Stocks Stutter as Market Seeks Rate-Cut Timing, Dollar Gains

GLOBAL MARKET - NEW YORK/LONDON. World stock markets stuttered on Wednesday while the dollar gained for a third straight day, as investors seek insight into the U.S. Federal Reserve's stance on interest rates that many on Wall Street believe has peaked but the timing of a cut is unclear.

The dollar is rebounding from a sharp selloff last week amid rising confidence that the Fed has ended its rate hiking cycle, though analysts expect the U.S. economy to slow in the fourth quarter and potentially enter a recession.

Oil prices slid to more than three-month lows on concern over waning U.S. and Chinese demand, while gold prices retreated for a third straight session as yields on the short end of Treasuries rose and on longer-dated notes fell.

Fed Chair Jerome Powell did not comment on monetary policy or the economic outlook in prepared remarks at a U.S. central bank statistic conference. Investors nevertheless have ramped up bets for Fed rate cuts next year, though when is in question.

"The market has it right that rates have peaked," said Rhys Williams, chief strategist at Sprouting Rock Asset Management in Bryn Mawr, Pennsylvania, but since the Fed has "been so macho about higher for longer," a rate cut is unlikely to come soon.

With valuations for much of the S&P 500 outside of the mega-cap growth stocks relatively low, the market is poised to rise further, he said.

"We're in this honeymoon period where people can believe that the data is still OK, slowing, but still OK," he said.

Futures are pricing a 25 basis point cut by June 2024, with a small chance of a rate cut starting in March. Expectations call for the Fed's overnight lending rate to remain above 5% through next June.

MSCI's all-country world stock index was down just 0.1% , having last week posted its biggest weekly jump in almost a year.

Europe's broad STOXX 600 index rose 0.4%, while on Wall Street, the Dow Jones Industrial Average fell 0.1%, the S&P 500 lost 0.08% and the Nasdaq Composite dropped 0.17%.

MSCI's broadest index of Asia-Pacific shares slipped 0.3% and Japan's Nikkei 225 closed lower after Bank of Japan Governor Kazuo Ueda told parliament the central bank does not need to wait until real wages turn positive before exiting stimulus.

Hong Kong's Hang Seng fell and an index of mainland blue chips lost 0.24%.

Chinese authorities have asked Ping An Insurance Group to take a controlling stake in embattled Country Garden, the nation's biggest private property developer, four people familiar with the plan said.

A spokesperson for Ping An said the company had not been approached by the government and denied the information reported by Reuters.

In Europe, utilities stocks led sectoral declines, falling 1.2% to a one-week low, with the region's largest energy networks operator, E.ON, losing 1.8% on expecting a severe hit to fourth-quarter profit at its retail division.

WEAK OIL

Oil prices slid more than $1 a barrel.

U.S. crude futures fell 1.95% to $75.86 per barrel and Brent was at $80.15, down 1.79% on the day.

The two-year Treasury yield, which reflects interest rate expectations, fell 0.3 basis points to 4.915%, while the yield on the benchmark 10-year note was down 4.2 basis points at 4.530%.

The dollar index fell 0.028% at 105.49, with the euro up 0.06% to $1.0705.

Still, it remains well off the high at the start of this month at 107.11.

The majority of FX strategists in a Reuters poll expect dollar weakness to linger for the rest of the year, amid a building consensus that the Fed's tightening cycle is done, also signaling a peak in U.S. yields.

"If the U.S. is heading for slower growth but the ECB (European Central Bank) and BoE (Bank of England) cut rates first, that doesn't undermine the dollar," said Tim Graf, head of macro strategy for Europe at State Street Global Markets.

Editor: Yudho Winarto