By Chibuike Oguh and Dhara Ranasinghe
NEW YORK/LONDON (Reuters) -World equity markets edged lower on Monday as markets digested the likelihood of U.S. interest rates being lowered soon, even as oil prices jumped amid increased tensions in the Middle East.
The benchmark S&P 500 index and the Nasdaq gave up early gains and traded lower, while the Dow climbed. European shares finished slightly down, with trading subdued in the London market, which is closed for a public holiday. Japan’s blue-chip Nikkei stock index closed down almost 0.7% as the yen firmed.
The Dow Jones Industrial Average rose 0.07% to 41,205.49, the S&P 500 lost 0.30% to 5,617.52 and the Nasdaq Composite lost 0.79% to 17,736.98. MSCI’s gauge of stocks across the globe fell 0.18% to 829.87.
Israel and Hezbollah traded rocket salvos and airstrikes on Sunday, stirring worries about possible oil supply disruptions if the conflict escalated.
Crude prices were also buoyed by Libya’s eastern-based government announcement of the closure of all oil fields on Monday, which halted production and exports.
Brent crude traded up 2.7% to $81.15 per barrel and West Texas Intermediate rose 3.18% to $77.21 per barrel.
“The market is digesting a lot of news: obviously there was a rally on Friday on (Federal Reserve Chair Jerome) Powell’s comments and we thought durable goods orders come in good,” said Ben McMillan, principal and chief investment officer at IDX Insights in Tampa, Florida.
“Historically rate cuts have actually preceded equity market weakness because rates are being cut for a reason.”
New orders for long-lasting, U.S.-made goods, items ranging from toasters to aircraft meant to last three years or more, surged by 9.9% last month, marking a solid rebound from a decline in June and beating analyst expectations, Commerce Department data showed.
In a highly-anticipated speech to the Jackson Hole symposium on Friday, Powell said the time had come to start easing policy and emphasised the central bank did not want to see further weakening in the labour market.
European Central Bank chief economist Philip Lane struck a more cautious note in his Jackson Hole speech, saying the central bank was making “good progress” in cutting euro zone inflation back to its 2% target, but success was not yet assured.
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The yield on benchmark U.S. 10-year notes rose 0.3 basis points to 3.81%. The two-year note yield, which typically moves in step with interest rate expectations, rose 1 basis point to 3.9231%.
Fed fund futures are fully priced for a quarter-point cut at the September 18 meeting, and imply a 39.5% chance of a 50 bps move. The market also has 103 bps of easing priced in for this year and another 122 bps in 2025.
The ECB has already started cutting rates, with a 25 bps reduction in July, with a further two quarter point reductions priced in by year-end.
“I think it’s more likely than not that we’re going to see 75 bps cut this year. And the market has some potential readjustment for less rate cuts than is being priced in,” McMillan said.
NVIDIA AWAITED
Investors are also eyeing the latest earnings from AI powerhouse Nvidia , which reports on Wednesday to sky-high market expectations. The stock is up some 160% year-to-date, accounting for around a quarter of the S&P 500’s 18% year-to-date gain.
“The big thing this week is really Nvidia more than any of the macro stuff. I think folks are really focused on Nvidia because that’s been kind of the bellwether for the risk-on trade this year,” McMillan added.
Also in focus are U.S personal consumption and core inflation data due on Friday, along with a flash reading on European Union inflation. Analysts generally assume the data will be benign enough to allow for rate cuts in September.
The Japanese yen rose to a three-week high against the U.S. dollar, while the greenback rallied from an eight-month low. The dollar dropped to a three-week low against the yen of 143.45 but pared losses and was last slightly up 0.08% at 144.5.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, gained 0.18% at 100.84, with the euro down 0.21% at $1.1167.
Gold prices firmed, nearing the recent record high on safe-haven demand. Spot gold rose 0.14% to $2,513.79 an ounce. U.S. gold futures gained 0.28% to $2,515.50 an ounce.
(Reporting by Chibuike Oguh in New York, Dhara Ranasinghe in London; Editing by Mark Potter, Nick Zieminski and Marguerita Choy)
