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Markets Rally on Expectations of US Interest Rate Cuts, Ibovespa Sets New Record

Strategic Insights

— 2 min read

Market expectations for three interest-rate cuts by the US Federal Reserve this year underpinned a risk-on session in global markets, with the Ibovespa benchmark stock index in Brazil posting a fresh record both intraday and at the close. The Dow Jones, S&P 500, and Nasdaq major indexes on Wall Street rallied more strongly, with the Dow Jones gaining 1.36% and the S&P 500 rising 0.85%. The US consumer price index (CPI) rose 0.4% from July to August, slightly above the 0.3% increase expected by analysts. Core CPI, which excludes more volatile items, rose 0.3% month-on-month and 3.1% year-on-year, in line with consensus.

Key Takeaways:

  • The Ibovespa benchmark stock index in Brazil reached a new record high of 143,151 points, up 0.56%, with the record close previously held at 142,640 points and the intraday high at 143,409 points.
  • Markets are pricing in three interest-rate cuts by the US Federal Reserve this year, with a probability of 77.1% according to CME Group, implying reductions at each remaining meeting.
  • The expectation of rate cuts weighed on US Treasury yields, with the DXY dollar index falling 0.24% to 97.54 points, and two-year Treasury yields broadly steady at 3.552%, while the 10-year yield fell to 4.030% from 4.053% in the previous session.
  • Vickie Chang, a strategist at Goldman Sachs, noted that markets are pricing in a resilient US growth outlook, with dominant macro themes being a Fed seen as more inclined to cut rates, despite risks of renewed recession fears and a possible more hawkish Fed.
  • In Brazil, elections appear well-priced into equities but not into real interest rates, according to Paula Moreno, co-chief investment officer at Armor Capital, highlighting opportunities in intermediate-term inflation-linked government securities (NTN-Bs).

Statistics:

  • The Ibovespa benchmark stock index in Brazil reached a new record high of 143,151 points, up 0.56%.
  • The Dow Jones gained 1.36% and the S&P 500 rose 0.85% on Wall Street.
  • The US consumer price index (CPI) rose 0.4% from July to August, slightly above the 0.3% increase expected by analysts.
  • Core CPI rose 0.3% month-on-month and 3.1% year-on-year, in line with consensus.
  • The DXY dollar index fell 0.24% to 97.54 points.
  • Two-year Treasury yields were broadly steady at 3.552%, while the 10-year yield fell to 4.030% from 4.053% in the previous session.

Sources:

  • The Wall Street Journal
  • Deutsche Bank
  • Goldman Sachs
  • CME Group
  • Armor Capital
  • Daycoval Corretora

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