


US futures pointed to modest gains after a rally that lifted the Nasdaq 100 more than 5% this week thanks to Nvidia, and the S&P 500 by 3.5%. As of 8:00am ET, S&P futures rose 0.2% led by small-caps which rose 1% as hopes of a jumbo 50bps rate cut jumped overnight; Nasdaq futures were 0.1% higher, with GOOG, META, and NVDA the top performers in megacap land despite a plunge by Adobe on poor guidance. Treasuries yields fell with the 10Y trading at 3.65% and the policy-sensitive 2Y yield down 5bps, while the dollar continues to slide, dropping for a third day, and retreating 0.3% after an article by the WSJ's Nick Timiraos and comments by Nevertrumper Bill Dudley restored speculation that a 50bps rate cut is possible next week. The yen soared to a fresh 2024 high. Commodities are higher. Today, the data focus will be on Michigan Sentiment and inflation expectation. The consensus is at 68.5 vs. 67.9 prior.
In premarket trading, Adobe plunged -8% after the guidance disappointment despite a strong FQ3 upside. Oracle jumped another +6% after its positive ultra long-term revenue guidance. Boeing shares fall as much as 4.4% after the planemaker’s factory workers walked off the job for the first time in 16 years. Here are some other notable movers:
Investors remain divided on the magnitude of the Fed’s anticipated pivot to policy easing starting at next week’s meeting. The debate has continued after data Thursday showed that the US producer price index picked up slightly in August after the previous month’s numbers were revised lower. Meanwhile, an uptick in applications for unemployment benefits renewed concerns about a weakening labor market. Traders are now betting on 33 basis points of cuts from the Fed on Sept. 18 (45% odds of a 50bps rate cut), versus 31 basis points on Thursday and 26 basis points on Wednesday.
“If I were in the room, I would actually be pushing for a 50 basis-point rather than a 25 basis-point cut,” Evercore Chairman Emeritus Ralph Schlosstein said in an interview with Bloomberg TV. “The balance of risks has shifted from a risk that inflation doesn’t come down as we hope, to a risk that unemployment grows up faster than we would hope.”
His view echoed that of former New York Fed President William Dudley, a Bloomberg Opinion columnist and adviser, and chair of the Bretton Woods Committee. “I think there’s a strong case for 50,” he said Friday in Singapore. “I know what I’d be pushing for.”
Thursday’s wholesale inflation data followed the more closely watched consumer price index, which showed underlying inflation accelerated in August. Yet policymakers have made it clear that they’re currently highly focused on softness in the labor market, which is more likely to drive policy discussions in the months ahead.
In Europe, the Stoxx 600 rose 0.4%. IBEX outperforms peers, adding 0.4%, FTSE 100 is flat and underperforms. Autos, construction and real estate are the best-performing sectors in Europe. Danish stocks hit a record for the first since November 2021, paced by gains im DSV A/S after the logistics firm agreed to buy a Deutsche Bahn AG unit for €14.3 billion ($15.9 billion). Here are the most notable European movers:
In FX, the Bloomberg Dollar Spot Index falls 0.3%. AUD and CAD are the weakest performers in G-10 FX; JPY and SEK outperform.
In rates, front-end Treasuries outperform global bonds across the curve as traders revive the chance that the Federal Reserve might start its easing cycle with a 50bps interest-rate cut. Two-year yields drop more than 6bps to 3.57%. Treasuries and bunds curves bull steepen, while gilts lag peers with the Bank of England largely expected to keep rates on hold next week.
In commodities, WTI trades within Thursday’s range, adding 0.9% to near $69.61 amid a rebound from record bearish levels. Spot gold rises roughly $12 to trade near $2,570/oz as it climbs to a record high.
To the day ahead now, and data releases include Euro Area industrial production for July, and in the US there’s the University of Michigan’s preliminary consumer sentiment index for September. From central banks, we’ll hear from ECB President Lagarde and the ECB’s Rehn.
Market Snapshot
Top Overnight News
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were ultimately mixed and initially took their cues from the gains in the US, but with upside capped by a lack of fresh drivers ahead of a long weekend. ASX 200 was led by outperformance in mining stocks with gold miners boosted after the precious metal hit a fresh record high. Nikkei 225 underperformed owing to currency strength and as participants headed towards the extended weekend in Japan. Hang Seng and Shanghai Comp were mixed as the former spearheaded the advances in the region with the help of developers, energy stocks and financials, while the mainland was lacklustre ahead of the latest Chinese activity data on Saturday and the four-day weekend closure.
Top Asian News
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FX
Fixed Income
Commodities
ECB speak
Geopolitics: Ukraine
Geopolitics: Other
US Event Calendar
DB's Jim Reid concludes the overnight wrap
Earlier this week, Jim and I published our latest chartbook, which is called “At the crossroads”. It looks at 5 themes where markets are currently debating the direction of travel. The outcomes will have profound impacts over the quarters and years ahead.
One theme markets are still debating this morning is whether the Fed are going to cut by 25bps or 50bps at their meeting next week. Up until yesterday afternoon, it had looked as though 25bps was increasingly likely, with futures only placing a 15% chance on a 50bp move. But then a couple of articles were published in the Wall Street Journal and the FT suggesting that a 50bp move was still in play, which has led markets to once again re-evaluate their expectations, and futures are now pricing in a 47.5% chance of a 50bp move this morning. So very much in the balance.
