US equity futures are fractionally lower with small caps lagging as the record-breaking rally in stocks appeared to be running out of steam. At 8:15am ET, S&P 500 futures slid 0.1% after all major US indexes hit all-time highs on Thursday, however Nasdaq 100 futures are still in the green amid an relentless tech bid: Microsoft rose in premarket trading, leading the Mag 7 after it avoided a hefty antitrust penalty from the European Union. Europe’s Stoxx 600 eased as well. Incremental headlines after yesterday’s close were limited as Fed policy and AI development continue to support bulls over job market concerns or geopolitics. On trade, Bessent and Chinese VP will meet in Madrid next week. Yields are 1-2bp higher and USD is higher. Commodities are mixed, with oil and base metals higher, while precious metals are lower. Today's econ data slate is just the September prelim University of Michigan sentiment at 10am New York time.
In premarket trading, Mag 7 stocks are mostly higher with AMZN and AAPL lagging (Microsoft +1%, Nvidia +0.1%, Amazon -0.07%, Meta +0.01%, Tesla +0.1%, Apple -0.3%, Alphabet +0.2%)
Stocks repeatedly scaled all-time highs after a raft of data this week pointed to a strained labor market and relatively contained inflation, sealing a Fed cut when policymakers meet next week. Some now question whether the rally has further room to run as seasonal weakness and geopolitical uncertainty linger. Meanwhile swaps pricing indicates traders anticipate the equivalent of between two or three quarter point cuts through year-end, with some wagering on a jumbo half-point cut next week (odds about 10%).
Claudia Panseri, chief investment officer for France at UBS Wealth Management, cautioned that markets were reaching the limit of pricing in Fed support: “I would say that the market is overestimating the scale of rate cuts across the 12 coming months,” she said. “As for next week, some investors will be disappointed if there’s not a 50 basis-point cut, and I don’t think there will be.”
While the slowdown in the labor market has raised concerns that the Federal Reserve may have stayed on pause for too long, Bank BofA strategist Michael Hartnett said markets are betting that policymakers would still be ahead of the curve once they begin cutting rates. A rally in banks and other rate-sensitive stocks, along with a decline in investment-grade credit spreads, signal that investors are “saying the Fed can cut with credibility and is cutting into US growth re-acceleration,” he said.
Analysts expect small caps to outperform over the next twelve months, with the potential for a 20% advance in the Russell 2000, compared with calls for an 11% jump in the S&P 500, as highlighted in today’s Taking Stock column. BI strategist Gillian Wolff notes the Russell 2000 broke above the key psychological level of 2,400 this week and at 68, the 14-day RSI remains far from overbought levels — prior highs were marked by RSI above a 73-handle.
In European markets, European stocks are subdued on Friday as investors await the Federal Reserve meeting next week. Automobile and retail shares are biggest laggards, while mining and utilities equities are the best-performers.
The Stoxx Europe 600 Index was little changed at 554.86. Here are the biggest movers Friday:
French bonds lagged most regional peers ahead of a Fitch Ratings update on the country, due after the close. French assets have been unsettled after former Prime Minister Francois Bayrou lost a confidence vote, failing to muster enough support to rein in the budget deficit. “The market is already incorporating at least one or two or even three downgrades,” Vincent Mortier, chief investment officer at Amundi SA, told Bloomberg TV. “We’re still far away from a sub-investment-grade rating. The market has been quicker than the rating agencies to adjust the levels.”
Earlier in the session, Asian equities advanced, as technology shares extended their rally on rising expectations that the Federal Reserve will cut interest rates next week. The MSCI Asia Pacific Index rose as much as 1.1%, poised for a seventh day of rise in its longest winning streak since May 2024. South Korea’s Kospi notched another all-time high, after SK Hynix announced it had completed development of its next-generation AI memory chip. Shares in Hong Kong also rose, with Alibaba surging amid optimism over its AI infrastructure plans. Risk appetite has been improving in Asia as tariff worries ease on progress in US trade talks. The return of optimism on the AI trade, a liquidity-driven rally in Chinese stocks and expectations that Fed cuts will allow Asian central banks room to ease further have helped power the advance. Tech got a boost this week from Oracle Corp.’s upbeat cloud-business outlook. Stocks also climbed Friday in Taiwan, Japan and Australia. Indonesia’s key equity gauge jumped more than 1% on optimism over plans from the nation’s new finance minister. Here Are the Most Notable Movers
In FX, the dollar rebounded from back-to-back losses. The yen lags G-10 currency peers, down by 0.5%, and set for a third consecutive weekly decline. The pound trimmed a weekly gain after the economy showed a sluggish start to the third quarter, with gross domestic product flat and slowing from the previous month.
