US, European stocks bounce as traders await Fed speech ~ EconomyLens.com

Paris (AFP) – US and European stock markets rebounded Wednesday, but Asia slipped as investors waited for a speech by US Federal Reserve chief Jerome Powell at the end of the week. Traders are hoping Powell will give more hints about a widely expected Fed interest-rate cut when he addresses an annual gathering of central bank chiefs in Jackson Hole, Wyoming, on Friday.

US stocks climbed at the open, after all main indexes fell a day earlier, breaking an eight-day advance. Wall Street was boosted by good results from big-box retailer Target, which soared 15 percent after reporting higher store sales after a string of declines. Other retailers reporting Wednesday included TJ Maxx parent TJX, which jumped 5.9 percent. The London, Paris, and Frankfurt stock markets all closed up, after major Asian indexes closed in the red.

“In the absence of major data, I believe that the rebound is backed by optimism into the Jackson Hole meeting and the prospects of Fed rate cuts,” Swissquote Bank analyst Ipek Ozkardeskaya told AFP. Markets had retreated earlier this month after weak US data raised fears of recession in the world’s biggest economy. However, they recovered as more recent indicators showed healthy retail sales and easing inflation, backing the view that the Fed is on course to guide the economy to a “soft landing” and avoid a recession.

Traders were also poring over revised US payroll data out Wednesday, which suggested job growth was probably far less robust in the year to March than previously reported. The data was being particularly scrutinized by markets for any signs that the labour market may be cooling faster than expected and could give indications about what the Fed might do. The Fed is scheduled to release minutes from its most recent policy meeting.

Analysts expect the Fed to cut rates — which have been raised to a 23-year high to combat inflation — at its next meeting in September. The question is whether it will reduce them by 0.25 percentage points or more. “After a wild ride in the last three weeks that had little basis in fundamentals, markets have settled on predicting a first 25 bp (basis point) Fed rate cut at its 18 September meeting,” said Holger Schmieding, chief economist at Berenberg bank.

However, Stephen Innes, managing partner from SPI Asset Management, warned that “it wouldn’t take much more than a bump in the unemployment rate to shove the market right back into 50bps territory.” Other central banks, including the European Central Bank and Bank of England, have already started to reduce borrowing costs.

The dollar steadied against the pound and euro on Tuesday after sinking recently due to the prospect of lower interest rates, which make the greenback less attractive to investors in assets such as bonds. Gold prices fell to $2,508 after breaking to a record high above $2,530 on Tuesday on Fed rate cut bets that would make the metal more attractive to investors. Oil prices steadied after a series of declines, as efforts continue for a ceasefire between Israel and Hamas to avert a broader war in the Middle East.