Global Stocks Climb on Dovish Fed Expectations; Rate-Cut Bets Rise After Weak U.S. Jobs Report

Global stock markets advanced on Monday as investors interpreted the latest U.S. labor market data as a green light for future interest rate cuts from the Federal Reserve. The softer-than-expected August jobs report sparked optimism that the Fed may initiate monetary easing sooner than anticipated, helping to fuel a broad rally in equities and risk assets.

Futures tied to the S&P 500 and Nasdaq 100 surged in early trading, while European and Asian markets followed suit. The data reinforced expectations that the Federal Reserve could cut interest rates by as much as 50 basis points in 2025, with futures markets now pricing in approximately 68 basis points of easing by year-end.

U.S. Labor Data Sparks Market Optimism

The catalyst for Monday’s rally was the release of August’s non-farm payrolls report, which showed signs of cooling in the U.S. labor market. Job growth slowed, unemployment ticked slightly higher, and wage growth moderated—all indicators that inflationary pressures may be easing. For investors, this reduces the likelihood of further tightening by the Fed and increases the chance of a rate-cutting cycle beginning in early 2025.

Economists now forecast a potential 25 to 50 basis-point rate reduction as early as Q1 2025, with additional cuts possible if inflation continues to moderate. This dovish pivot is seen as a tailwind for equities, particularly growth and tech sectors that are sensitive to interest rate fluctuations.

Asian Markets React to Political Developments in Japan

In Asia, markets were further influenced by breaking political developments in Japan. The resignation of Japanese Prime Minister Shigeru Ishiba sent immediate shockwaves through currency and equity markets. The Japanese yen fell sharply against major currencies, weakening investor sentiment in FX markets but buoying export-heavy Japanese equities.

The Nikkei 225 index rose by approximately 1% in response, as traders speculated on the likelihood of a more dovish successor. Early frontrunner Sanae Takaichi, known for her accommodative stance on monetary policy, is being viewed as a potential continuity candidate for aggressive fiscal and monetary stimulus.

Market analysts suggest that the leadership transition may further weaken the yen if dovish policies remain in focus, potentially supporting Japanese equities in the short term but increasing volatility in the foreign exchange landscape.

Gold Prices Near Record Highs on Global Uncertainty

Meanwhile, gold prices continued their bullish trajectory, with the precious metal nearing an all-time high. Gold traded around $3,588 per ounce, reflecting a staggering 37% year-to-date gain. The rally in gold has been driven by several converging factors: geopolitical uncertainty, central bank buying, investor hedging amid rate-cut expectations, and continued weakness in major currencies like the yen, euro, and pound.

As real yields decline and inflation fears recede, gold has reasserted itself as a safe-haven asset, drawing strong inflows from institutional and retail investors alike. If monetary policy shifts toward easing in both the U.S. and Europe, gold could potentially breach its previous all-time highs in the weeks ahead.

Forex and Bond Market Reaction

Currency markets also reflected shifting sentiment. Both the euro and British pound pulled back against the U.S. dollar, reversing some of last week’s gains as traders recalibrated expectations for rate paths in Europe.

In the fixed income space, government bond yields remained elevated across key markets, though demand for long-dated bonds showed modest recovery. Fiscal concerns, especially in the U.S. and parts of Europe, continue to keep investors cautious, even as attention turns to central bank direction.

Outlook: Risk Assets in Focus as Central Bank Path Clarifies

Markets will be watching closely in the coming weeks for more guidance from central bank officials, particularly ahead of the next Federal Reserve policy meeting. If incoming data continues to suggest economic softening without triggering recession fears, risk assets like equities and commodities could see sustained upward momentum.

Investors are now positioning cautiously but optimistically, with an eye on economic indicators, policy statements, and geopolitical developments that could tip the balance in favor of more aggressive risk-on sentiment.