A look at the day ahead in U.S. and global markets from Mike

Dolan

Wall Street looks set to grind out another record on Tuesday as

world markets were enlivened by long-awaited monetary easing in

China - rate cuts aimed at underpinning a wobbling economy

that's sowing weakness across the world, not least in Europe.

Chinese stock indexes surged more than 4%

on Tuesday and the offshore yuan hit its strongest level

against the dollar in 16 months after a series of moves by the

People's Bank of China to loosen lending conditions.

Less than a week after the Federal Reserve's outsize half

point rate cut, PBOC boss Pan Gongsheng said banks' reserve

requirement ratio would be cut by 50 basis points, freeing up

about 1 trillion yuan ($142.21 billion) for new lending.

Aimed at shoring up the ongoing property bust and dousing

fears of wider deflation, the RRR cut came in tandem with a

20bps cut in the one-week reverse repo rate to 1.5% as well as a

series of other key lending and mortgage rate cuts.

The sweeping, if long delayed, measures included cutting

minimum down-payment rates on new homes and capital market props

and swaps making it easier for funds and brokers to buy stocks.

Whether the moves hit home remains to be seen. Geopolitical

headwinds, for one, continue to stiffen as the U.S. Commerce

Department on Monday proposed prohibiting key Chinese software

and hardware in connected vehicles on American roads due to

national security concerns.

China's slowdown - which this month seen many banks and

investment funds slash growth outlooks to well below Beijing's

5% target- has infected the industrial world at large.

Nowhere is that clearer than in Europe's alarming business

contraction in September, according to flash business surveys

published on Monday. And at the heart of that is waning German

confidence, where Ifo's September survey of German firms on

Tuesday missed forecasts yet again.

German business morale fell more than expected for a fourth

consecutive month, the survey of around 9,000 managers found.

China's latest stimulus, however, proved a shot in the arm

for European stocks - which gained almost 1%, led by

surges in basic resource and luxury goods

sectors.

The euro recouped a large chunk of Monday's retreat.

Although the chance of a European Central Bank cut as soon

as October crept higher on Monday, it remains less than 50%.

Back on Wall Street, Monday's September business surveys

also showed ongoing struggles in the factory sector - but,

unlike in Europe, brisk service sector activity continued to

show a healthy overall expansion of the private sector.

That has retained faith in the soft landing theme, with the

S&P500 eking out another record high on Monday and

futures are up smartly again ahead of the bell.

With some 75bps of additional Fed easing this year now

priced into rate futures and Fed officials sounding dovish,

two-year Treasury yields hovered about 3.60% on

Tuesday ahead of a $69 billion auction later in the day. The

two-to-10 year yield curve continued to steepen to

a new two-year high of 18bps.

Chicago Fed President Austan Goolsbee said on Monday that he

expects "many more rate cuts over the next year".

September U.S. consumer confidence readings are next up for

examination later in the day.

Elsewhere, Japanese markets returned from Monday's holiday

in fine fettle, with the Nikkei up 0.6% and the yen

slipping to its lowest in almost three weeks.

Bank of Japan Governor Kazuo Ueda told business leaders the

central bank will raise interest rates if trend inflation

accelerates as projected - but appeared unrushed and claimed the

BOJ can "afford to spend time" scrutinising services prices,

financial markets and overseas developments.

The Reserve Bank of Australia, meantime, continued to toe a

relatively hard line and held its policy rate steady on Tuesday

- though at least governor Michele Bullock said further

tightening was not up for discussion.

The Australian dollar hit a nine-month high of

$0.6869 on the decision but later retreated on Bullock's

comment.

Key developments that should provide more direction to U.S.

markets later on Tuesday:

* U.S. September consumer confidence, Richmond Fed September

business survey, July house prices,

* Federal Reserve Governor Michelle Bowman speaks; Bank of

Canada Governor Tiff Macklem speaks; Dutch central bank chief

and European Central Bank policymaker Klaas Knot speaks

* US corporate earnings: Micron Technology ( MU ), Autozone ( AZO )

* US Treasury sells $69 billion of 2-year notes

* United Nations General Assembly in New York

(By Mike Dolan, editing by Ed Osmond

[email protected])