Stocks, bonds and the dollar saw small moves at the start of a busy week for major central banks, whose rate decisions will set the tone for global markets for the rest of the year.

The S&P 500 closed near 4,450. Brent oil pared gains after almost hitting US$95 a barrel earlier Monday in a move that added to inflation concerns. Apple Inc. climbed, while Tesla Inc. dropped as Goldman Sachs Group Inc. lowered its earnings estimates for the electric-vehicle giant. Treasury 10-year yields edged lower while those on two-year notes remained above 5 per cent.

Starting with the Federal Reserve on Wednesday and ending with the Bank of Japan two days later, monetary policy will be determined at key meetings across half of the Group of 20. Advanced-economy central banks may draw particular focus as global policymakers adapt to the theme U.S. officials set out at Jackson Hole in August: Rates will likely stay higher for longer. 

With the Fed widely expected to keep rates on hold this week, traders will be focused on the so-called dot plot summary of economic forecasts. The two main questions are whether policymakers will retain their projections for one more 25 basis-point hike by year-end — and how much easing they are penciling in for 2024. In June, they projected 1 percentage point of cuts.

“We think the Fed will take a ‘hawkish pause’ this week and the futures market will reprice a higher probability for another rate hike before year end,” said Megan Horneman, chief investment officer at Verdence Capital Advisors. “Unfortunately, inflation is very easy to reignite especially if energy prices begin to filter into broad prices. Therefore, we think the Fed will need to insinuate they may not be done raising rates.”

The Fed will probably continue to sound hawkish, with one remaining hike still penciled in for 2023 and the prospect of very slow easing over the couple of years, according to David Kelly, chief global strategist at J.P. Morgan Asset Management. Still, while policymakers may plan for a gentle drop in rates, there’s risk of an economic downturn that would trigger much more rapid easing, he noted.

“It makes sense to be well diversified, with a relatively defensive position across equities and extending duration in within fixed income, as the risk of an economic stumble grows on the descent from the mountain of monetary tightening, Kelly added.

Lisa Shalett at Morgan Stanley Wealth Management says that while bullish investors have continued to harp on progress for headline inflation, a key metric closely watched by Fed Chair Jerome Powell suggests a “higher-for-longer” rate path.

“U.S. equity markets are definitively pricing a successful soft landing, with rates peaking and economic and corporate earnings growth reaccelerating,” she noted. “We remain skeptical of the growth reacceleration/margin expansion argument of the bull case. At best, we see U.S. equities rangebound over the next six to nine months, with the back and forth between earnings and multiples producing only churn.”

To Paul Nolte at Murphy & Sylvest Wealth Management, the two weakest months of the year are living up to expectations and following the typical pattern.

“That playbook would argue for further weakness into mid/late October before a year-end rally,” Nolte added. “Much of the rally is on the back of expectations that earnings will rise this quarter. Those higher earnings typically push stocks higher, but much of the market is already richly priced on a historical basis, so there may not be much room to push.”

Corporate Highlights

• Arm Holdings Plc fell after Bernstein started coverage on the newly public chip designer with an underperform rating, suggesting it may not be the beneficiary of artificial intelligence that some investors expect.
• Nikola Corp. climbed after the company appointed former General Motors Co. president Mary Chan as its new chief operating officer.
• Micron Technology Inc. rose after the chipmaker was raised to buy from hold at Deutsche Bank AG, with the broker noting that prices for DRAM chips have started to improve faster than expected.
• Walt Disney Co. has held preliminary talks with potential buyers for its India streaming and television business including billionaire Mukesh Ambani’s Reliance Industries Ltd., according to people familiar with the matter.
• Amazon.com Inc. is hiring Microsoft Corp.’s product chief to run the division responsible for the voice-activated Alexa assistant and Echo smart speakers, according to people familiar with the situation.

Key events this week:

• This week, Ukrainian President Volodymyr Zelenskiy is expected to meet with Joe Biden at the White House, attend United Nations General Assembly in New York.
• Reserve Bank of Australia issues minutes of September policy meeting, Tuesday
• OECD releases interim economic outlook report on the global economy, Tuesday
• Eurozone CPI, Tuesday
• Bloomberg Future of Finance Conference in Frankfurt, with speakers to include German Finance Minister Christian Lindner, Tuesday
• U.S. housing starts, Tuesday
• Japan trade, Wednesday
• China loan prime rates, Wednesday
• UK CPI, Wednesday
• Federal Reserve policy meeting followed by Fed Chair Jerome Powell’s news conference, Wednesday
• Bank of Canada issues summary of September’s policy meeting, Wednesday
• Eurozone consumer confidence, Thursday
• Bank of England policy meeting, Thursday
• U.S. leading index, initial jobless claims, existing home sales, Thursday
• China’s Bund Summit, Friday
• Japan CPI, PMIs, Friday
• Bank of Japan rate decision, Friday
• Eurozone S&P Global Eurozone PMIs, Friday
• U.S. S&P Global Manufacturing PMI, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 4 p.m. New York time
• The Nasdaq 100 rose 0.2 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index fell 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.3 per cent to US$1.0687
• The British pound was little changed at US$1.2382
• The Japanese yen rose 0.2 per cent to 147.61 per dollar

Cryptocurrencies

• Bitcoin rose 1.5 per cent to US$26,831.98
• Ether rose 1.4 per cent to US$1,641.18

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.31 per cent
• Germany’s 10-year yield advanced three basis points to 2.71 per cent
• Britain’s 10-year yield advanced three basis points to 4.39 per cent

Commodities

• West Texas Intermediate crude rose 1.4 per cent to US$92.04 a barrel
• Gold futures rose 0.4 per cent to US$1,954.60 an ounce