Asian shares crept cautiously higher on Monday, while the dollar and bond yields were on the wane ahead of inflation data that investors hope will pave the way for rate cuts in the United States and Europe.
Oil prices climbed 0.8% after Israel and Hezbollah traded rocket salvos and air strikes on Sunday, stirring worries about possible supply disruptions if the conflict escalated.
Brent rose 55 cents to $79.57 a barrel, while U.S. crude added 56 cents to $75.39 per barrel. Investors are also anxiously awaiting earnings from AI darling Nvidia on Wednesday to see if it can match the market's uber-high expectations. The stock is up some 150% year-to-date, accounting for around a quarter of the S&P 500's 17% year-to-date gain.
Asia has seen an extension of the Powell rally so far on Monday with yields and the dollar down, and most stocks edging higher.
Powell put the cat among the doves with his sudden emphasis on the health of the labor market over and above inflation, basically saying the Fed won't tolerate a weaker employment outlook.
That lowered the bar for an outsized cut of 50 basis points in September, with futures now implying a 38% chance of such a move and 103 basis points of easing by Christmas.
Ten-year yields of 3.79% are just 10 basis points under the two-year and it can't be long before the curve turns properly positive. Indeed, it's surprising that hasn't happened already, particularly given the sheer scale of Treasury issuance, and suggests something extra is keeping longer-term yields down.
Time is also running out for the inverted curve to predict a recession, though the Atlanta Fed GDPNow measure has slowed to an annualized 2.0%, from 2.4% mid-month.
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