European stocks saw an uptick as traders awaited the final set of US economic data, which could influence the size of the Federal Reserve’s interest-rate cut on Wednesday. Retailers and banking stocks were the primary drivers behind the rise in Europe’s Stoxx 600 index, while other markets remained relatively quiet as the Fed’s decision loomed. Meanwhile, futures for US stocks remained steady, with little movement observed ahead of the crucial announcement.
Investor focus sharpened on US retail data, which was expected to play a key role in shaping expectations for the Federal Reserve’s first rate cut in five years. Markets were split on whether the Fed would opt for a 25 or 50 basis point reduction. Michael Brown, a strategist at Pepperstone Group Ltd., highlighted the significance of the retail sales report, noting that a weaker print could push market participants to fully embrace the idea of a larger 50 basis point cut. He also suggested that even if the data exceeded expectations, it would be difficult to see a sharp reduction in dovish sentiments.
The dollar stabilised after four days of decline, and Treasury yields dipped slightly as investors braced for the Fed meeting’s outcome. In Asia, Japan’s Nikkei 225 index experienced a drop, negatively impacting the broader regional equity index. Concerns over China’s economic slowdown persisted, with disappointing data from the weekend raising the possibility that Chinese authorities might need to increase fiscal and monetary stimulus to meet growth targets. Trading was closed in China, Taiwan, and South Korea due to public holidays.
The yen remained steady, maintaining gains after surpassing 140 per dollar for the first time since July 2023. The Japanese currency had been steadily appreciating as markets anticipated a narrowing of the interest rate differential between the US and Japan, which was contributing to a downturn in Japan’s export-heavy equities. The upcoming Bank of Japan meeting was expected to play a pivotal role in influencing sentiment around Japanese stocks. According to Tony Sycamore, an analyst at IG Australia Pty Ltd., if the Bank of Japan Governor, Ueda, hints at an October rate hike, both the USD/JPY and the Nikkei could come under renewed selling pressure.
Despite market anticipation, all 53 economists surveyed by Bloomberg believed that the Bank of Japan would leave its benchmark rate at 0.25% when the two-day meeting concluded on Friday, following two previous rate hikes earlier in the year.
In commodities, gold hovered near record levels as traders speculated that a weaker dollar and lower Treasury yields following the Fed’s decision would bolster bullion’s appeal. Oil prices also edged upward, continuing a steady climb in response to market conditions.
JPMorgan European Discovery Trust plc (LON:JEDT) is an investment trust company. The Investment Trust JEDT objective is to achieve capital growth from a portfolio of quoted smaller companies in Europe, excluding the United Kingdom.