The initial driver of this was a story by Nick Timiraos in the Wall Street Journal, which appeared to favour arguments for a 50bp cut next week. In particular, it said that even though it was “all but settled” that the Fed would cut rates this week, “how much is shaping up to be a close call.” So that was something of a surprise to investors, who had been increasingly pricing in 25bps, not least after the core CPI print was a bit stronger than expected on Wednesday. In many respects, this echoes what took place before the June 2022 meeting, when markets had been expecting a 50bp hike going into the Fed’s blackout period, but an article by Timiraos shortly before the decision said they were likely to consider a larger 75bp hike, which led markets to adjust their expectations just before the decision, before they did indeed hike by 75bps. Expectations for a 50bp cut then got further traction yesterday from an FT report, which suggested the Fed “faces a close call” whether to cut by a larger 50bps.
We’ll have to see if market pricing stays at these levels, as there are still several days to go before the decision. But it’s worth noting that if expectations for a 50bp cut remain at 47.5%, that would be the most uncertain market pricing for a Fed decision in this cycle so far. After all, even as policy expectations have shifted about a lot, since the pandemic we’ve always seen the Fed deliver the rates decision that markets were pricing in just beforehand as the most likely. So when markets have moved higher or lower after the Fed’s decisions, the reactions have generally been in response to factors like the dot plot, or comments in the press conference, rather than the rates decision itself, which has been widely expected. So if pricing stays where it is currently, it would be the first meeting in years where there’s serious uncertainty about the rates decision.
In terms of the market reaction, we can already see how investors are pricing in the potential for 50bps again. For instance, the 2yr Treasury yield is down by -5.4bps overnight to 3.58%, and if it stays there it would be its lowest closing level in just over two years. Similarly, the 10yr yield is down -3.0bps overnight to 3.64%. The effects have also been evident globally, and the Japanese Yen has strengthened to 140.81 per US Dollar this morning, on track for its strongest level since July 2023. In the meantime, US equities got a fresh boost from the prospect of a 50bp cut, with the S&P 500 (+0.75%) posting a fourth consecutive advance, which left the index just over 1% beneath its all-time high from a couple of months ago. And futures for the index are up another +0.06% this morning. However, Japanese equities have come under pressure overnight given the yen’s appreciation, with the TOPIX (-0.91%) and the Nikkei (-0.81%) both losing ground. Although in China, the CSI 300 (+0.04%) stabilised after closing at a 5-year low the previous day, and South Korea’s KOSPI (-0.11%) has only posted a modest decline.
Before the Fed news came through, the day was going largely according to script, with the US data coming in broadly in line with expectations, whilst the ECB delivered an expected 25bp rate cut. That rate cut took the ECB’s deposit rate down to 3.50%, marking their second cut of this cycle after an initial move in June, and markets continue to anticipate further cuts over the months ahead. We also had their latest forecasts, which showed growth projections a tenth lower each year relative to June, rising from +0.8% this year to +1.3% in 2025 and +1.5% in 2026. Otherwise, the forecasts for headline inflation were unchanged, coming in at +2.2% in 2025 and +1.9% in 2026. But they did upgrade the core CPI forecasts for next year, up by a tenth to +2.3%, before coming down to +2.0% in 2026, as before.
Against that backdrop, European sovereign bond yields moved higher yesterday, with those on 10yr bunds (+3.8bps) and OATs (+2.4bps) both picking up. The sell-off was stronger at the front end, with 2yr German yields (+7.3bps) seeing their biggest rise in four weeks amid some dialling back of rate cut expectations over the next several months. While there were few surprises from the ECB meeting, President Lagarde’s tone showed less scepticism on growth and inflation than had emerged in markets, which had moved to price the ECB deposit rate falling to below 2% by next summer. In the press conference, Lagarde kept the ECB’s options open, saying that they would “remain data-dependent”, and that a “declining path is not pre-determined”. And later in the session, a Bloomberg article citing “people familiar with the matter” said that although an October cut was unlikely, downside risks to growth meant they’d rather keep the option open. Our European economists at DB continue to expect the next cut of 25bps in December. While they see risks as skewed towards faster easing, it is not obvious to them that policy rates need to go below neutral. See their full reaction note here.
Elsewhere yesterday, there was some focus on the latest US data, but there really wasn’t much that changed our understanding of the economy. For instance, the weekly initial jobless claims were broadly in line with expectations at 230k over the week ending September 7 (vs. 226k expected), and the continuing claims covering the previous week were exactly in line with expectations at 1.850m. Otherwise we did get the PPI inflation release, which was a bit stronger than expected at +0.2% for August (vs. +0.1% expected). But the previous month was revised down a tenth at the same time, so again our overall understanding wasn’t too different to before.
For equities, there was a fairly benign backdrop yesterday, and the news about the potential for a 50bp cut helped the S&P 500 advance +0.75%. The index has now risen every day this week, up +3.46% as it stands, so it’s clawed back most of its losses from last week, when it had its worst weekly performance since SVB’s collapse in March 2023. And it’s only just over 1% beneath its all-time high from July again. Tech stocks led the rally, with the Magnificent 7 (+1.40%) also up for a 4th consecutive day, leaving its own gains at +7.06% since the start of the week. But the gains were broad based, and all eleven S&P 500 major sector groups were higher on the day, whilst the small-cap Russell 2000 rose +1.22%. And over in Europe, the STOXX 600 was up +0.80%, alongside other indices including the DAX (+1.03%) and the CAC 40 (+0.52%).
To the day ahead now, and data releases include Euro Area industrial production for July, and in the US there’s the University of Michigan’s preliminary consumer sentiment index for September. From central banks, we’ll hear from ECB President Lagarde and the ECB’s Rehn.