On Thursday, stocks declined and the dollar strengthened following the release of Federal Reserve minutes indicating that US interest rate cuts were imminent, despite a drop in US business activity to a four-month low. The Dow Jones Industrial Average dropped by 0.45 percent to 40,707, the S&P 500 fell 0.63 percent to 5,585, and the Nasdaq Composite lost 1.13 percent to 17,716. The Fed minutes, disclosed on Wednesday, indicated that most policymakers believed a rate cut in September would be suitable if economic data met expectations, confirming market predictions.
New data on Thursday revealed an increase in the number of Americans filing for unemployment benefits, although the rate remained consistent with a gradual slowdown in the labor market. US business activity also hit a four-month low in August, with companies continuing to face difficulties in passing on higher costs to consumers, suggesting that inflation will likely continue its downward trend in the coming months. Steve Englander, a markets strategist at Standard Chartered Bank, noted that the Fed minutes suggest the bank is nearing its inflation target and that unemployment is rising, making a 50 bps rate cut a possibility.
Global stocks, which had experienced a strong rebound from earlier lows due to market volatility, fell about 0.3 percent. European shares rose 0.36 percent, supported by retail stocks, following a quiet trading session in Asia. They extended their gains after euro zone data showed unexpected strength in business activity this month. Earlier, MSCI’s Asia-Pacific index excluding Japan gained 0.3 percent. Oil prices recovered after five consecutive days of declines, with US crude rising 1.86 percent to $73.27 a barrel and Brent increasing to $77.44 a barrel, up 1.83 percent.
Euro zone bond yields increased after data indicated that the services sector performed better than anticipated in August, despite easing wage pressures. The dollar rebounded from a 13-month low against the euro ahead of Federal Reserve Chair Jerome Powell’s speech on Friday, as recent weakness in the greenback was viewed as overdone compared to other currencies. The dollar index gained about 0.4 percent. Lower US rates would provide central banks worldwide with flexibility to adjust their policies. The Bank of Korea hinted at a potential cut in October, while Bank Indonesia is preparing for cuts in the fourth quarter.
Interest rate futures markets fully anticipate a 25-basis-point cut from the Fed next month, with a one-third chance of a 50-bp cut. They forecast around 220 bps of US easing by the end of 2025, to a rate of 3.145 percent, compared to around 160 bps for Europe, at a rate of 2.06 percent. On Thursday, the yield on benchmark US 10-year notes increased by 8 basis points to 3.856 percent, and the 2-year note yield rose 7.7 basis points to 3.9993 percent. The euro, which has seen significant gains this month, fell about 0.4 percent. In Britain, the pound initially hit a new 13-month high against the dollar and strengthened versus the euro following data showing steady growth momentum in British business activity. Gold prices dropped more than 1 percent, influenced by a rebound in the dollar and higher Treasury yields.
