US and European stocks rose Tuesday, a day ahead of a long anticipated interest-rate cut by the US Federal Reserve that investors are increasingly betting will be big.
The Dow, which closed at a record high Monday, was up another 0.3 percent shortly after the start of trading in New York. The wider S&P and the tech-heavy Nasdaq also opened higher.
In Europe, all the main indexes were up in mid-afternoon trading.
Earlier, Tokyo closed down one percent as a strong yen weighed on Japanese exporters.
The Fed begins its two-day Tuesday, with Fed boss Jerome Powell having already signalled a rate cut is coming when the Fed reports its decision on Wednesday.
Debate has focused on whether officials will go for 25 basis points or 50, with some warning that the bigger option could signal there is some concern about the economy.
“It is extremely rare to go into a Fed meeting with such a high level of uncertainty,” said David Morrison, analyst at Trade Nation. “This means there is likely to be considerable volatility after the announcement.”
Bets on the US central bank opting for a super-sized cut have jumped in recent days, with observers suggesting officials want to go big before a series of smaller reductions.
The dollar sank below 140 yen on Monday for the first time in over a year as lower rates make the US currency less attractive to investors. The greenback was firmer Tuesday.
“With equal chances of a 25 or 50-bps cut, the US dollar has weakened,” said Fawad Razaqzada, market analyst at City Index.
A string of data in the past few months has indicated that US inflation is easing back to the Fed’s two-percent target.
At the same time, the labour market has slowed, giving decision-makers room to loosen monetary policy while also fanning fears of recession.
Tuesday, the Commerce Department reported that consumer spending cooled in August, but not as much as analysts had expected. Retail sales were up 0.1 percent in the month, while expectations had been for a 0.2 percent drop.
“Anyone looking for a weak print that solidified hopes for a 50bp rate cut tomorrow must have been disappointed. There is no evidence that the US consumer is weakening,” said Kathleen Brooks, research director at trading platform XTB.
There are concerns too over Europe’s biggest economy Germany as a survey Tuesday showed investor confidence fell significantly more than expected this month.
The ZEW institute’s closely-watched economic expectations index fell to 3.6 points, down sharply from 19.2 points in August.
But the Frankfurt stock market was up in mid-afternoon deals.
Support has come from the European Central Bank’s decision last week to cut rates for the second time this year, according to analysts.
The Bank of England will also hold a policy meeting on Thursday but is widely expected to maintain its key interest rate at 5.0 percent.
– Key figures around 1235 GMT –
New York – Dow: UP 0.3 percent at 41,745.42 points
New York – S&P 500: UP 0.4 percent at 5,652.75
New York – Nasdaq Composite: UP 0.6 percent at 17,704.66
London – FTSE 100: UP 0.4 percent at 8,308.96
Paris – CAC 40: UP 0.7 percent at 7,500.72
Frankfurt – DAX: UP 0.8 percent at 18,775.73
Tokyo – Nikkei 225: DOWN 1.0 percent at 36,203.22 (close)
Hong Kong – Hang Seng Index: UP 1.4 percent at 17,660.02 (close)
Shanghai – Composite: Closed for a holiday
Euro/dollar: DOWN at $1.1120 from $1.1131 on Monday
Pound/dollar: DOWN at $1.3199 from $1.3216
Dollar/yen: UP at 141.16 yen from 140.63 yen
Euro/pound: UP at 84.27 pence from 84.22 pence
West Texas Intermediate: UP 0.3 percent at $70.31 per barrel
Brent North Sea Crude: UP 0.1 percent at $72.83 per barrel
gv/lth
