Global Equities Lifted by Rate-Cut Optimism, Dollar Edges Lower

Global equity markets advanced on Monday, supported by rising conviction that the Federal Reserve will resume its easing cycle in September. The MSCI Asia-Pacific index edged higher, with Japan’s Nikkei 225 extending fresh record highs. Meanwhile, U.S. futures climbed, pushing the Nasdaq into new record territory.

Fed Cuts Dominate Market Focus

The Fed outlook remains the primary driver of sentiment. Traders are fully pricing in a 25-basis-point cut at next week’s meeting, while a larger 50-point move is viewed as less likely but still possible. According to CME FedWatch, markets are now expecting three cuts in 2025 — expectations that have further bolstered the equity rally.

Chart: CME FedWatch Rate Probabilities | Source: CME Group

However, analysts at Ultima Markets caution that rate-cut optimism may not guarantee sustained gains. Historically, markets tend to recalibrate quickly once the first cut is delivered, as focus shifts to the pace and depth of easing.

Bonds, Dollar, and Fiscal Concerns

Bond markets continue to flash fiscal concerns, with U.S. yields diverging from peers despite the softer policy outlook. This divergence has helped keep the U.S. dollar supported, though the currency remains locked in a broad consolidation range.

Currently, the dollar is fluctuating between 98.50 and 97.50, with recent price action suggesting a potential bearish breakdown. A decisive move outside this range could set the tone for the next trend.

Markets Eye U.S. Inflation Data

Attention now turns to this week’s U.S. inflation reports, which will be the final test ahead of the September 16–17 FOMC meeting. A softer-than-expected CPI reading could reinforce the case for a deeper easing cycle, while sticky inflation would likely force the Fed to tread more cautiously.

Beyond the Fed, investors are also watching corporate earnings momentum and sector rotation, both of which could influence risk appetite into year-end.

Chart: S&P 500, Daily | Source: Ultima Markets MT5

On the S&P 500, the uptrend remains intact. However, a rising wedge pattern is forming, signaling upside with weakening momentum. This suggests markets may turn more cautious while awaiting clearer inflation signals.

Bottom Line

Global markets are leaning into the Fed’s pivot, but the next leg of the rally will hinge on whether inflation confirms the path for sustained easing — and how far policymakers are willing to go in reassuring investors next week.

Disclaimer

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