Global stock markets finished the week on an upbeat note, lifted by optimism over interest rate cuts and receding geopolitical risks. MSCI’s Asia-Pacific index excluding Japan was up 0.2%, a new high since November 2021, putting it on track for a 3% weekly gain. Japan’s Nikkei surged 1.5%, punching above the 40,000 mark for the first time in five months. In Europe, EUROSTOXX 50 and DAX futures each rose 0.6%, while FTSE futures fell 0.16%. U.S. stock-index futures were steady after a strong performance by Wall Street on Thursday, where the Dow, S&P 500, and Nasdaq each rose just under 1%, nearing record highs.
The optimistic mood was supported by reports of better U.S.-China relations. Washington and Beijing agreed on faster rare earth shipments to the United States. While U.S. Treasury Secretary Scott Bessent lobbied Congress to drop the controversial Section 899 tax proposal. These developments relieved investor angst, most notably among foreign investors.
Fed Leadership Speculation Weighs on Dollar
The dollar remained on the defensive, with concerns mounting about the future leadership and independence of the Federal Reserve. There were reports that President Trump could replace Fed Chair Jerome Powell as soon as September or October. This led traders to speculate even more on the idea of early rate cuts. The dollar fell to almost a three-and-a-half-year low and was headed for a weekly decline of 1.4%, which is the biggest in over a month. Year-to-date, the dollar is down over 10%, heading for its steepest first-half loss since the 1970s.
The euro rose 0.6%, near a three-year high with a value of $1.1688, while the British pound was up by 0.2% to $1.3730. Analysts cautioned that Trump’s idea to “shadow” the Fed could damage the central bank’s autonomy and the dollar’s role as the world’s reserve currency.
Economic Data and Commodities
Weaker economic data from the U.S strengthened the expectation of a rate cut. Markets are looking ahead to the release of the core PCE inflation index on Friday, which is the Fed’s preferred inflation measure. Asian treasury yields were flat, with the 2-year at 3.7418% and the 10-year at 4.2554%.
Oil prices were on track for major weekly losses, although they edged up slightly on Friday. Brent crude climbed 0.41% to $68.01 per barrel, while U.S. crude added 0.46% to $65.53, although both were still down more than 10% for the week, as the Iran-Israel ceasefire relieved concerns of additional supply. Spot gold fell 0.23% to $3,320.25 per ounce.
