Market Analysis

Global stocks steadied on Tuesday, with the dollar hovering near a two-week high, as investors adopted a cautious stance ahead of a series of key economic data releases that could influence the scale of U.S. interest rate cuts.

The spotlight was on the U.S. ISM manufacturing activity survey, scheduled for later in the day, which will set the tone ahead of Friday’s crucial jobs report. These reports are expected to play a significant role in determining whether the Federal Reserve will cut interest rates by 25 basis points or 50 basis points on September 18, and how much further easing could follow for the rest of the year.

Global equity markets remained steady, slightly below record highs, while futures for U.S. stocks declined by 0.1-0.3%. In Europe, the STOXX 600 was also steady. Meanwhile, the yield on the 10-year U.S. Treasury note fell by one basis point to 3.90% as trading resumed in Asia following a U.S. holiday.

Economists anticipate the ISM survey to show improvement but still indicate contraction, with a forecast of 47.5 for August.

"We believe any market reaction to surprises will likely be muted today due to the upcoming event risks," said Evelyne Gomez-Liechti, a rates strategist at Mizuho in London.

On Friday, analysts expect U.S. non-farm payrolls (NFP) to rise by 160,000, with the unemployment rate expected to dip to 4.2%.

July’s jobs data, which revealed the unemployment rate rising to a nearly three-year high of 4.3% amid a significant slowdown in hiring, had previously jolted global markets. This data, coupled with the unwinding of yen carry trades, led to increased expectations of Fed rate cuts, with traders now pricing in about 100 basis points of cuts this year across three meetings, including a potential 50-basis-point cut at one of them.

However, some investors argue that this outlook might be overly pessimistic given the relatively robust state of the U.S. economy.

While stock markets have bounced back from their early August selloff, bond markets have maintained their gains, presenting a mixed picture for investors.

"The outcome largely hinges on Friday’s employment figures," said Raisah Rasid, a global market strategist at J.P. Morgan Asset Management in Singapore, noting that policymakers are seeking signs of a cooling labor market to justify further rate cuts.

"We don’t anticipate any significant distress that would warrant a 50-basis-point cut ... the question is how long risk assets can sustain their rally," Rasid added.

The dollar remained near its two-week high against a basket of currencies on Tuesday. The euro declined by 0.2% against the dollar but stayed above the two-week low it reached on Monday.

"If the NFP figures meet or come close to expectations, it’s likely to solidify a 25-basis-point rate cut, which could further support the dollar," said Nick Twidale, chief market analyst at ATFX Global in Sydney.

Meanwhile, Japan’s yen gained 0.8% against the U.S. dollar, reaching 145.735. The yen broke a four-day losing streak, buoyed by media reports that cited the Bank of Japan governor reiterating the central bank's commitment to raising interest rates if the economy and inflation perform as expected.

Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped by 0.5% due to declining profits in China’s banking sector, while Japan’s Nikkei dropped 0.3%.

Brent crude futures fell for the third consecutive session, down 0.9% to $76.84 a barrel. Oil prices, which had surged above $81 in late August due to political tensions in Libya halting exports, have struggled to gain momentum amid ongoing concerns about demand.

Gold edged higher, trading around $2,505 an ounce after reaching a record high of $2,531 in August.

Paraphrasing text from "Investing" all rights reserved by the original author.