A Preview of the Day in European and Global Markets by Wayne Cole
The week started with a day of consolidation in the markets after experiencing their best week of the year, fueled by expectations of a very mild slowdown—or perhaps no slowdown at all—in the U.S. economy. Many analysts predict continued growth of around 2% to 3%.
S&P 500 futures and Nasdaq futures edged up by about 0.2%, while Japan’s Nikkei remained flat after a nearly 9% surge last week. The euro is steady above $1.1000, and the British pound reached a one-month high at $1.2953.
Over the weekend, Federal Reserve members Mary Daly and Austan Goolsbee hinted at the possibility of easing in September. The minutes from the last policy meeting, set to be released on Wednesday, are expected to reinforce this dovish outlook.
Futures markets are fully pricing in a quarter-point rate cut, with a 26% chance of a 50 basis point reduction, depending largely on whether the upcoming U.S. payrolls report meets expectations for a rebound.
Goldman Sachs, however, issued a cautionary note, pointing out that the annual re-analysis of payrolls, due on Wednesday, could reveal a downward revision of 600,000 to 1 million jobs. They argue this could exaggerate the perceived weakness in the labor market.
Fed Chair Jerome Powell will close out the week with his speech at the Jackson Hole conference on Friday, with markets already priced for a dovish outlook—though not one that would support a half-point rate cut.
Markets are also fully expecting a rate cut from the Riksbank on Tuesday, with the only question being whether it will be by 25 or 50 basis points.
Japan’s upcoming consumer price report could reignite discussions about a potential rate hike from the Bank of Japan, a possibility that had all but faded following the recent dip in the Nikkei.
Currently, markets are pricing in just 2 basis points of tightening by the Bank of Japan for October, though some analysts are still predicting a 25 basis point increase, bringing the rate to 0.5%.
In U.S. politics, the Democratic convention kicks off on Monday, with betting site PredictIt showing Vice President Kamala Harris leading at 58 cents compared to 45 cents for Donald Trump—a complete reversal from earlier figures when President Joe Biden was still in the race.
Key developments to watch on Monday:
- The Riksbank begins its two-day monetary policy meeting.
- Finland’s central bank governor and ECB governing council member Olli Rehn will speak in New York.
- Federal Reserve Board Governor Christopher Waller will deliver a speech.
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