Laurence Delevingne and Nell McKenzie
(Reuters) – Wall Street rose on Monday as the dollar weakened after stocks surged last week on hopes the U.S. economy would avoid recession and tame inflation would kick off a cycle of interest rate cuts.
The Dow Jones Industrial Average rose 0.46% to 40,846.81, the S&P 500 added 0.4% to 5,576.22 and the Nasdaq Composite added 0.34% to 17,691.80. MSCI's index of world stocks rose about 0.6%.
The prospect of lower borrowing costs failed to sustain gold's historic highs, sending the dollar falling against the euro and the yen surging.
In the US, Federal Reserve Board governors Mary Daly and Austen Goolsbee over the weekend signalled the possibility of further monetary easing in September, but the minutes of the last policy meeting due this week are likely to highlight a more dovish outlook.
Fed Chairman Jerome Powell speaks in Jackson Hole on Friday, and investors expect him to acknowledge the need to cut interest rates.
“It's all heading towards this Friday and we'll be watching for signs that a rate cut is on the way. The next question is how big a cut will it be,” said Paul O'Neill, chief investment officer at asset manager Bentley Lead.
Futures are fully pricing in a quarter point move, implying a 25% chance of a 50 basis point move, but much will depend on what the next employment report shows.
Treasury yields fell on Monday, with the yield on the benchmark 10-year Treasury note down 1.7 basis points to 3.875%, from Friday's close of 3.892%.
Goldman Sachs analysts lowered their forecast for a U.S. recession to a 20% chance, and said in a note on Friday that the probability could drop further if the August jobs report released in September is “significantly stronger.”
European shares were broadly up about 0.7 percent ahead of a busy week, with the blue-chip FTSE 100 index adding 0.68 percent.
Investors are looking forward to the release of preliminary purchasing managers' indexes (PMIs) from France, Germany, the UK and the euro zone later this week.
Earlier, the Nikkei average closed down 1.77 percent at 37,388.62, snapping a five-day winning streak that included an 8.7 percent gain last week. Chinese blue chip stocks closed up about 0.3 percent.
All cuts
The Fed is not the only one considering easing policy: Sweden's central bank is expected to cut interest rates significantly this week, perhaps by 50 basis points.
In currency markets, the dollar fell 0.78% to 146.46 yen, while the euro rose to $1.106, near last week's high of $1.1034. (USD/)
Henry Allen, macro strategist at Deutsche Bank, said even though markets are calming again, it's worth remembering that the economic fundamentals behind the global stock market sell-off two weeks ago have not completely disappeared.
The story continues
“With increasingly weaker economic data globally, lower inflation meaning monetary policy is effectively becoming tighter, and geopolitical concerns rising, we are heading into a seasonally challenging period,” Allen said in the note.
A combination of a weak dollar and falling bond yields has prevented gold prices from sustaining their highs, with the metal falling from an all-time high of $2,509 an ounce to about $2,503. (GOL/)
Oil prices fell as concerns about Chinese demand continued to weigh on sentiment. (O/R)
U.S. crude oil fell 0.33% to $76.4 a barrel, while Brent crude fell 0.31% to $79.43 a barrel. (This story has been refiled to add a deleted word in the 9th paragraph)
(Reporting by Laurence Delevingne in Boston and Nell McKenzie in London; Editing by Dara Ranasinghe, Christopher Cushing, Ed Osmond, Giles Elgood and Alex Richardson)