In rates, treasuries pulled back from Thursday’s advance alongside weakness in Europe, with the US 10-year yield rising two basis points to 4.05%. Yields are biased slightly higher amid bigger losses for bunds during European morning following German and French CPI data. US front-end to 10-year yields are cheaper by as much as 1.5bp with 2s10s curve barely 1bp steeper on the day. Long-end yields are little changed, flattening 5s30s by about 1bp. German and UK counterparts lag US 10-year by 2bp and 1bp. Gilt yields are higher and the pound is weaker after UK economy flat-lined in July.
In commodities, gold pares gains after testing another record, but is still up by $6 to $3,639/oz as money pours into bullion-backed ETFs. Copper and nickel also rise to buoy miners in Europe. Oil prices reverse an earlier decline, with Brent trading up 1% and shy of $67/barrel.
Looking ahead, today’s calendar includes the US September University of Michigan Survey, UK July monthly GDP, Italy’s Q2 unemployment rate, and Canada’s July building permits. Central bank speakers include the ECB’s Rehn, Kocher, and Nagel, as well as the BoE’s inflation attitudes survey.
Market Snapshot
Top Overnight News
Trade/Tariffs
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mostly higher following the gains on Wall St, where the major indices climbed to record highs after a jump in Initial Jobless claims further boosted Fed rate cut pricing. ASX 200 edged higher with outperformance in Real Estate, Miners, Materials & Financials spearheading the advances as Fed rate hike expectations boost global risk sentiment. Nikkei 225 extended on record highs and approached closer towards the 45,000 level despite little fresh pertinent drivers. Hang Seng and Shanghai Comp traded mixed with tech leading the gains in Hong Kong after it was reported that Alibaba (9988 HK) and Baidu (9888 HK) are using internally designed chips for training AI models are to adopt their own AI chips in a major shift for Chinese tech, while the mainland lagged amid frictions, with the US reportedly to urge G7 to impose high tariffs on China and India over Russian oil purchases.
Top Asian News
European bourses (STOXX 600 -0.3%) opened modestly firmer across the board, but sentiment slipped as the morning progressed to display a negative picture – nothing really behind the turn. European sectors are split down the middle, and with little overall newsflow driving this at the moment. Basic Resources takes the top spot, buoyed by strength in underlying metals prices. Insurance and Utilities follow closely behind. Autos is found at the foot of the pile, and then joined by Retail and Energy
Top European News
FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Ukraine
US Event Calendar
DB's Jim Reid concludes the overnight wrap
As we approach the end of the week, markets have been in a buoyant mood over the last 24 hours, continuing into this morning's Asian session, with investor attention squarely focused on the slightly higher than expected US August CPI release, and the notably higher than expected jobless claims data. The influence of the latter won out with December fed futures spiking to price in 76bps of cuts immediately after the numbers, having been at 68bps before the release. We ended up pricing in 72bps at the close. This overshadowed a slightly hawkish ECB meeting where sources later suggested that the ECB are inclined to keep rates on hold in this cycle unless there is an economic shock. Equities extended their recent rally, with the S&P 500 (+0.85%), Nasdaq (+0.72%), and the Mag-7 (+1.13%) all notching fresh record highs.
