Wall Street Gains Amid Recession Hopes and Cooling Inflation

Wall Street experienced a rise, supported by expectations of the U.S. dodging a recession and cooling inflation leading to interest rate cuts. Major indices like the Dow Jones, S&P 500, and Nasdaq saw gains. Analysts forecast potential Federal Reserve easing, influencing currencies, yields, and commodity prices.

Wall Street pushed higher and the dollar tipped lower on Monday, after stocks surged last week on expectations the U.S. economy would dodge a recession and cooling inflation would kick off a cycle of interest rate cuts. The Dow Jones Industrial Average rose 0.51%, to 40,866, the S&P 500 gained 0.53%, to 5,583, and the Nasdaq Composite gained 0.54%, to 17,727. MSCI's broadest index of world stocks had edged up around 0.67%.

The prospect of lower borrowing costs could not sustain gold's historic highs, and the dollar dipped against the euro, while the yen lunged higher. In the U.S., Federal Reserve members Mary Daly and Austan Goolsbee were out over the weekend to flag the possibility of easing in September, while minutes of the last policy meeting due this week should underline the dovish outlook.

Fed Chair Jerome Powell speaks in Jackson Hole on Friday, and investors assume he will acknowledge the case for a cut. 'We expect the chairman to convey on Friday that the Fed is likely to begin easing monetary policy next month, without fully committing to the size of the rate cut,' TD Securities analysts wrote in a note on Monday.

Interest rate futures are fully priced for a quarter-point move, and imply a 25% chance of 50 basis points with much depending on what the next payrolls report shows. Yields on U.S. government debt eased on Monday; the yield on benchmark U.S. 10-year notes fell 3.2 basis points to 3.86%, from 3.892% late on Friday.

Analysts at Goldman Sachs downshifted their U.S. recession expectations to a 20% chance, and could push them lower if the August jobs report due in September 'looks reasonably good,' analysts said in a note on Friday. Ahead of the busy week, broad European shares moved about 0.6% higher, touching an over three-week high in broad-based market gains, while the blue-chip FTSE 100 index traded up 0.55%.

Investors are anticipating flash Purchasing Managers' Index (PMI) data for Britain, France, Germany, and the Eurozone later this week. Earlier, the Nikkei index .N225 closed 1.77% lower at 37,388.62, snapping a five-day winning run that pushed it up 8.7% last week. Chinese blue chips closed about 0.3% higher.

The Fed is not alone in contemplating looser policy, with Sweden's central bank expected to cut rates this week, possibly by an outsized 50 basis points.

In currency markets, the dollar lapsed 0.67% to 146.58 yen while the euro firmed to $1.107, continuing its August climb. Even as markets have calmed, it is worth remembering that the economic fundamentals behind the global markets sell-off two weeks ago have not completely vanished, said Deutsche Bank macro strategist Henry Allen. 'Economic data has been increasingly soft at a global level, falling inflation means that monetary policy is increasingly tight in real terms, geopolitical concerns are elevated, and we're heading into a tough period on a seasonal basis,' said Allen in a note. A softer dollar combined with lower bond yields could not hold gold at its zenith and it fell to around $2,501 an ounce, down from its all-time peak of $2,509.

Oil prices dipped as concerns about Chinese demand continued to weigh on sentiment. U.S. crude lost 2.95% to $74.39 a barrel, and Brent fell to $77.62 per barrel, down 2.59% on the day.

(With inputs from agencies.)