By Ankur Banerjee
SINGAPORE (Reuters) -Stocks were muted, the dollar steadied near five-week lows and gold climbed to record highs on Tuesday, as investors awaited economic data this week that could reinforce expectations for a Federal Reserve rate cut in September.
Markets widely expect the Fed to lower interest rates later this month, pricing in an 89% chance of a 25 basis point cut, but data this week will help investors gauge whether the central bank could perhaps lean toward a jumbo cut.
The focus will be on Friday’s U.S. nonfarm payrolls report, which will be preceded by data on job openings and private payrolls, providing investors and the Fed a clearer picture of the labour market that has become the centre of policy debate.
“While an outsized 50 bps cut in September is not the base case expectation currently, it cannot be ruled out altogether if the August jobs data shows exceptional weakness,” said Vasu Menon, managing director of investment strategy at OCBC Bank.
The U.S. inflation report for August, scheduled to be released on September 11, a week before the Fed’s policy meeting, will play a crucial role in determining the central bank’s next steps.
The prospect of lower borrowing costs has kept Wall Street near record highs, while stocks in other regions have also gained in recent weeks. On Tuesday, MSCI’s broadest index of Asia-Pacific shares outside Japan was flat.
Nasdaq futures fell 0.1% while European futures eased 0.07%. U.S. markets were closed on Monday for a holiday leaving few cues for Asian markets.
“It is all about gauging whether the Fed remains ahead of a possible slowdown in the U.S. economy, or if it’s behind the curve,” said Kyle Rodda, a senior financial market analyst at Capital.com in Melbourne.
“If it seems like the U.S. economy is accelerating off the cliff, it’s going to raise fears that the Fed has been too slow to cut rates. If the deterioration is modest, it will support the case for rate cuts while also easing fears of a rapid deterioration in economic activity.”
China stocks have been on a tear recently buoyed by AI enthusiasm but fell on Tuesday as investors locked in profits following the sharp rally.
The blue-chip CSI300 index fell 0.9% after hitting a three-year high for the third straight session earlier on Tuesday. Hong Kong’s Hang Seng index eased 0.6% after surging 2% on Monday.
In currencies, the dollar clawed back some of its losses ahead of the European open. The euro fell 0.16% at $1.16925, while sterling was at $1.35264, down 0.17%.
The yen weakened 0.3% to 147.70 per dollar after Bank of Japan Deputy Governor Ryozo Himino said the central bank should keep raising interest rates but warned that global economic uncertainty remains high, suggesting it was in no rush to push up still-low borrowing costs.
The dollar index, which measures the U.S. currency against six others, was 0.2% higher at 97.847, but still near the five-week low it hit on Monday. The yield on benchmark U.S. 10-year notes was 2.4 basis points higher at 4.249%.
FED INDEPENDENCE
Efforts by President Donald Trump to fire Fed Governor Lisa Cook have raised the prospect that Trump could make more dovish appointments to the U.S. central bank that would result in easier policy. Cook is set to file fresh arguments against her firing on Tuesday.
Trump has criticised the Fed and its chair, Jerome Powell, for months for not lowering rates, and recently took aim at Powell over a costly renovation of the central bank’s Washington headquarters.
U.S. Treasury Secretary Scott Bessent said on Monday the Fed is and should be independent but said it had “made a lot of mistakes”.
In commodity markets, gold gained from the dollar’s softness and the outlook for lower U.S. rates. The metal rose to a record high of $3,508.5. [GOL/]
Oil prices rose on Tuesday as concerns about supply disruptions grew amid an escalation of the conflict between Russia and Ukraine. Brent crude rose 0.4% to $68.44 a barrel, while U.S. West Texas Intermediate crude was up 1.42% at $64.92 a barrel. [O/R]
(Reporting by Ankur Banerjee in Singapore; Editing by Jacqueline Wong)
