Paris, France — Stock markets wobbled on Thursday as investors await a highly-anticipated speech by US Federal Reserve chief Jerome Powell, hoping he will drop more clues about an expected interest-rate cut.
The Dow, the broader S&P 500 and the tech-heavy Nasdaq had all opened on the right foot, extending gains from the previous day, but faltered later in the morning.
In Europe, Paris finished flat while London and Frankfurt were in the green but not as strong as earlier in the day when key surveys showed business activity accelerated in Britain and the eurozone in August.
The dollar has been under pressure from expectations of lower rates, but it pared down some losses against other major currencies on Thursday.
The spotlight will turn to Powell on Friday when he addresses an annual gathering of global central bankers in Jackson Hole, Wyoming, with investors eager to hear for fresh signals about the Fed’s plans.
“We can see the mounting tension (heading) into Powell’s speech,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, told AFP.
“Markets are preparing for possible turbulence on Friday,” she added.
Investor confidence in a rate cut grew after minutes from the Fed’s July policy meeting, released on Wednesday, showed that most members believed that it would be “appropriate” to lower borrowing costs in September.
Traders were also buoyed by official figures showing that US employers added around 68,000 fewer jobs monthly in the year to March than initially estimated.
US data released Thursday showed initial jobless claims rose by 4,000 last week, a modest rise “that won’t alter the market’s rate cut view”, said Briefing.com analyst Patrick O’Hare.
A softer US labour market, along with cooling inflation, gives the central bank room to start reducing rates that were brought to a 23-year high in order to bring down soaring consumer prices.
The only doubt is how far the Fed will go, with many analysts banking on a cut of 25 basis points in September but others saying policymakers could go as high as 50 basis points.
“Investors are trimming long bets into Friday’s Powell speech with expectation that the Fed Chair will likely hint at a September rate cut though at a moderate pace,” Ozkardeskaya said.
“The latter is not a bad sign in the medium run, mind you, as a 50bp would require a deep economic slowdown which is not necessarily good news for valuations,” she added.
Some analysts expect the Fed to cut rates by a total of 100 basis points by the end of the year.
“If Powell is upbeat about the economy, this would reinforce the increasingly prevailing view that the US is likely to avoid a recession, which has triggered the recent recovery in equity markets,” said Mahmoud Alkudsi, senior market analyst at financial services firm ADSS.
“However, this would also suggest that smaller rate cuts totaling 75 basis points, rather than 100 basis points, might be delivered over the course of this year, which could support the short-term value of the dollar.