U.S. markets surged on Monday, snapping a four-day losing streak as investors braced for key inflation data and potential central bank action.
The S&P 500 and Dow Jones both bounced back after their sharpest weekly losses since early 2022, each rising more than 1%.
Meanwhile, the Nasdaq rebounded from its steepest weekly decline since January of last year.
The dollar also firmed up, driven by anticipation of Wednesday’s Consumer Price Index (CPI) report, a critical indicator for inflation trends.
Investors are eager for signs of easing inflation, expecting a rate cut from the Federal Reserve soon.
Two things are happening, said Greg Bassuk, CEO of AXS Investments. Investors are putting cash back to work after last week’s over-selling, and secondly, everyone is bullish on a Fed rate cut.
Bassuk added that last week’s over-selling created an opportunity for investors to return to the market, confident that the Fed might shift toward a more accommodating stance.
The Fed’s next policy meeting looms large, with markets pricing in a 71% chance of a modest 25 basis point rate cut, according to the CME’s FedWatch tool.
This follows mixed economic data from last week, including a tepid August jobs report, which dampened expectations for a more aggressive 50 basis point cut.
European stocks mirrored Wall Street’s recovery, with the STOXX 600 rebounding from last week’s downturn.
Investors are also eyeing a possible rate cut from the European Central Bank, signaling a broader shift in global monetary policy.
Last week there was a lot of weak economic data in the U.S. and globally, and it had investors skittish over recessionary fears, Bassuk said.
But with dip-buying and greater confidence that many central banks are going to be moving from hawkish to dovish policy, there’s more optimism that the central banks can avoid a global recession.
On the commodities front, oil prices rose on the back of supply concerns as a hurricane approached Louisiana. U.S. crude gained 1.54%, closing at $68.71 per barrel, while Brent climbed 1.10% to $71.84.
Gold held steady as investors awaited inflation data, with spot gold edging up 0.4% to $2,505.75 an ounce.
Meanwhile, U.S. Treasury yields fluctuated as traders remained uncertain about the Fed’s next move, with the 10-year note yielding 3.71%.
Globally, emerging markets struggled, with MSCI’s index of Asia-Pacific shares outside Japan dipping by 1.13%, while Japan’s Nikkei slid by 0.48%.
Despite these losses, there is hope that the upcoming data and central bank decisions could stabilize markets and spark further recovery.
As Wednesday’s CPI report looms, investors, particularly in the business sector, will keep their eyes peeled for any clues on inflation, knowing that the Fed’s next move could steer the course of the global economy.
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