(Bloomberg) — European stocks and US equity futures rose as traders looked forward to a final set of economic data for clues on the size of Wednesday’s Federal Reserve interest-rate cut.
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Retailers led the advance in Europe’s Stoxx 600, while Nasdaq 100 contracts climbed, signaling a rebound after Monday’s rotation out of tech megacaps on Wall Street. Intel Corp. rallied 8.1% in premarket after the chipmaker won new business from Amazon.com Inc. The dollar steadied following a four-day decline and Treasury yields edged lower.
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On the eve of the Fed’s first rate cut in more than four years, investor attention will home in on US retail figures due later. Opinion in markets is divided between expectations that the Fed will cut by 25 basis points, or by 50.
“August’s US retail sales report is, arguably, the most important of today’s releases, given that a soft print would likely see participants go ‘all-in’ on the idea of a jumbo 50 basis point Fed cut tomorrow,” wrote Michael Brown, a strategist at Pepperstone Group Ltd., in a note. “Though it’s tough to imagine an equally aggressive paring of dovish bets were the data to beat expectations.”
Former Federal Reserve Bank of New York President Bill Dudley is among those expecting a 50 basis-point move. “Monetary policy is tight, when it should be neutral or even easy,” he wrote in a Bloomberg column. “And a bigger move now makes it easier for the Fed to align its projections with market expectations, rather than delivering an unpleasant surprise not warranted by the economic outlook.”
For Jacques Henry, head of cross-asset research at Silex in Geneva, such a large reduction is “a double-edged sword,” as it could suggest the Fed is worried the US economy is slowing faster than expected.
The quarter-point cut he expects brings the risk of some short-term disappointment for equity markets. “There could be some drawback on sectors such as real estate and tech,” Henry…
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