Global equity markets rallied sharply as investors interpreted weak U.S. jobs data as a signal that the Federal Reserve may begin cutting interest rates sooner than anticipated.
The unexpected downward revisions to payrolls for May and June triggered a wave of optimism that a more accommodative monetary policy stance is on the horizon. Equities futures in both U.S. and European markets leaned higher, reflecting renewed confidence in the near-term outlook.
Wall Street opened higher Monday following Friday’s losses and posted its strongest one-day advance since May. The S&P 500 rebounded by approximately 1.5%, the Dow Jones Industrial Average surged 1.3%, and the Nasdaq climbed nearly 2%, with notable gains across tech and retail stocks.
Investors seized the dip as earnings beat Wall Street expectations, boosting sentiment amid broader optimism.
In fixed income markets, the reaction was equally dramatic: two-year U.S. Treasury yields tumbled by around 25 basis points marking the largest single-day drop in over a year while the yield curve steepened as longer-term rates softened more gradually.
This sharp decline reflects heightened expectations for rate cuts, with federal funds futures pricing in roughly a 85% chance of a September move.
Currency markets also responded: the dollar’s slide was arrested in Asian hours, with the greenback steadying after a sharp fall.
The euro gained modestly, though continued concerns over European growth remain, while sterling hovered near $1.33 in light of expectations that the Bank of England may not ease as quickly as the Fed.
In Asia, equity markets followed the global lead as MSCI Asia ex‑Japan rose by about 0.6%. Optimism in regional markets stems from the dovish shift in U.S. policy outlook and anticipation of synchronized central bank easing.
Commodities also saw movement: gold climbed toward a one-week high on yield-driven demand, while oil prices slipped further on OPEC+ supply boosts and softened expectations for demand.
Despite the strong start to the week, analysts caution about uneven data credibility and potential overheating. President Trump’s dismissal of the Bureau of Labor Statistics head has raised concerns over independence and accuracy of key economic data.
SocGen strategists warn that while markets may benefit from rate cuts, a surge past historical S&P thresholds such as 7,500 could herald bubble dynamics reminiscent of past market excesses.
Investors are now watching upcoming inflation figures, consumer spending data and comments from Fed officials closely. Market consensus suggests that any clarity confirming sustained labor weakness or inflation cooling could cement expectations for a September rate cut.
Corporate earnings updates from major firms including Walt Disney, Caterpillar and tech giants are also expected to influence sentiment into the week.
In summary, the markets’ rebound reflects a shift from earlier pessimism toward a hopeful environment fueled by monetary policy optimism.
If economic softness continues, central banks may pivot in response, potentially underpinning further gains in equities. However, risks remain especially if data shocks or geopolitical uncertainties emerge to disrupt the fragile sentiment.
Written By Ian Maleve
