Stocks Edge Higher as Traders Boost Fed Cut Bets: Markets Wrap

(Bloomberg) — European stock futures rose and shares in Asia mostly gained after traders bolstered bets on Friday that the Federal Reserve will lower interest rates this year.

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Euro Stoxx 50 increased 0.4%, while contracts for US equities were steady. The MSCI Asia Pacific share index climbed for a third session after a surprise decline in US producer prices Friday reinforced bets the Fed will lower borrowing costs in coming months.

The dollar and Treasury futures were both little changed in Asia with overall trading levels appearing muted as Monday is a public holiday in the US.

Swaps traders see around an 80% chance that the Fed’s easing cycle will start in March, up from about 62% earlier last week, according to data compiled by Bloomberg.

“This week’s US economic data will either curtail money market expectations of aggressive Fed funds rate cut or validate them,” Win Thin, global head of currency strategy at Brown Brothers Harriman & Co., wrote in a note. “Given extreme market positioning, we believe the dollar’s downside is limited with the risks skewed to the upside,” he said.

Japanese stocks rose after both the Topix and the Nikkei 225 indexes climbed to 34-year highs last week amid inflows from overseas investors. Stocks also advanced in Taiwan after the Democratic Progressive Party won the presidential election and the more China-friendly Kuomintang gained too few seats to control the assembly.

China’s CSI 300 Index fluctuated between gains and losses amid speculation officials may lower the required reserve ratio after the People’s Bank of China unexpectedly left the rate on its one-year policy loans at 2.5% Monday. That was contrary to expectations among economists that it would trim the so-called medium-term lending facility by 10 basis points.

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“Rate cuts are likely still on the cards, but China looks to be taking a more measured approach to policy easing,” said Marvin Chen, an analyst at…