Global financial markets staged a recovery on Tuesday, with major stock indices climbing and cryptocurrencies bouncing back from a steep selloff. The positive shift in sentiment comes as investors worldwide increasingly anticipate an interest rate cut by the U.S. Federal Reserve at its upcoming meeting.
Wall Street and Global Shares Gain Ground
After a downbeat prior session, U.S. stock markets finished higher on December 2. The rally was led by technology and industrial shares, though losses in the energy and materials sectors capped some of the gains. The Dow Jones Industrial Average rose 0.39%, while the S&P 500 gained 0.25% and the Nasdaq Composite advanced 0.59%.
The upbeat mood was reflected globally. The broad stock indexes in Europe ended marginally higher by 0.07%, and the Asia-ex-Japan index gained 0.47%. The MSCI World index, which tracks equities across the globe, rose 0.21%.
Market strategist Talley Leger of The Wealth Consulting Group pointed to a favourable mix of low inflation, supportive monetary policy, and strong fundamentals. "On the inflation side, I'm not so concerned because it's below average back to the early 1900s," Leger said. He added that this gives the Fed room to cut rates, an expectation now being priced in by markets, bolstered by record holiday shopping and robust corporate earnings.
All Eyes on the Federal Reserve
The dominant theme driving market movements is the overwhelming expectation of a monetary policy shift from the U.S. central bank. Data showing a ninth consecutive month of contraction in U.S. manufacturing in November has reinforced bets for a rate cut. According to the CME FedWatch tool, markets are pricing in an 87.2% probability of a 25 basis-point interest rate cut at the Fed's meeting next week.
James St Aubin, Chief Investment Officer at Ocean Park Asset Management, noted, "There's a little bit of momentum behind a cut but I think it's what they say in the press conference about the neutral rate that a lot of people will be focused on."
Bond and Currency Markets Stabilise
Global government bond markets, which had been rattled by a selloff in Japanese Government Bonds (JGBs), found stability. Jitters were soothed by a strong auction result in Japan. Earlier concerns about the nation's finances and expected rate hikes by the Bank of Japan had sent Japan's 10-year yield to a 17-year peak.
On Tuesday, global bonds echoed this calm. The U.S. 10-year Treasury yield was at 4.087%, and the benchmark 10-year German yield was at 2.752%, both down slightly for the day.
In currency trading, the dollar showed broad steadiness. The dollar index, which measures the greenback against a basket of major currencies, fell 0.08% to 99.36, marking an eighth straight session of losses. The Japanese yen softened, with the dollar gaining 0.29% to 155.87 yen. The euro traded down 0.1% at $1.1622.
Commodities and Cryptocurrency Rebound
In the commodity space, oil prices edged lower as traders weighed risks from Ukrainian drone strikes on Russian energy sites against concerns about oversupply. Brent crude futures settled down 1.14% at $62.45 a barrel, while U.S. crude futures fell 1.15% to $58.64 a barrel.
Gold retreated 0.57% to $4,208.53 an ounce. Spot silver, however, continued its strong run, trading up 0.94% at $58.50, just below its record high of $58.83 hit on Monday.
Bitcoin, viewed by some as a bellwether for risk appetite, rebounded sharply after Monday's slump. The leading cryptocurrency gained 5.55% to reach $91,256.76, signalling a return of investor confidence ahead of the key Fed decision.
