Volkswacht Bodensee - Stock markets diverge as traders temper rate-cut bets

After markets in Shanghai and Hong Kong closed, Moody's said it had downgraded its outlook on China's credit rating citing rising debt in the world's second-largest economy.

"The markets are a touch nervous ahead of US jobs figures this week which could either reinforce or undermine the narrative that interest rates have peaked and rate cuts are on the way," said AJ Bell investment director Russ Mould.

"Signs the labour market is heating up again would put any hopes of a Santa rally into the end of the year under threat."

Asia's main stock markets closed with sizeable losses and London was lower nearing the half-way stage. Eurozone indices rose, however.

The price of haven investment gold dropped after striking a record high Monday as the dollar weakens on expectations for a rate cut.

Bitcoin reached $42,393.19, a fresh high since April last year.

European gas prices hit the lowest level in nearly two months, bringing some relief amid cold weather.

Stock markets surged last month as slowing inflation and a softer US job markets stoked expectations that the Federal Reserve would early next year begin loosening monetary policy.

Those hopes were boosted Friday when Fed chief Jerome Powell said rates were "well into restrictive territory".

More than one percentage point of reductions through to next December have been priced in by futures traders, according to Bloomberg News.

But observers said the euphoria may have caused investors to get ahead of themselves and the next few weeks could be a little bumpy, while they remained broadly upbeat about the new year.

Morgan Stanley strategist Michael Wilson said in a note that this month could see "near-term volatility in both rates and equities" before positive seasonal trends and "January effect" provide a lift next month.

"The biggest near-term risk for the markets could simply be that after a phenomenal one-month rally, a period of consolidation may be a necessary breather," said UBS Global Wealth Management's Jason Draho.

"A lot of good news is priced in, and investors seeing little imminent downside risk does make the markets vulnerable to even small disappointments."

Goldman Sachs strategists said "markets are approaching the limits of what can plausibly be priced in without attaching material odds of a recession in the near term".

Traders were awaiting the release Friday of key US jobs data, with a miss to the downside of expectations likely to ramp up optimism for a rate cut in early 2024. However, a forecast-beating reading could jolt markets.

That is followed next week by the Fed's policy meeting. Most watchers are tipping it to stand pat on rates, though its statement will be parsed for any clues about plans for the next few months.

- Key figures around 1115 GMT -

London - FTSE 100: DOWN 0.6 percent at 7,469.21 points

Paris - CAC 40: UP 0.3 percent at 7,353.76

Frankfurt - DAX: UP 0.3 percent at 16,447.60

EURO STOXX 50: UP 0.3 percent at 4,428.01

Tokyo - Nikkei 225: DOWN 1.4 percent at 32,775.82 (close)

Hong Kong - Hang Seng Index: DOWN 1.9 percent at 16,327.86 (close)

Shanghai - Composite: DOWN 1.7 percent at 2,972.30 (close)

New York - Dow: DOWN 0.1 percent at 36,204.44 (close)

Euro/dollar: DOWN at $1.0836 from $1.0839 on Monday

Pound/dollar: UP at $1.2644 from $1.2632

Dollar/yen: DOWN at 146.97 yen from 147.19 yen

Euro/pound: DOWN at 85.70 pence from 85.77 pence

West Texas Intermediate: UP 0.6 percent at $73.45 per barrel

Brent North Sea crude: UP 0.4 percent at $78.36 per barrel

E.Burkhard--VB