Tom Westbrook's Outlook for Europe and the Global Markets
With most Fed policymakers ready to cut interest rates, a global easing cycle is on the way. Lower U.S. interest rates give small and mid-sized markets some room to maneuver. The Bank of Korea already hinted at a possible October rate cut on Thursday. Bank Indonesia plans to cut rates in the fourth quarter.
Traders have been steadily selling dollars in anticipation of the lowest U.S. short-term interest rates, currently at 5.25% to 5.5%, falling to 5.5% in the second quarter. Markets are pricing in 161 basis points of easing in Europe and 135 basis points in the U.K. by the end of next year, compared with 222 basis points in the U.S.
The dollar broke through key resistance levels against the pound and the euro to hit its lowest levels in one year as markets considered whether a cyclical decline in the dollar was approaching.
U.S. and European purchasing managers' indexes due later on Thursday may provide a gauge of the relative strength of their economies, but slowing growth in the continent has not hindered the euro's strong gains in recent weeks.
A weaker dollar tends to be good for global growth by encouraging investment in emerging countries and giving other economies more leeway to keep interest rates low, which is also good for commodities.
Metals prices are recovering from multi-month lows, helped by reports of further support for China's property market.
Meanwhile, oil has its own problems, with traders worried about demand amid data showing a weakening economy. Brent crude futures are trading near their lowest levels this year at $76.11 a barrel.
Data showed Japan's factory activity contracted slightly in August, while the services sector expanded. Reuters Graphic
Key trends that could impact markets on Thursday:
Economy: European, UK and US PMIs, US jobless claims
Earnings: Swiss Re
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Written by Tom Westbrook, edited by Christopher Cushing
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