GLOBAL MARKETS-Shares Gain, Dollar Subdued as Fed Readies Rate Cuts

GLOBAL MARKET - NEW YORK. Stocks gained ground and the dollar remained subdued on Thursday after Federal Reserve minutes signalled U.S. interest rate cuts were set to begin in a few weeks' time.

On Wall Street, the Dow Jones Industrial Average rose 0.20%, to 40,973, the S&P 500 gained 0.33%, to 5,639 and the Nasdaq Composite gained 0.43%, to 17,995.49.

The Fed minutes, released Wednesday, said the "vast majority" of policymakers felt that, if data came in as expected, a September cut was likely to be appropriate - validating market expectations.

On Thursday, fresh data showed the number of Americans filing new applications for unemployment benefits rose in the latest week, but the level remained consistent with a gradual cooling of the labor market.

Steve Englander, a markets strategist for Standard Chartered Bank, said the Fed minutes showed the bank was in sight of its inflation target and unemployment is rising, putting a 50 basis point interest rate cut "on the table."

"If they are not announcing that they have won on inflation, they are saying they expect to win relatively soon," Englander wrote in an email on Thursday.

Global stocks, after a phenomenal rebound from early-month lows plumbed after a bout of volatility, strove for gains.

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European shares gained 0.6%, helped by retail stocks, after a subdued trading session in Asia. They added to initial gains after data for the euro zone showed surprising strength in business activity this month.

MSCI's gauge of stocks across the globe rose 2.39 points, or 0.29%, to 829.88.

Oil prices steadied after falling for a fifth straight day as investors worried about the global demand outlook before a decline in U.S. fuel inventories provided a floor.

U.S. crude gained 0.46% to $72.28 a barrel and Brent rose to $76.42 per barrel, up 0.49% on the day. O/R

Some euro zone bond yields edged upwards after the euro zone business activity survey, which potentially weakens expectations for two more rate cuts from the European Central Bank this year.

U.S. PMI figures are due later in the day.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.3%.

DOLLAR DOWNTREND

The dollar index, was little changed at 101.3. It dipped to 100.92 overnight for the first time this year.

Lower U.S. rates would give central banks around the world room to move. On Thursday the Bank of Korea opened the door to a cut in October, while Bank Indonesia has lined up cuts in the fourth quarter.

Still, rates and currency markets see a U.S. easing cycle as having further to run than other countries.

Interest rate futures markets have fully priced in a 25-basis-point cut from the Fed next month, with a 1/3 chance of a 50-bp cut. They project around 220 bps of U.S. easing by the end of 2025, to a rate of 3.145%, against around 160 bps for Europe, a 2.06% rate. 

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On Thursday, the yield on benchmark U.S. 10-year notes rose 5.1 basis points to 3.827%, from 3.776% late on Wednesday. The 2-year note yield, which typically moves in step with interest rate expectations, rose 5 basis points to 3.9719%, from 3.922% late on Wednesday.

The euro, which has made strong gains this month, fell about 0.1% to $1.1136.

In Britain, the pound rose to a new 13-month high on the dollar and also strengthened against the euro after British business activity data showed steady growth momentum going into the second half of 2024.

The pound rose 0.3% to $1.3125, its highest since July 2023.

Investors said the dollar was facing a downtrend.

"The unequivocal signal from the (Fed) minutes has been the catalyst for the latest leg down in the U.S. dollar," said National Australia Bank's head of currency strategy, Ray Attrill.

"It is likely that the break above $1.30 on cable looks sustainable," he said, using a nickname for the sterling/dollar pair. "And similarly for the euro ... we're talking about potentially a $1.10-$1.15 range in coming weeks."