting Russian crude exports outweighed concerns about excess supply on the market.

Meanwhile, the US dollar rose on Friday, a day after falling on a surge in US jobless claims and modest inflation, as investors expected the Federal Reserve to cut interest rates next week after a roughly nine-month hiatus. The greenback rose 0.3% to 147.66 yen, on track for its largest percentage gain in 10 days, after rising for three straight weeks. The dollar firmed earlier on Friday after a US-Japanese joint statement affirmed exchange rates should be “market determined” and that excess volatility and disorderly moves in exchange rates were undesirable. The dollar index was up 0.1% at 97.69, but stayed on track to post a weekly fall of under 0.1% and its second consecutive weekly decline. John Velis, Americas macro strategist at BNY in New York, said Friday’s rally was more about position-squaring ahead of the weekend.

“The broader picture is still quite negative for the dollar on a variety of measures,” Velis said. “One, of course, is the Fed now beginning to cut rates. The other is, we still see hedging behavior taking place, so foreign investors buying US assets and selling the dollar to hedge it, which is going to keep pressure on the dollar lower.” Data showing U.S. consumer sentiment falling for a second straight month in September weighed slightly on the greenback.

The University of Michigan said on Friday its Consumer Sentiment Index fell to 55.4 this month, the lowest since May, from a final reading of 58.2 in August. Economists polled by Reuters had been expecting a reading of 58.0, little changed from the month before. On Thursday, data showed the biggest weekly increase in four years in the number of Americans filing new applications for jobless benefits. That overshadowed US consumer inflation data for August, which showed prices rising at the fastest pace in seven months but with increases still modest and broadly in line with expectations. While the mixed data might add some wrinkles to the Fed’s policy deliberations next week, investors are mostly focused on rate cut prospects.

Pricing of Fed fund futures indicates that the market believes the Fed is certain to cut its key interest rate by 25 basis points (bps) on September 17. However, traders have reined in bets on a larger 50 bps rate cut next month, with pricing implying a shallower path of easing before the end of the year than anticipated earlier, according to the CME Group’s FedWatch tool.

Agencies