Stocks jump, US yields dip as Fed rate cut bets rise
NEW YORK :Global stocks advanced for a second straight session on Monday as increased expectations for a December rate cut from the U.S. Federal Reserve helped to lessen recent concerns about stretched valuations in the AI space while longer-dated U.S. Treasury yields eased.
Stocks stumbled last week to their largest weekly percentage drop since early August on market pessimism over the chances of a cut to interest rates, the economic impact of the extended U.S. government shutdown and lingering concerns over high valuations for AI-related companies.
But equities rallied at the end of the trading week after New York Fed President John Williams said interest rates can fall in the near term even as other policymakers insisted borrowing costs should remain steady for now.
Williams' comments were echoed on Monday by Fed Governor Christopher Waller, who said that available data indicates that the U.S. job market remains weak enough to warrant another quarter-point cut to interest rates.
"You could say that John Williams, the New York Fed president, was the cavalry who came over the ridge by indicating that no, a December rate cut is not off the table, which was encouraging to investors, and as a result (they) have decided to plow back into equities," said Sam Stovall, chief investment strategist of CFRA Research in New York.
"But then again, this is a pretty low volume week, maybe it's simply a short-term relief rally."
U.S. markets will be closed on Thursday for the Thanksgiving holiday.
Markets are pricing in a 79.1 per cent chance of a cut of 25 basis points at the December meeting, according to CME's FedWatch Tool, up from 42.4 per cent a week ago.
Goldman Sachs chief economist Jan Hatzius said in a note on Sunday that he expects another cut from the Fed in December, followed by two more moves in March and June of 2026 "that take the funds rate to 3-3.25 per cent."
On Wall Street, U.S. stocks rallied in early trading, led by a surge of nearly 4 per cent in the communication services sector as Google parent Alphabet jumped about 6 per cent.
The Dow Jones Industrial Average rose 277.75 points, or 0.60 per cent, to 46,523.16, the S&P 500 rose 106.40 points, or 1.61 per cent, to 6,709.39 and the Nasdaq Composite rose 596.77 points, or 2.68 per cent, to 22,869.86.
European equities closed higher on interest rate expectations while investors were also encouraged by signs of progress toward a peace deal between Ukraine and Russia.
MSCI's gauge of stocks across the globe rose 11.93 points, or 1.23 per cent, to 982.69 and was on track for the biggest daily percentage gain since November 10. The pan-European STOXX 600 index, meanwhile, ended the session up 0.14 per cent up after gaining as much as 0.71 per cent.
U.S. retail sales and producer prices data will also be in focus this week as the release of government data resumes after the end of the extended government shutdown. In Britain, British finance minister Rachel Reeves' eagerly awaited budget is due on Wednesday.
The U.S. and Ukraine were continuing work on a plan to end the war with Russia after agreeing to modify an earlier proposal that was viewed by Kyiv and its European allies as too favourable to Moscow. That weighed on oil prices because a deal could release more Russian oil supply through an easing of sanctions.
U.S. Treasury yields were lower on the interest rate expectations. The yield on benchmark U.S. 10-year notes fell 2.9 basis points to 4.034 per cent.
In currencies, the dollar index, which measures the dollar against a basket of currencies, shed 0.07 per cent to 100.17, with the euro 0.1 per cent at $1.1523. Sterling strengthened 0.11 per cent to $1.3109.
Markets were also watching for signs of possible Japanese intervention in the yen, which weakened 0.3 per cent against the greenback to 156.82 per dollar. The Japanese currency is down 1.8 per cent against the dollar this month.
Takuji Aida, an adviser to Prime Minister Sanae Takaichi, said on Sunday that Japan can actively intervene in the currency market to mitigate the negative economic impact of a weak yen.
U.S. crude rose 1.29 per cent to $58.81 a barrel and Brent rose to $63.34 per barrel, up 1.25 per cent on the day as investors gave more weight to the chances of a U.S. interest rate cut over the prospect of a peace deal in Ukraine.
