Global shares near one-month highs

MSCI's All-World index was 0.1% higher, around its highest level since April 10

Global shares traded near one-month peaks on Tuesday, boosted by renewed confidence in U.S. interest rate cuts, while a softer yen and small decline in the Australian dollar kept the dollar steady.

Last week saw a dramatic swing in investor expectations for the U.S. interest rate outlook. Market pricing went from showing even one rate cut in 2024 looking less likely to around two being priced in by Friday, after monthly employment data suggested the labour market is softening.

A hefty sell-off in U.S. stocks early in the week, accelerated by volatile earnings, reversed, sending the benchmark S&P 500 index up by the most in a day since February after Friday's payrolls report, and adding to gains on Monday.

On Tuesday, U.S. futures pointed to a steady start later on, while stocks in Europe caught a bid from the banks, where UBS and Unicredit beat expectations, sending the STOXX 600 0.6% higher.

MSCI's All-World index was 0.1% higher, around its highest level since April 10.

We remain in the camp that the right question is not whether we will get one or two rate reductions from the Fed this year, according to Jefferies strategist Mohit Kumar.

As long as the optionality of Fed cuts on any weakness remains, the Fed put is intact which will continue to support risky assets, he added.

Futures show traders believe U.S. rates will decline by nearly 45 bps this year, from 5.25-5.50% right now. This time last week, just 28 basis points were priced in.

The mood set by last week's softer-than-expected U.S. jobs data was further underpinned by remarks from Fed Chair Jerome Powell reiterating that the next move in rates will be lower.

Expectations of declining rates have weighed on the dollar, though only gently. European policymakers are readying cuts for June, capping the euro, and rates are not expected to move too far above zero in Japan this year, leaving a wide gap with the rest of the world.

The dollar gained 0.6% on the yen on Monday and a further 0.3% to 154.31 yen on Tuesday, keeping markets on edge as to whether Japanese authorities may step in again.

Traders estimate Japan spent around $60 billion defending the yen last week.

Australia's central bank left interest rates on hold but the Aussie dollar slid around 0.4% to $0.6599 after policymakers did not strengthen guidance around the risk of another rate hike.

Sterling shed 0.2% to $1.254, while the euro was down 0.1% at $1.07628.