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A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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Any investor trepidation about a slowing US economy is once again being offset by renewed interest rate cut hopes, seeing the third day in row that Wall St stocks have turned around early losses to end higher by the close.

In a week packed with employment updates, Tuesday’s hat-trick of late market rallies followed further signs of a cooling U.S. labor market. U.S. job openings fell more than expected in April to the lowest in more than three years, with the ratio of vacancies to job-seekers also back at mid-2021 levels.

People walk around the Financial District near the New York Stock Exchange (NYSE) in New York, U.S., December 29, 2023. REUTERS/Eduardo Munoz

With one eye on Friday’s May employment report, Wednesday’s release of ADP’s private sector job survey is next on the slate and a modest slowdown in job creation to 175,000 is forecast.

But already Federal Reserve rate cut speculation is back on the boil – with 45 basis points of 2024 Fed easing back in the futures strip and a near 80% chance of pre-election first move priced by September.

Aided by this week’s plunge in energy prices and crude oil back at February levels, U.S. Treasury yields ebbed further on Tuesday before steadying today as they await the big jobs release later in the week.

Whatever the Fed does, the Bank of Canada is set to beat it to the punch and is widely expected to cut as soon as Wednesday.

With inflation back in the BoC’s 1-3% target range and following disappointing early year growth readings, money markets have priced an 80% chance of a quarter point cut later today and three quarters of economists polled also expect one.

Reflecting the forecasts, the Canadian dollar was steady ahead of the decision.

More broadly, monetary easing around the world is the main reason renewed Fed rate cut speculation has done such little damage to the U.S. dollar.

With a European Central Bank rate cut also widely expected on Thursday, four of the G7 economies would then be in easing mode. And following rate cuts in Switzerland and Sweden already this year, four central banks of the G10 most traded currencies will likely have cut by the end of this week.