LONDON/SYDNEY — Expectations of a resumption soon in US interest rate cuts bolstered world stocks on Monday, with shares in Asia rising to multi-year highs.
However, European shares retreated as some of the enthusiasm following US Federal Reserve chief Jerome Powell’s Jackson Hole speech faded and investors refocused on the broader economic picture.
London markets were closed for a holiday, thinning overall trading volumes in Europe.
Powell’s dovish change of course has prompted futures to price in an 84 percent chance of a quarter-point rate cut in September, and at least 100 basis points of easing to 3.25-3.5 percent by the middle of next year.
“As an investor, you lose an enemy whenever the Federal Reserve pivots because it gives valuations room to become ever more expensive,” said Florian Ielpo, Lombard Odier Investment Managers’ head of multi-assets.
MSCI’s broadest index of world shares rose 0.1 percent and held near Friday’s record highs, while in Asia Chinese blue chips closed over 2 percent to its highest level since 2022 , while Japan’s Nikkei shut 0.4 percent higher.
The dollar ticked higher, flattering the outlook for corporate earnings, although increased rate-cut bets also imply policymakers now see more danger of a downturn in employment and the economy.
Euro zone bond yields rose, reversing their fall from late Friday as traders reassessed that Fed-driven move and its impact on Europe.
US cash treasuries did not trade in London on Monday due to the bank holiday.
Looking at inventory data for manufacturers, wholesalers and retailers, Lombard Odier’s Ielpo said that, while manufacturers had stocked up amid tariff announcements, further down the economic food chain, retailers held little inventory.
Companies returning to replenish items from now will discover the true costs of US tariffs, which will likely turn up in third quarter results, said Ielpo.
Market euphoria will also be tested by a reading on US personal consumption prices on Friday that is expected to show core inflation creeping up to its highest since late 2023 at 2.9 percent.
