US futures struggled to make headway on Monday as investors assessed the implications of Federal Reserve policy easing following Chair Jerome Powell’s dovish tilt.
Contracts on the S&P 500 and Nasdaq 100 were little changed after both indexes notched gains of more than 1% on Friday.
Positioning for lower US borrowing costs rippled through financial markets after Fed Powell said that the “time has come” to pivot to monetary easing. That all but sealed the case for an interest-rate cut next month, but the debate has shifted to the size of the cut and what that would say about the state of the economy.
Traders added to bets on a half-point of rate cuts in September — but a reduction of that magnitude could signal the economy is heading for a hard landing, tempering demand for stocks. Orders for durable and capital goods, not counting transport equipment such as aircraft, fell more than economists’ expectations in July, data showed Monday.
“If you have to cut rates faster, that also suggests that the economy is doing less well,” Eleanor Taylor Jolidon, co-head of Swiss and global equities at Union Bancaire Privee, said on Bloomberg TV. “A 50 basis-point cut would be reflection of that weaker data that we saw at the end of July that did somewhat spook the market.”
Fears of escalating conflict in the Middle East prompted some haven buying after an Israeli strike on Hezbollah targets in southern Lebanon. A gauge of the dollar edged higher after it slumped the most in nine months on Friday, and the 10-year Treasury yield was steady. The yen gained for a second day to its strongest level since January.
Crude oil jumped almost 3% on concerns of supply disruptions as a result of the conflict, and after Libya’s eastern government said it will halt exports.
Traders are also anticipating Nvidia Corp.’s earnings on Wednesday, which may tell whether artificial intelligence exuberance is warranted. The AI juggernaut climbed about 0.8% in premarket trading.
The Stoxx Europe 600 index was little changed, with trading volumes less than half of the average as UK markets are closed for a holiday. Germany’s business outlook held at its lowest level since February — highlighting the gloom once again engulfing Europe’s biggest economy after an early-year rebound fizzled out.
Some assistance may be on the way on interest rates. After first lowering borrowing costs in June, the European Central Bank has signaled another move is likely in September.
Elsewhere, the People’s Bank of China left the rate on its one-year policy loans, or the medium-term lending facility, at 2.3%, after a slashing the rate by 20 basis points in July. The decision underscores Beijing’s cautious approach in supporting the economy, even as China reported a rare contraction in bank loans amid weak demand. The PBOC has been walking a fine line of stimulating growth and cooling a government-bond buying spree to limit financial risks in recent months.
In commodities, iron ore extended a rebound with China’s huge inventories of the material continuing to draw down, in a tentative sign that a period of severe oversupply is starting to ease. Gold added to its rally above $2,500 an ounce.
Key events this week:
- China industrial profits, Tuesday
- Germany GDP, Tuesday
- Hong Kong trade, Tuesday
- Australia CPI, Wednesday,
- Nvidia Corp. earnings, Wednesday
- US GDP, Initial Jobless Claims Thursday
- US personal income, spending, PCE price data, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 8:34 a.m. New York time
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average rose 0.1%
- The Stoxx Europe 600 was little changed
- The MSCI World Index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.3% to $1.1163
- The British pound fell 0.1% to $1.3195
- The Japanese yen was little changed at 144.23 per dollar
Cryptocurrencies
- Bitcoin fell 0.8% to $63,721.34
- Ether fell 1.4% to $2,731.31
Bonds
- The yield on 10-year Treasuries was little changed at 3.80%
- Germany’s 10-year yield advanced three basis points to 2.26%
- Britain’s 10-year yield declined five basis points to 3.91%
Commodities
- West Texas Intermediate crude rose 2.9% to $77.03 a barrel
- Spot gold rose 0.5% to $2,524.41 an ounce
