Stock Market Today: Dow futures rise after worst week for S&P 500 in 18 months

The main indexes of Germany, France and the U.K. each saw gains of around 0.5% to 0.6%.

Travel, techs, industrials and banks advanced while utilities and telecoms lagged behind.

Of stocks on the move, Adidas was downgraded to equal-weight at Barclays on worries over China and uncertainty in the U.S.

The same broker downgraded Burberry and Kering to underweight, arguing China weakness is structural and not cyclical.

Economists at Morgan Stanley lay out the rationale for a 25 basis point reduction.

“Payroll data showed clear slowing, but not enough to shift the Fed to 50bps in our view. In particular, because consumer spending remains strong, a recession is not the base case,” they say.

The team say the European Central Bank will cut rates this week, and be joined in a second cut by the Bank of England in November. The Bank of Japan will next lift interest rates in January, they say.

A look at interest-rate probabilities as proxied by fed funds futures shows a 73% chance of a quarter-point cut at next week’s Fed meeting.

“We have a 50bp in our forecast, but it is a low conviction call made on the basis that inflation fears have receded and the Fed will want to get ahead of labor market weakness, which we think will become increasingly apparent in the months ahead,” says James Knightley, chief international economist, U.S., at ING.

Knightley points out that if the payrolls revision from the numbers through March was applied to the August reading, then jobs growth was just 64,000. Another point is the jobs growth that was there was led by less cyclical sectors, like healthcare and government.

“The typical sectors I would associate with a strong, vibrant economy are not performing (business services, manufacturing, transport and logistics, tech, etc),” he says.

After the worst week for the S&P 500 in 18 months, U.S. stock futures traded higher on Monday.

S&P 500 futures rose by 0.5%, and the other major contracts also traded higher.

The S&P 500 stumbled by 4.3% last week after a string of downbeat economic data, notably Friday’s report showing 142,000 nonfarm payrolls added in August with downward revisions to past months.

“With index level valuation back up to 21x into the release, the equity market was looking for a clear signal that last month’s payroll weakness was driven by weather and one-off factors. Instead, softness persisted with last month’s payroll result revised even lower,” said Morgan Stanley’s equity strategists led by Mike Wilson.

Expectations are the Fed will begin a rate-cut cycle starting next week, but whether it’s a 25 or 50 basis point reduction isn’t clear. The debate could be settled by Wednesday’s consumer price index report, or possibly not.

Apple’s new phone unveiling is the big corporate event of the day.