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Market Analysis

Stocks are stable, but anxiety is still high; the Harris-Trump debate is next
Amos Simanungkalit · 177.3K Views

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Global equities remained steady on Tuesday, failing to gain momentum from Wall Street's recent rally due to lingering concerns over slowing economic growth, which also pressured oil prices.

China's latest data revealed that exports grew at their fastest pace since March 2023 in August, indicating that manufacturers were expediting orders before anticipated tariffs from various trade partners. However, imports fell short of forecasts amid weak domestic demand.

This came on the heels of Monday’s inflation figures, which highlighted fragile domestic demand with worsening producer price deflation, sustaining calls for additional stimulus from Beijing to support its economy.

As a result, Asian shares, along with commodities like copper and crude oil, took a hit.

The MSCI All-World index was flat overall, reflecting modest gains in Europe, where the STOXX 600 edged up by 0.2%. Meanwhile, U.S. stock futures were mostly unchanged.

Market participants are expecting the Federal Reserve to implement a series of rapid interest rate cuts in the coming months, following last week's U.S. jobs report, which showed a slowdown in the labor market.

"Markets are now essentially on high alert for a hard landing, and there's been a return to the notion that 'good news is good news'," noted Investec Chief Economist Philip Shaw.

Just two weeks ago, stocks had reached record highs amid expectations that the Fed would introduce fresh stimulus through rate cuts. However, with the labor market slowing, manufacturing activity in contraction, and inflation easing, sentiment has shifted.

Futures indicate that traders are anticipating a full percentage point cut in U.S. rates by the end of the year, with a nearly 30% chance of a half-point reduction as soon as next week, according to CME's Fedwatch tool.

Wall Street had bounced back impressively in the previous session, with all three major U.S. stock indexes surging more than 1% after last week's sell-off.

Later on Tuesday, Democrat Kamala Harris and Republican Donald Trump will face off in their first debate ahead of the November 5 Presidential election, with both candidates locked in a tight race.

The Case for Cuts

Attention now turns to Wednesday's U.S. inflation report, which could provide insights into whether the Federal Reserve will opt for a substantial 50-basis-point cut in its upcoming meeting.

"In recent months, inflation numbers have been crucial, but they might be less so this time. Markets have largely factored in easing price pressures. What’s more significant now are the projected trends in the U.S. economy and how economic activity holds up or slows down," said Investec's Shaw.

Expectations are that headline inflation in the U.S. for August will slow to an annual rate of 2.6%, down from 2.9% in July.

"If the inflation data deviates significantly from expectations, it could alter the anticipated number of rate cuts," warned Jun Bei Liu, a portfolio manager at Tribeca Investment Partners.

"Currently, the market is pricing in a substantial number of cuts for the remainder of the year, which may lead to increased volatility, as observed in recent weeks."

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.

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