European stocks could start Monday mixed as investors monitor current geopolitical tensions in the Middle East and anticipate Federal Reserve Chair Jerome Powell's speech for indications of further rate cuts.
On September 12, the Federal Reserve lowered its benchmark interest rate by 50 basis points, marking the first reduction since 2020. Traders are now positioning for the U.S. central bank to potentially cut rates by an additional 75-100 basis points this year.
Powell's upcoming speech at the National Association for Business Economics event, along with U.S. reports on manufacturing and service sector activity and the September jobs report, could shape investors' expectations ahead of the Federal Reserve's next monetary policy meeting on November 6-7.
Domestically, revised quarterly national accounts and mortgage approval data from the U.K., along with preliminary inflation figures from Germany, may influence market sentiment as the day progresses.
Geopolitically, Israel intensified military operations against Hezbollah in Lebanon on Sunday, targeting several sites following the killing of the group's leader, Sayyed Hassan Nasrallah. There are concerns that Israel's increased actions against Hezbollah in Lebanon and Houthi in Yemen may edge the region closer to a wider conflict involving Iran and the United States.
Asian stocks displayed a mixed performance, with benchmark indexes in mainland China and Hong Kong surging 4-7 percent after three of China's largest cities relaxed homebuyer rules and the central bank adjusted the mortgage rate mechanism to reduce financial pressure on homeowners. Investors seemed to overlook an official factory survey indicating that China's manufacturing activity contracted for a fifth consecutive month in September.
Conversely, Japan's Nikkei index dropped nearly 5 percent, even as a surging yen stabilized following dovish remarks from Japan's pending Prime Minister Shigeru Ishiba.
Gold remained steady in Asian trading but is poised for a fourth consecutive quarterly gain. Meanwhile, oil prices increased by approximately 1 percent due to rising concerns over potential supply disruptions from the Middle East.
U.S. stocks ended mixed on Friday. While AI giant Nvidia led a broad selloff in chipmakers, this was countered by a soft PCE inflation report and data indicating strong consumer sentiment in the U.S. The Fed's preferred inflation measure slowed to 2.2 percent in August from 2.5 percent in July, surpassing economists' expectations of 2.3 percent. However, Core PCE remained steady at 2.7 percent, raising doubts about continuous rate cuts by the Fed.
The Dow rose by 0.3 percent to a new record high, while the tech-heavy Nasdaq Composite and the S&P 500 declined by 0.4 percent and 0.1 percent, respectively.
European stocks advanced on Friday, supported by China's efforts to stimulate its economy and the release of soft inflation data from the U.S., France, and Spain. The pan-European STOXX 600 climbed by 0.5 percent to close at a record high. The German DAX increased by 1.2 percent, France's CAC 40 rose by 0.6 percent, and the U.K.'s FTSE 100 added 0.4 percent.
