Expectations of an imminent resumption in U.S. interest rate cuts provided a significant boost to world stocks on Monday. This optimism, fueled by U.S. Federal Reserve Chair Jerome Powell’s recent Jackson Hole speech, propelled Asian shares to multi-year highs as investors anticipated a more dovish monetary policy stance from the central bank.
However, the positive momentum failed to carry into European trading sessions. Enthusiasm from Powell’s comments waned as investors turned their attention back to the broader economic landscape. The retreat in European shares was further exacerbated by notably thin trading volumes, with the London market closed for a public holiday.
The shift in tone from Fed Chair Powell has led markets to heavily price in a rate cut as early as September. Futures markets now indicate an 84% probability of a quarter-point cut next month and are forecasting at least 100 basis points of easing by mid-next year. This pivot is seen as a major supportive factor for equity valuations, with one analyst noting it gives investors “room to become ever more expensive.”
The divergent performance was clear in the indexes. While MSCI’s global index held near record highs, Asian markets shone brightly. Chinese blue-chip stocks surged over 2% to their highest level since 2022, and Japan’s Nikkei index advanced 0.4%. In contrast, European markets struggled to find direction in the absence of key participants.
