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Wall Street pares earlier gains on rate cut bets


MSCI’s gauge of global stock performance closed up 0.30% and European shares closed at record closing highs

Wall Street pared earlier gains on Tuesday after equity markets elsewhere rallied as investors parsed when and by how much the Fed cuts interest rates this year, while a rising dollar helped weaken the yen further.

MSCI’s gauge of global stock performance closed up 0.30% and European shares closed at record closing highs.

Benchmark Treasury yields weakened, but the dollar gained on the prospect of stronger U.S. growth and potentially higher rates than other developed economies.

It is a quiet day, the major averages are flat, and there is some profit taking, according to Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder. The focus remains on the Fed, but the Fed is pretty clear that there is little that’s happening any time soon.

A weaker-than-expected U.S. jobs report on Friday following the prior week’s GDP figure, which showed the slowest growth in around two years, provoked a dovish pivot among investors regarding how soon and by how much the Fed cuts rates.

Traders are now pricing in 44 bps of Fed rate cuts by the end of 2024, with a first cut possibly in September, as per LSEG’s rate probability app. Traders had recently priced in just one cut due to sticky inflation data.

It is not that we do not think that inflation is going to come down. We just do not think that in view of having had three top-side prints on inflation, which we are going to get comfort with inflation, that quickly, according to Thierry Wizman, global FX and interest rates strategist at Macquarie.

It is going to take more than one print, maybe even more than two prints of low inflation before the Fed is comfortable, and that just means that there is not going to be enough time potentially this year to squeeze in two rate cuts, Wizman added.

On Wall Street, the Dow Jones Industrial Average gained 0.08%, the S&P 500 gained 0.13% and the Nasdaq Composite shed 0.1%.

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