US treasuries gained with emerging-market assets as futures traders held to bets that the Federal Reserve, chaired by Janet Yellen, will not raise interest rates this week amid financial market volatility.
Stocks slipped after their biggest weekly advance since July but equities in developing nations rose for the first time in three days.
Treasuries edged higher, sending the yield on the 10-year note lower.
Traders predict a 28% chance that the Fed will raise borrowing costs at its meeting which starts on September 16, down from more than 50% before China’s currency devaluation roiled financial markets and raised concern about global growth.
The country’s industrial output missed economists’ forecasts and investment in the first eight months increased at the slowest pace since 2000, data showed this weekend.
“The main thing that’s going to be moving US stocks this week will be the Fed meeting; there’s going to be volatility whatever happens,” said Kully Samra, who manages UK clients for Charles Schwab.
“The economy is in a good place. It’s not gangbusters, but it’s got growth, so now is probably a good time to touch rates.”
The bond market suggests policy makers will wait to raise rates, while economists are equally divided.
With odds this low, if the Fed were to move it would have a “major impact” on markets, according to Philip Marey, a senior market economist at Rabobank in the Netherlands.
“There’s just not an impetus to make a big bet here in front of the Fed meeting,” said Walter Hellwig, who helps manage $17bn (€15bn) at BB&T Wealth Management in Birmingham, Alabama.
The Stoxx Europe 600 Index slipped 0.6% after fluctuating in a wide range. While the gauge fell 14% from its record in April through last week’s close, strategists remain confident the index will rebound and post its best year since 2009.
Meanwhile, the dollar declined a second day versus the yen as traders doubted the Fed will raise rates.
The yen increased 0.5% to 120.02 per dollar. Japan also reviews monetary policy this week.
With the country’s economy struggling, 11 of 35 economists surveyed by Bloomberg see the central bank stepping up easing measures in October, while two are forecasting a move as soon as tomorrow.
Yuan positions at China’s central bank and financial institutions fell by the most on record in August, a sign policy makers stepped up intervention to support the currency.
The MSCI Emerging Markets Index advanced 0.5% as traders predicted the Fed would not tighten, shoring up demand for riskier assets whose valuations tumbled in the past month amid growing signs China’s economy is slowing. Equity benchmarks in Russia, India and Malaysia climbed at least 0.8%.
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