Market Caution: Investors Eye Critical Economic Data

World stocks steadied and the dollar hit a two-week high as investors looked ahead to critical U.S. economic data, particularly the ISM manufacturing survey and jobs data. The results will inform expectations on Federal Reserve rate cuts. Oil and gold markets also saw notable movements amid economic uncertainty.

World stocks steadied on Tuesday as the dollar rose to a two-week high. Investors remain cautious while awaiting key economic data that may influence U.S. interest rate cuts. Attention is on the U.S. ISM manufacturing activity survey and upcoming jobs data, crucial for determining the Federal Reserve's next steps.

World shares dipped by 0.1%, while Europe's STOXX 600 fell by 0.3% and U.S. stock futures were down by around 0.5%. The U.S. dollar strengthened against a basket of currencies.

Economists predict that the ISM survey will show improvement but stay in contraction at 47.5 for August. Evelyne Gomez-Liechti, rates strategist at Mizuho, said any market reaction to surprises will likely be contained due to the event risk ahead.

Analysts expect U.S. non-farm payrolls to rise by 160,000, with unemployment dipping to 4.2%. A previous jump in the unemployment rate led to a global markets selloff, increasing investor expectations for Federal Reserve rate cuts.

Traders anticipate around 100 basis points of rate cuts across three meetings, including a potential significant 50 bps cut. However, many investors believe this is overpriced given the relatively healthy U.S. economy. Stock markets have rebounded, while bond markets remain steady.

Global market strategist Raisah Rasid from J.P. Morgan noted that Friday's data will be critical for policymakers expecting a cooling labor market to justify rate cuts. In bond markets, 10-year Treasury yields remained unchanged at 3.92% following a U.S. holiday.

In energy markets, oil prices tumbled, with Brent crude futures dropping over 2% to $75.44 a barrel, the lowest since August 5. Oil prices had previously surged due to political tensions in Libya but have since struggled due to demand concerns in China.

Japan's yen gained 0.5% against the U.S. dollar, breaking a four-day losing streak. This came after media reports cited the Bank of Japan's governor reiterating plans to raise interest rates if economic conditions meet expectations.

The euro hit a fresh two-week low against the dollar. Chief market analyst Nick Twidale from ATFX Global in Sydney stated that if the NFP meets targets, a 25-bps rate cut is likely, leading to further dollar appreciation.

Gold prices dipped to $2,496 an ounce after reaching a record high of $2,531 in August.

(With inputs from agencies.)