US, European stocks bounce as traders await Fed speech

PARIS — US and European stock markets rebounded Wednesday but Asia slipped as investors waited for a speech by US Federal Reserve chief Jerome Powell at the end of the week.

Traders are hoping Powell will give more hints about a widely expected Fed interest-rate cut when he addresses an annual gathering of central bank chiefs in Jackson Hole, Wyoming, on Friday.

US stocks climbed at the open, after all main indexes fell a day earlier, breaking an eight-day advance.

The London, Paris and Frankfurt stock markets all gained in afternoon trading, after major Asian indexes closed in the red.

"In the absence of major data, I believe that the rebound is backed by optimism into the Jackson Hole meeting and the prospects of Fed rate cuts," Swissquote Bank analyst Ipek Ozkardeskaya told AFP.

Markets had retreated earlier this month after weak US data raised fears of recession in the world's biggest economy.

But they recovered as more recent indicators showed healthy retail sales and easing inflation, backing the view that the Fed is on course to guide the economy to a "soft landing" and avoid a recession.

Traders will pore over revised US payroll data due later Wednesday for more indications about what the Fed might do.

'Markets have settled'

Analysts expect the Fed to cut rates — which has been raised to a 23-year high to combat inflation — at its next meeting in September. The question is whether it will reduce them by 0.25 percentage points or more.

"After a wild ride in the last three weeks that had little basis in fundamentals, markets have settled on predicting a first 25 bp [basis point] Fed rate cut at its 18 September meeting," said Holger Schmieding, chief economist at Berenberg bank.

But Stephen Innes, managing partner from SPI Asset Management, warned that "it wouldn't take much more than a bump in the unemployment rate to shove the market right back into 50bps territory".

Other central banks, including the European Central Bank and Bank of England, have already started to reduce borrowing costs.

Sweden's Riksbank lowered its policy rate for the second time this year on Tuesday while New Zealand made its first cut since early 2020 last week.

The dollar steadied against the pound and euro on Tuesday after sinking recently due to the prospect of lower interest rates, which make the greenback less attractive to investors in assets such as bonds.

Gold prices fell to $2,507 after breaking to a record high above $2,530 on Tuesday on Fed rate cut bets that would make the metal more attractive to investors.

Meanwhile oil prices steadied after a series of declines, as efforts continue for a ceasefire between Israel and Hamas to avert a broader war in the Middle East.