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

Dolan

The final day of another punchy quarter for U.S. stocks has

proven a more volatile affair overseas: China's stellar stock

recovery has added another whopping 8% pre-holiday,

while Tokyo's swoon on the new Japanese prime minister

jarred in the other direction.

For Wall Street, Federal Reserve Chair Jerome Powell tees up

in Nashville later to give his latest steer on the unfolding Fed

easing cycle, with soothing August inflation numbers as a

welcome backdrop. The rest of the week looks set to be dominated

by soundings on the labor market, the upcoming earnings season

and the start of the election-edged final quarter.

China, however, continues to hold global investors in thrall

after last week's sweeping series of monetary stimuli and real

estate and stock market props. The hyperactive policy scramble

kept going over the weekend, with China's central bank on Sunday

telling banks to lower mortgage rates for existing home loans

before the end of October.

And so on the final trading session before mainland markets

close for a four-day national holiday, China's benchmark stock

indexes boomed by more than 8% - making it the best

single day in 16 years and the best month in more than a decade.

The cumulative surge over the past week has now wiped out

both year-to-date and 12-month losses.

What for some investors appears like a "whatever it takes"

policymaking urgency in Beijing may well be necessary, if dour

business survey readings for September were anything to go by.

And the yuan , which had also been lifted by

the credit easing and wider stimulus last week, fell back amid

repeated reports of dollar buying by state banks.

By contrast and perhaps partly reflecting renewed appetite

for Chinese stocks, Japan's Nikkei plunged almost 5% on the

final day of Q3, with investors seemingly wary of the new prime

minister - perceived monetary policy hawk Shigeru Ishiba - and

his call for an October election.

The yen edged lower by the end of the day - amid some

confusion about Ishiba's current stance.

Ishiba has been critical of the Bank of Japan's

extraordinary stimulus of the previous decade, and his reported

choice for finance minister, Katsunobu Kato, called for

continued normalisation of monetary policy in May.

However, Ishiba told national broadcaster NHK at the weekend

that "monetary policy must remain accommodative as a trend given

current economic conditions".

In Europe, the focus was on the latest sub-target inflation

numbers from Germany - adding to similar disinflation in France

and Spain - as well as a worrying manufacturing slump and a

gathering storm in the auto sector.

A win for the Nazi-rooted Freedom Party in Austria's weekend

parliamentary elections darkened the mood.

European stock benchmarks lost almost 1%, although

the euro edged higher against a generally weaker dollar.

Auto shares fell 3% after Volkswagen

compounded recent woes by cutting its 2024 guidance while

Stellantis ( STLA ) slumped 8% after the French-Italian

carmaker slashed annual guidance, citing a worsening of global

industry dynamics.

The horizon for the sector will hinge in part on the success

of the Chinese stimulus alongside any domestic recovery.

The upshot for U.S. markets is that stock futures are

marginally in the red ahead of Monday's bell, after a quarter

that's seen new record highs for the S&P500 but a rare

outperformance of small caps and the equal-weighted S&P

as interest rates start to tumble.

With the election coming on to the three-month yearend

radar, the VIX volatility gauge popped higher.

U.S. Treasury yields nudged up too ahead of

Powell's set piece later.

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

markets later on Monday:

* Dallas Fed September manufacturing survey, Chicago Sept PMI

* Federal Reserve Chair Jerome Powell speaks in Nashville, Fed

Board Governor Michelle Bowman speaks; European Central Bank

President Christine Lagarde speaks to European Parliament; Bank

of England policymaker Megan Greene speaks

* US corporate earnings: Carnival, Precision Optics, Spectra

Systems, EnerSys, Repositrak

* US Treasury sells, 3-month, 6-month bills

(By Mike Dolan, editing by Mark Heinrich

[email protected])