By Rae Wee and Sara Rossi
SINGAPORE/LONDON (Reuters) – Global shares held steady on Tuesday, as investors bought U.S. stock futures on the premise that the Federal Reserve would likely cut rates this week, while selling equities in Europe, where borrowing costs look less likely to fall much further.
MSCI’s all-country index edged up 0.15% to fresh record highs, while the pan-European STOXX 600 dropped 0.15%, led by declines in rate-sensitive banks and insurers, which stand to lose out if the European Central Bank does not cut euro zone rates much more.
“Markets are probably realising that there will be no further cuts by the ECB and this is offsetting expectations of Fed resuming its easing path,” said James Rossiter, head of global macro strategy at TD Securities in London.
Markets are currently pricing in just a 40% chance of the ECB cutting by 25 bps by June 2026 from around 50% last week.
STOCKS SCALE NEW HEIGHTS
Expectations of imminent Fed rate cuts have kept the market mood buoyant over the past few sessions and sent stocks scaling new highs on Wall Street.
S&P 500 futures and Nasdaq futures were both steady after both indexes scaled all-time highs in Monday’s trading session.
Futures already have 127 bps worth of Fed cuts priced in by July 2026, meaning the bar could be high for policymakers to keep investors optimistic.
“There do seem to be quite a few rate cuts priced in now. On balance, maybe that suggests that the bar for a hawkish surprise is a little lower than that for a dovish one,” said Thomas Mathews, head of markets for Asia Pacific at Capital Economics.
“It’s likely though that the Fed will stick with its cautious communication approach and not give much away.”
With so much focus on the Fed decision, markets hardly reacted to news that the U.S. Senate narrowly confirmed Stephen Miran to the central bank’s Board of Governors, while a U.S. appeals court separately declined to allow President Donald Trump to fire Fed Governor Lisa Cook.
Both moves were seen as unlikely to shift the needle for the Fed’s decision on Wednesday, where a 25-basis-point cut is fully priced in.
In an action-packed week, the Bank of Canada is also expected to cut rates by a quarter point this week, while the Bank of Japan and the Bank of England are both expected to hold rates steady.
In other news, U.S. and Chinese officials said on Monday they have reached a framework agreement to switch short-video app TikTok to U.S.-controlled ownership that will be confirmed in a Friday call between Trump and Chinese President Xi Jinping.
On the Asian market, MSCI’s broadest index of Asia-Pacific shares outside Japan rose to a more than four-year top on Tuesday and last traded 0.03% higher, while Japan’s Nikkei and Topix indexes notched fresh records.
PRESSURE ON THE DOLLAR
The Fed cut bets have in turn kept pressure on the dollar, which on Tuesday fell to its lowest since July 4 against a basket of currencies.
Sterling rose to its highest in over two months at $1.3630, while the euro also hit its highest since July 2 at $1.1795.
U.S. Treasury yields were little changed after falling in the previous session, with the two-year yield last at 3.5345%. The benchmark 10-year yield was almost flat at 4.0317%. [US/]
In commodities, oil prices reversed course after having extended their rise from the previous session, as investors assessed the impact of Ukrainian drone attacks on Russian refineries. [O/R]
Brent crude futures fell 0.37% to $67.19 per barrel, while U.S. crude futures were 0.23% lower at $63.07 a barrel.
Spot gold reached a new record high of $3,697.05 an ounce, supported by a weaker dollar and expectations for a Fed rate cut.
(Reporting by Rae Wee, Sara Rossi Editing by Sam Holmes, Amanda Cooper and Ros Russell)
