(Bloomberg) — European stocks and U.S. equity futures rose as traders awaited final economic data for clues on the size of the Federal Reserve’s interest rate cut Wednesday.
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Retailers led gains in Europe’s Stoxx 600, while Nasdaq 100 contracts rose, signaling a rebound after Monday’s rotation out of Wall Street’s tech megacaps. Intel Corp rallied 8.1% in premarket after the chipmaker won new business from Amazon.com Inc. Dollar steady after four days of decline and Treasury yield edged down.
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On the eve of the Fed’s first rate cut in more than four years, investors’ attention will come to the US retail figures due later. Opinion in the market is divided between expectations that the Fed will reduce 25 basis points, or 50.
“The August US retail sales report is, perhaps, the most important of today’s releases, as the soft print will see participants go ‘all-in’ on the idea of ​​a jumbo Fed cut of 50 basis points tomorrow,” wrote Michael Brown, strategist at Pepperstone Group Ltd., in a note. “Although it is difficult to imagine an equally aggressive dovish bet is the data to beat expectations.”
Former Federal Reserve Bank of New York President Bill Dudley is among those expecting a move of 50 basis points. “Monetary policy is tight, when it should be neutral or even easy,” he wrote in a Bloomberg column. “And the larger move now makes it easier for the Fed to align its projections with market expectations, rather than deliver unpleasant surprises that are not warranted by the economic outlook.”
For Jacques Henry, head of cross-asset research at Silex in Geneva, the big reduction is a “double-edged sword,” as it could suggest the Fed is worried the US economy is moving faster than expected.
A quarter-point cut in expectations carries the risk of short-term disappointment for equity markets. “There may be shortages in sectors such as real estate and technology,” Henry said.
Meanwhile, optimism about Fed interest rate cuts has boosted investor sentiment for the first time since June, according to a global survey by Bank of America Corp. Fund managers see a 79% chance of a soft landing as rate cuts support the economy.
Still, investors are “nervous bulls,” with risk appetite at an 11-month low, said BofA strategist Michael Hartnett. The poll also showed a large rotation into bond-sensitive sectors such as utilities from those that typically benefit from a strong economy.
In commodities, gold held close to record levels on Tuesday, with traders betting bullion would benefit from a weaker dollar and lower Treasury yields following the Fed’s decision. Higher edged oil.
This week’s highlights:
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German ZEW, Tuesday
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US business inventories, industrial production, retail sales, Tuesday
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Eurozone CPI, Wednesday
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Fed rate decision on Wednesday
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UK rate decision, there
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USA Conf. Key housing indexes, initial jobless claims, existing home sales in the US on Thursday
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FedEx earnings, Friday
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Japan rate decision, there
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Euro-zone consumer confidence, there
Some of the main movements in the market:
Savings
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The Stoxx Europe 600 rose 0.5% at 9:53 am London time
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S&P 500 futures rose 0.2%
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Nasdaq 100 futures rose 0.4%
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Futures on the Dow Jones Industrial Average rose 0.1%
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The MSCI Asia Pacific index was little changed
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MSCI Emerging Markets index up 0.5%
currency
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.1142
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The Japanese yen was little changed at 140.54 per dollar
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The offshore yuan was little changed at 7.0949 per dollar
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The British pound was little changed at $1.3224
Cryptocurrencies
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Bitcoin rose 1.9% to $58,764.11
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Ether rose 1.6% to $2,309.72
Bond
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The yield on 10-year Treasuries was little changed at 3.61%
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Germany’s 10-year yield fell one basis point to 2.11%
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UK 10-year yield down two basis points to 3.74%
Commodity
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Brent crude was little changed
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Spot gold fell 0.2% to $2,577.99 an ounce
This story was produced with the help of Bloomberg Automation.
–With help from Jason Scott, Masaki Kondo, Aya Wagatsuma, Julien Ponthus and Margaryta Kirakosian.
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