LONDON/SYDNEY (REUTERS)
World stocks were pinned close to record highs on Monday and Wall Street futures edged cautiously higher ahead of business activity surveys that may confirm or cast doubt on market forecasts for more large-scale rate cuts by the Federal Reserve.
MSCI'S broad world stock gauge held steady after two weeks of gains, and contracts tracking major U.S. stock indices were about 0.2% higher as traders awaited U.S. purchasing manager surveys later in the day.
The blue chip S&P 500 share index reached all-time highs last week after the Fed lowered its main funds rate from a 23-year high by half a percentage point on Wednesday.
Money markets are pricing a 50% probability it will deliver another outsized move in November..
But investors are divided over whether global monetary easing may have started too late to stop a slowdown, or even a U.S. recession, from taking hold.
Christoph Schon, multi-asset strategist at Simcorp, noted that the last two times the Fed embarked on rate cuts with 50 basis-point moves were in 2008 and 2001, which were years of severe downturns.
"Every time we hear this time is different and maybe this time it is, but there is now growing concern," he said.
Stock markets could also fall, he added, if unexpectedly strong growth or inflation data reduced expectations for future monetary easing.
Economists polled by Reuters expect S&P Global's purchasing managers indices to show later on Monday that the U.S. services sector is robust while manufacturing activity is contracting.
That would add to the mixed signals that are confusing investors about the true state of the U.S. economy, where brisk retail sales have clashed with softer labour market indicators. This is also a data-heavy week for the U.S., with consumer confidence and durable goods orders indicators due and Friday's release of the Fed's preferred inflation gauge, the core personal consumption expenditures (PCE) index.
Analysts expect a 0.2% month-on-month rise, taking the annual pace of price increases to 2.7%.
A host of Fed officials, including Chair Jerome Powell, are set to speak this week on Thursday.
Fed governor Christopher Waller suggested on Friday that core components of the PCE index might be on the way to undershooting the central bank's average 2% inflation target.
"Inflation is softening much faster than I thought it was going to," he told CNBC.
GLOBAL CUTS
Similar comments by Bank of Canada policymakers have added to a consensus that the global fight against inflation is over, at least for the time being.
China's central bank has lowered its 14-day repo rate by 10 basis points, days after disappointing markets by not cutting longer-term rates.
The Swiss National Bank meets on Thursday and markets are fully pricing a quarter-point cut to 1.0%, with a 41% chance it will ease by 50 basis points.
Sweden's central bank meets on Wednesday and is also expected to ease by 25 basis points, again with some chance it might go larger.
Traders are also raising their bets on another European Central Bank cut in October.
Purchasing manager surveys on Monday showed France's services sector contracted sharply in September and German business activity decreased at its sharpest pace in seven months.
The euro dropped 0.4% against the dollar to $1.116 and German two-year bund yields dropped roughly 10 bps on Monday to 2.156% following the PMI data. Bond yields move inversely to prices. Commodity markets are also expressing global slowdown fears. Brent Crude oil, steady at $73.39 a barrel on Monday, is almost 14% below its late-June level despite escalating Middle East tensions.
Gold, at $2622 an ounce on Monday, is trading just below an all-time peak, reflecting its popularity as a haven in times of uncertainty. Hedge funds have held their largest bet on the yellow metal since 2020. Elsewhere in markets, Japan's yen steadied at 143.8 per dollar, although volatility in this currency pair stayed elevated as traders questioned how far the dovish Bank of Japan will hike rates and how deeply the Fed will cut.
MSCI's gauge of Asia-Pacific shares outside Japan, which bounced 2.7% higher last week, gained a further 0.2% on Monday.
Singapore's main share index rose to its highest since late 2007, while Tokyo stock markets were closed for a holiday. The yield on the 10-year U.S. Treasury was 3 bps higher at 3.7621%.