Naomi Robnick and Wayne Cole
LONDON/SYDNEY (Reuters) – Global shares hovered near record highs on Monday and Wall Street futures rose cautiously ahead of a business activity survey that could confirm or call into question market expectations of another big interest rate cut from the Federal Reserve.
MSCI's global stock index was stable after two weeks of gains, while contracts tracking major U.S. stock indexes rose about 0.2% as traders awaited U.S. purchasing managers' index data later in the day.
The blue-chip index S&P 500 hit a record high last week after the Federal Reserve cut its key interest rate by half a percentage point from a 23-year high on Wednesday.
Financial markets are estimating there is a 50% chance of another big volatility in November.
But investors are divided over whether global monetary easing came too late to stave off an economic slowdown and even a U.S. recession.
Christophe Schon, multi-asset strategist at SimCorp, noted that the last two times the Fed cut rates by 50 basis points were in 2008 and 2001, years of deep recessions.
“Every time we hear it's different this time, and maybe this time it will be different, but there is heightened concern right now,” he said.
He added that stock markets could also fall if unexpectedly strong economic growth or inflation data reduces expectations of future monetary easing.
Economists polled by Reuters expect the S&P Global Purchasing Managers' Index, due later on Monday, to show that the U.S. services sector is strong while manufacturing activity is contracting.
That would add to the conflicting signals that have combined to confuse investors about the true state of the U.S. economy, with strong retail sales and softening labor market indicators.
This is also a data-packed week for the US, with consumer confidence and durable goods orders being released, as well as the release of core personal consumption expenditures (PCE), the Fed's go-to inflation measure, on Friday.
Analysts were expecting a 0.2% increase from the previous month, bringing price growth to 2.7% on an annual basis.
A number of Fed officials are scheduled to speak this week, including Chairman Jerome Powell on Thursday.
Federal Reserve Governor Christopher Waller suggested on Friday that the core component of the PCE index may be falling short of the central bank's average 2% inflation target.
“Inflation is easing much faster than I would have thought,” he told CNBC.
Global reductions
Similar comments from Bank of Canada policymakers reinforced the consensus that the fight against global inflation is over, at least for the time being.
The People's Bank of China cut the 14-day repo rate by 10 basis points, days after disappointing markets by not cutting longer-term interest rates.
The Swiss National Bank meets on Thursday and markets are fully pricing in a 0.25 percentage point cut to 1.0%, with a 41% chance of a 50 basis point cut.
The Swedish central bank meets on Wednesday and is expected to ease monetary policy by 25 basis points, but could go further.
Traders are also increasingly betting the European Central Bank will cut interest rates further in October.
A purchasing managers' survey on Monday showed France's services sector contracted sharply in September, while German business activity fell to its biggest drop in seven months.
The euro fell 0.4% against the dollar to $1.116, while German two-year bund yields fell about 10 basis points to 2.156% on Monday following the PMI data. Bond yields move inversely to prices.
Commodity markets are also showing concerns about a global economic slowdown.
Brent crude oil was steady at $73.39 a barrel on Monday, about 14% below late June levels despite rising tensions in the Middle East.
Gold traded at $2,622 an ounce on Monday, just below its all-time high, reflecting its popularity as a safe haven in uncertain times. Hedge funds are making their biggest bet against the metal since 2020.
Meanwhile, the Japanese yen is stabilizing at 143.8 yen to the dollar, but volatility in the pair remains elevated as traders question how much the dovish Bank of Japan will hike interest rates and how much the Federal Reserve will cut them.
MSCI's index of Asia Pacific shares ex-Japan, which rose 2.7% last week, added another 0.2% on Monday.
While the Tokyo stock market was closed for a public holiday, Singapore's main stock index rose to its highest level since late 2007.
The yield on the 10-year U.S. Treasury note rose 3 basis points to 3.7621%.
(Reporting by Naomi Rovnick and Wayne Cole; Editing by Sri Navaratnam, Angus MacSwan, Susan Fenton and Tomasz Janowsky)
