Overnight – Stocks and Gold up on the prospect of steeper rate cuts

Stocks and Precious metals advanced on Friday as gold continued to hit record highs as investors looked to whether the Federal Reserve might move more aggressively to cut rates at its policy meeting Wednesday.

Futures tied to the Fed’s policy rate now reflect about a 47% chance the Fed will cut its policy rate by half a percentage point, climbing from 28% odds on Tuesday following media reports suggesting it could be a close call between a half-point and a quarter-point rate cut.

The growing anticipation of steeper cuts helped boost stocks, gold and Treasury prices, and drive down the dollar. Hopes for a bigger cut were further boosted when influential former New York Fed President Bill Dudley said at a forum in Singapore, “There’s a strong case for 50.” But tepid inflation and other economic data earlier in the week suggest the Fed may be willing to start slow as it cuts rates for the first time since 2020.

While It’s true that many rate-cutting cycles have indeed begun with a heftier chop, but typically against the backdrop of financial market stress – with the S&P 500 just 1% off its peak, and U.S. household net worth at a record high, it’s tough to point to financial stress and a 50 bps cut

All eyes now turn to the FOMC rate decision meeting next Wednesday night/Thursday morning Australian time