Mixed Trading in European and Asian Stock Markets Amid Anticipation of US Interest Rate Cuts

European and Asian stock markets experienced mixed outcomes on Monday, reflecting cautious investor sentiment following a key speech by Federal Reserve Chair Jerome Powell. Powell's comments, delivered at a central bankers' summit in Wyoming, signaled a potential reduction in US interest rates, which had previously been hiked to their highest levels in 23 years to combat inflation. In Europe, trading results varied. Frankfurt's market saw a slight decline, while the Paris CAC 40 index managed a modest rise. Meanwhile, Milan's market remained relatively flat in early afternoon trading. The London Stock Exchange was closed for a holiday. Across Asia, the picture was similarly mixed. The Tokyo and Seoul markets ended the day in the red, while Hong Kong and most other exchanges recorded gains. This follows a surge in equities on Friday, spurred by Powell’s declaration that “the time has come” for the Fed to consider reducing interest rates.

Investors are now eyeing the Federal Reserve's upcoming policy meeting on September 17-18, where a rate cut is widely anticipated. However, the magnitude of the cut and the number of subsequent reductions remain uncertain. Powell emphasized that the “timing and pace” of rate cuts will be data-dependent, leading analysts to closely monitor key economic indicators in the coming weeks. Stephen Innes, an independent analyst, noted that with the US labor market cooling and inflation inching closer to the Fed's two percent target, Powell’s remarks offered exactly what Wall Street was hoping for. “Right now, investors are in dreamland — having their cake and eating it too,” Innes commented. The "dream scenario" for investors is a series of rate cuts that manage to avoid triggering a recession.

The markets are also awaiting the release of new US second-quarter economic growth figures, the Fed’s preferred inflation gauge—the personal consumption expenditures (PCE) price index—and jobs data in the coming weeks. Weak jobs data earlier in August had unsettled markets, with concerns that the Fed might have waited too long to reduce rates and stave off a recession. Deutsche Bank analysts expect the Fed to cut rates by 0.25 percentage points next month but cautioned that “weak labor market data could shift the focus” to a more substantial half-point reduction. Adding to the market dynamics, German business confidence continued to decline in August, as reported in a closely watched survey. This decline underscores the ongoing struggles of Europe’s largest economy to recover from a prolonged period of weakness. On the currency front, the yen strengthened against the dollar, driven by discussions of a US rate cut and comments from Bank of Japan Chief Kazuo Ueda, who hinted at the possibility of further rate hikes in Japan. Meanwhile, geopolitical tensions in the Middle East added another layer of uncertainty. Traders kept a close watch on the situation after Israel and the Iran-backed Lebanese militant group Hezbollah exchanged fire on Sunday. In the commodities market, Brent crude, the international benchmark, surged by 2.7 percent, trading at over $81 per barrel, while West Texas Intermediate also rose by 2.7 percent, reaching $76.85 per barrel.