US equities edged higher while Treasuries fell as traders parsed comments from Federal Reserve policymakers for clues on the scope for further easing after last week’s half a percentage point interest-rate cut.

The S&P 500 advanced 0.3%, trading in a narrow range after manufacturing data and comments from Fed officials. Among individual movers, shares of Intel Corp gained 2.5% after Apollo Global Management Inc was said to have offered to make a multibillion-dollar investment in the chipmaker. Constellation Energy Corp led power companies higher after its deal with Microsoft Corp was well received by analysts.

Data showing US business activity is robust even as growth moderates stoked confidence the world’s largest economy can nail a soft landing. US business activity expanded at a slightly slower pace in early September, according to data released on Monday, while expectations deteriorated and a gauge of prices received climbed to a six-month high. 

“This is a somewhat inconclusive report, and therefore it shouldn’t alter Fed expectations dramatically,” according to Vital Knowledge’s Adam Crisafulli. “The flash PMIs do suggest the US economy is on reasonably sound footing, especially compared to Europe.”

Traders have been wagering on nearly three-quarters of a point more in rate cuts by year end, a slightly more aggressive path than what policymakers have indicated.

Chicago Fed president Austan Goolsbee said with inflation approaching the central bank’s target the focus should turn to the labour market and “that likely means many more rate cuts over the next year.”

Neel Kashkari at the Minneapolis Fed also pointed to weakness in the job market, he backs lowering interest rates by another half percentage point by year end. 

Atlanta Fed president Raphael Bostic suggested a moderate stance. Starting the central bank’s cutting cycle with a large step would help bring interest rates closer to neutral levels, but officials should not commit to a cadence of outsize moves, according to Bostic.

Further out this week, investors await the Fed’s preferred price metric and data on US personal spending, due on Friday. 

Policy-sensitive two-year yields climbed to 3.6% while the rate on the 10-year neared 3.8%. US government bonds were under pressure with the Treasury slated to auction US$183 billion in front-end supply and up to US$25 billion of new issuance in corporates expected this week.

“With the Fed’s first rate cut since 2020 in the history books, many investors may be thinking, ‘Now what?’,” said Chris Larkin at E*Trade from Morgan Stanley. “That will keep the spotlight on economic growth, especially the jobs market.”

In Europe, the euro slumped while European stocks edged higher after weak PMI data for France and Germany was followed by numbers that showed the euro-area’s private-sector economy shrank for the first time since March. 

The common currency weakened as much as 0.7% against the dollar amid wagers on more aggressive rate cuts from the European Central Bank (ECB).

“The market is almost demanding a more aggressive rate cut, especially after what we have seen the Fed has done,” Marija Veitmane, senior multi-asset strategist at State Street, said on Bloomberg Television. The ECB “is definitely behind the curve,” she said. 

French government bonds lagged peers after a new French cabinet that is a patchwork of conservatives and centrists was named late Saturday. Investors are concerned that were the government to collapse, it would jeopardise the administration’s ability to pass a budget through parliament over the coming weeks.

  - Bloomberg