By Lawrence Delevingne
(Reuters) -Stocks fell and the dollar gained on Thursday as traders digested new economic data and waited on Friday for confirmation from the U.S. Federal Reserve that it will soon start cutting interest rates.
All three major US stock indexes lost ground, under pressure from technology stocks. They fell 0.43% to 40,712, lost 0.89% to 5,570 and lost 1.67% to 17,619.
The minutes of the Fed meeting, released on Wednesday, said the “vast majority” of policymakers believed that if the data came in as expected, a September rate cut would likely be appropriate, confirming market expectations.
On Thursday, new data showed that the number of Americans filing new claims for unemployment benefits rose over the past week, in line with a gradual cooling of the labor market.
A slowdown in overall U.S. business activity this month added to evidence that the economy is slowing and inflation is retreating, which should allow Fed officials to pay more attention to employment. Interest rates on home loans have already started to fall, contributing to a bigger-than-expected recovery in existing home sales last month.
Steve Englander, market strategist for Standard Chartered (OTC:) Bank, said the minutes show the Fed is within sight of its inflation target and unemployment is rising, putting a 50 basis point rate cut “on the table.”
“If they don’t announce they’ve won on inflation, they’re saying they expect to win relatively quickly,” Englander wrote in an email Thursday.
Global stock prices fell by around 0.6% after a phenomenal recovery from early months lows following a period of volatility.
European shares rose 0.35%, helped by retail and healthcare stocks, after a subdued trading session in Asia. They added to initial gains after euro zone data showed a surprising strength in business activity this month.
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.3%.
Oil prices recovered after losses caused by investors worried about global demand prospects. and both gained about 1.4% that day. [O/R]
Euro zone bond yields were higher after survey data showed the bloc’s services sector did better than expected in August, although a separate measure of wage pressures eased.
DOLLAR REBOND
The dollar recovered from a 13-month low against the euro before Federal Reserve Chairman Jerome Powell was scheduled to speak on Friday. The dollar’s recent weakness was seen as exaggerated. The , gained about 0.4%.
Lower US interest rates would give central banks around the world room to move. On Thursday, the Bank of Korea opened the door to a cut in October, while Bank Indonesia has lined up cuts for the fourth quarter.
Still, the interest rate and currency markets believe that an easing cycle in the US will have a longer duration than in other countries.
Interest rate futures markets have priced in a 25 basis point cut from the Fed next month, with a chance of a 50 basis point cut. They expect an easing of around 213 basis points in the US by the end of 2025, to a rate of almost 3.2%, compared to around 157 basis points for Europe, a figure of 2.09%.
U.S. Treasury yields recovered from two-week lows in the previous session, in line with gains in the European bond market. The yield on 10-year benchmark bonds rose 8.6 basis points to 3.862%, from 3.776% late Wednesday. Yields rose 9.4 basis points to 4.0161% from 3.922% late on Wednesday.
The euro, which has made strong gains this month, fell about 0.4%.
In Britain, the pound initially rose to a new 13-month high against the dollar and also strengthened against the euro after UK business activity data showed steady growth momentum in the second half of 2024. The pound was little changed recently at $1.3086. [GBP/]
The gold price fell by more than 1%, pressured by a recovery of the dollar and higher government bond yields.
