By Chibuike Oguh and Amanda Cooper
NEW YORK/LONDON (Reuters) -Global stocks edged lower on Wednesday amid tepid trading ahead of the U.S. election, while gold prices retreated from record highs, dragged down by gains in the U.S. dollar.
Investors are also rethinking how much the Federal Reserve might need to cut interest rates after the most recent U.S. economic data pointed to an economy that continues to expand and create jobs.
Markets are pricing a 92% chance of a 25-basis-point cut at the Fed’s next meeting in November and another 25-bps cut by year-end. A month ago, traders were pricing in as much as a full percentage point in cuts by January. The yield on benchmark U.S. 10-year notes hit three-month highs and was last up 3.2 basis points at 4.238%.
“This is a classic case of buy the rumor and sell the fact,” said Bill Strazzullo, chief markets strategist at Bell Curve Trading in Boston. “Buy the rumor of the rate cuts, and then as you get the rate cut, sell into it.”
On Wall Street, all three main indexes finished lower, driven by losses in consumer discretionary, technology and communication services stocks. Real estate and utilities were the biggest gaining sectors.
The Dow Jones Industrial Average fell 0.96% to 42,514.95, the S&P 500 fell 0.92% to 5,797.42 and the Nasdaq Composite fell 1.60% to 18,276.65.
The MSCI All-World index lost 0.79%, while in Europe, the STOXX 600 finished down 0.30%.
“We’ll see what the Fed does if they can handle this the right way and get the soft landing or not. And then, on top of that, obviously you got the election,” Strazzullo added, referring to the Nov. 5 U.S. election.
The chances of Republican candidate Donald Trump beating Democratic candidate Kamala Harris have recently edged higher on betting websites, though opinion polls show the race to the White House remains too tight to call.
The prospect of another Trump presidency has been in focus for investors, as his policies include tariffs and restrictions on undocumented immigration, among other measures, which are expected to push up inflation.
“There is an illusion that if Trump wins, you want to buy energy. Energy actually underperformed during the period from 2016 to 2020 (when Trump was president). What did outperform, and people should be buying on that basis, would be industrials like Boeing, small caps, and, believe it or not, emerging markets and China equities,” said Thomas Hayes, chairman at Great Hill Capital in New York.
Gold retreated after hitting record highs amid gains in the U.S. dollar. Demand for safe-haven gold is partly driven by U.S. election worries and geopolitical tensions in the Middle East and Europe.
Bullion, which has risen 33% this year, was last down 1.19%at $2,715.62 an ounce. U.S. gold futures fell 0.1% to $2,741.50 an ounce. It hit a record high of $2,758.37 earlier in the session.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,rose 0.26% to 104.37.
Against the Japanese yen, the dollar strengthened 1% to 152.57. The euro fell 0.11% to $1.0785.
Goldman Sachs said in a note on Tuesday the euro could fall by as much as 10% in a scenario under which a Trump presidency ushered in hefty tariffs and tax cuts.
Oil prices fell after data showed U.S. crude inventories rose by more than expected even as refining activity rebounded.
Brent crude futures settled at $74.96 per barrel, down 1.42%. U.S. West Texas Intermediate crude futures settled down 1.35% at $70.77.
(Reporting by Chibuike Oguh in New York and Amanda Cooper in London; Editing by Rod Nickel and Matthew LewisTo read Reuters Markets and Finance news, click on https://www.reuters.com/finance/markets For the state of play of Asian stock markets please click on: )
