(Updates through close of U.S. trading)
By David Randall
NEW YORK, Oct 3 (Reuters) - The latest weaker-than-expected
U.S. economic data on Thursday fed hopes that the Federal
Reserve would cut U.S. interest rates this month, which helped
lift global equities slightly after two days of declines, but
investors also parked some funds in U.S. Treasuries and other
safe-haven assets.
The drop in the closely watched Institute for Supply
Management's non-manufacturing activity index boosted fears that
the U.S.-China trade war could push the global economy into a
recession.
"The degradation of the data, especially the
non-manufacturing data, kind of pushes that to the Fed doing
another cut," said Kim Forrest, chief investment officer at
Bokeh Capital Partners in Pittsburgh. "This is very familiar to
the post-2008 world where we get bad news and the market rallies
because we are anticipating a rate cut."
MSCI's gauge of stocks across the globe .MIWD00000PUS
gained 0.39%, following broad declines in Europe as investors
priced in new U.S. tariffs that are set to be imposed on $7.5
billion of European goods. Washington will enact 10% tariffs on Airbus AIR.PA planes
and 25% duties on French wine, Scotch and Irish whiskies and
cheese from across the continent as punishment for EU subsidies
to Airbus.
On Wall Street, the Dow Jones Industrial Average .DJI rose
123.1 points, or 0.47%, to 26,201.72, the S&P 500 .SPX gained
23.1 points, or 0.80%, to 2,910.71 and the Nasdaq Composite
.IXIC added 87.02 points, or 1.12%, to 7,872.27.
Each index had been slightly positive before the ISM data
was released shortly after the market opened and fell more than
1% before recovering their losses.
Fears of an economic slowdown helped push investors into the
perceived safety of bonds. Benchmark 10-year U.S. Treasury notes
US10YT=RR last rose 18/32 in price to yield 1.5359%, from
1.597% late on Wednesday.
"The big question for a lot of folks is whether this is the
third slowdown since the financial crisis or are we now heading
for a global recession?" said Anujeet Sareen, a fixed income
portfolio manager and global macro strategist for Brandywine
Global. He said his base case scenario was for a slowdown, and
added that the unpredictability of U.S. President Donald Trump
was a complicating factor.
"The wild card in the pack is always Donald Trump and
whatever he tweets next."
Asian shares racked up losses earlier in the day. Japan's
Nikkei stock index .N225 closed down 2%, its biggest one-day
decline since Aug. 26.
"Risk aversion is broadly on the rise and that has been
triggered by the weakness in U.S. manufacturing ISM data earlier
this week," said Manuel Oliveri, an FX strategist at Credit
Agricole in London.
"The outperformance of the U.S. economy compared to other
major economies has held the dollar and other risky assets up
but that has changed this week."
The weak economic data has increased market expectations
that the Fed will cut rates again. Traders see a 98% chance the
Fed will cut rates by 25 basis points to 1.75%-2.00% in October,
up from 39.6% on Monday, according to CME Group's FedWatch tool.
FEDWATCH
Bets on a rate cut could rise further if a U.S. non-farm
payrolls report on Friday shows weakness in the labor market.
Brent crude LCOc1 futures were last down 0.3% to $57.51 a
barrel, while U.S. West Texas Intermediate (WTI) crude CLc1
fell 0.8% to $52.22 per barrel.
Global assets in 2019 http://tmsnrt.rs/2jvdmXl
Global currencies vs. dollar http://tmsnrt.rs/2egbfVh
Emerging markets in 2019 http://tmsnrt.rs/2ihRugV
MSCI All Country Wolrd Index Market Cap http://tmsnrt.rs/2EmTD6j
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