Starting with the US CPI report, headline inflation rose by +0.4% month-on-month (m/m) in August, up from +0.2% in July and above the +0.3% consensus forecast. Core inflation matched expectations at +0.3% m/m, unchanged from July but it did come in at 0.345%, just shy of rounding up. However, it was outsized increases in volatile categories such as airfares (+5.8% m/m) and lodging (+2.3% m/m) that pushed the core reading higher, with the Cleveland Fed’s trimmed mean CPI measure rising by a more moderate +0.26% m/m. Indeed, with airfares CPI not entering into the Fed’s preferred core PCE inflation measure, our US economists’ projection for August core PCE has declined to +0.22% m/m after the CPI print. Overall, they see the CPI data pointing to continued strength in service prices, but to potentially more moderate tariff impacts than previously anticipated. See their full take here
Alongside CPI, initial jobless claims for the week ending 6 September rose to +263k, well above the +235k expected. The state of Texas accounted for most of this increase so some of this spike was likely due to temporary distortions. Still, it was yet another data point adding to a picture of a softening US labour market.
The combined data prompted a rally in US Treasuries, with 10yr yields falling -6bps lower after the print before closing -2.5bp on the day to 4.02%. 30yr yields saw a larger -4.2bps decline, even as they sold off a little after an average 30yr auction. However, the front-end rally ran out of steam as the day went on and 2yr yields closed a mere -0.1bps lower as markets remained hesitant to price in much risk of a 50bps cut, with September Fed pricing unchanged at 27bps. The dollar index weakened slightly, posting a -0.25% decline.
Equities responded positively to the lower rates outlook. The S&P 500 (+0.85%) and Nasdaq (+0.72%) both advanced to fresh records, supported by continued enthusiasm around AI. The Magnificent 7 gained +1.13%, although Oracle slipped -6.23% after three consecutive days of gains. But the equity gains were widespread with 436 advancers within the S&P 500 being the most we’ve seen since May 27, while the small cap Russell 2000 (+1.83%) surged to within 1% of its own record high reached back in November 2021.
Turning to Europe, the ECB held rates steady at 2%, as widely expected, but this was accompanied by some hawkish hints that led markets to price out prospects of another rate cut. The ECB saw the risks to growth as “more balanced” amid fading trade uncertainty and a resilient domestic economy. President Christine Lagarde stated that the “disinflationary process is over” and repeated that policy is “in a good place”. While there was a dovish tweak with the 2027 core CPI forecast being lowered from +1.9% to +1.8%, Lagarde did not focus on this, rather calling the downwardly revised +1.9% headline CPI projection for 2027 a “minimal deviation” from target. Overall, our European economists see the ECB as increasingly comfortable with 2% policy rates, and they continue to expect the next ECB move to be a hike in late 2026. See their full reaction here.
In response, markets effectively removed any pricing of an October rate cut and are now pricing only 10 bps of easing by next March (-3.1bps on the day), which marks the first time that another 25bp rate cut has been less than 50% priced. That sent 2yr bund yields +3.3bps higher, though the 10yr yield (+0.4bps to 2.65%) was little changed amid the US bond rally.
The euro gained +0.33% against the dollar on the day, and European equities rose as the STOXX 600 climbed +0.55%, with the CAC 40 up +0.78% and the DAX +0.30%.
Elsewhere, oil prices fell, with Brent crude down -1.66% to $66.37/bbl as the International Energy Agency projected a larger record oil market surplus for 2026. That outweighed ongoing geopolitical concerns after Russia’s drone incursions into Poland on Tuesday night. Warsaw’s allies including France and Germany pledged to expand their air policing over Poland, but we are yet to hear if Europe and the US will announce new sanctions in response.
In Asia, the Hang Seng tech index is leading the way with a rise of +2.18%, while the Hang Seng itself is +1.53%, bringing its five-day gain to over 4% and positioning it for its highest close since August 2021. Meanwhile, the KOSPI is up by +1.28%, supported by a notable surge of over 7% in one of its major heavyweights, SK Hynix, after the company announced the successful completion of its next-generation high bandwidth memory chip, HBM4, which is essential for AI applications. Elsewhere, the Nikkei (+1.08%) is rising for the third consecutive session, reaching new record highs despite the uncertainty following Prime Minister Ishiba's resignation. The Shanghai Composite (+0.20%) is seeing more muted gains alongside US equity futures which are currently flat as I type.
Looking ahead, today’s calendar includes the US September University of Michigan Survey, UK July monthly GDP, Italy’s Q2 unemployment rate, and Canada’s July building permits. Central bank speakers include the ECB’s Rehn, Kocher, and Nagel, as well as the BoE’s inflation attitudes survey.