US equity futures are flat after Monday’s latest dose of AI excitement (where nobody seems to know where the funds will come from, but then again nobody seems to care) drove indexes to fresh highs. S&P futures are unchnaged, with Nasdaq 100 futures fractionally in the red, with Mag7 names mixed in premarket trading as Semis have a slight bid. BA is +2.3% on a potential order stemming from the US/China trade talks. There's a lot going on - from a looming government shutdown to surging Chinese exports - but no clear way to play it. Bond yields 1-2bps lower as the yield curve shifts lower; USD is flat. Cmdtys are mixed with crude and precious leading; gold +90bp as China moves to custody gold similar to NY Fed. OECD hikes global growth estimate for FY25 from 2.9% to 3.2% with US growth est. moving from 1.6% to 1.8% and 1.5% for FY26. OECD also predicts that the full impacts from tariffs have yet to be felt. The macro data focus is on Flash PMIs and regional Fed activity measures. Today’s main event is Fed Chair Powell’s economic outlook.
In premarket trading, Mag 7 stocks are mostly higher (Tesla +1%, Meta +0.3%, Amazon +0.2%, Alphabet +0.2%, Microsoft +0.03%, Apple -0.4%, Nvidia -1%).
In corporate news, Disney said Jimmy Kimmel Live! will return to the air on Tuesday following a backlash. Nvidia assured customers that its landmark deal with OpenAI won’t affect the chipmaker’s relationship with other clients. Zijin Gold International Co., which is currently taking orders to raise $3.2 billion in the world’s biggest initial public offering in months, may have to delay its trading debut in Hong Kong next week because of super typhoon Ragasa. China Vanke Co. is in talks with major domestic creditors to cut borrowing costs on private debt worth tens of billions of yuan, as the embattled developer seeks to ease liquidity stress, according to people familiar with the matter.
US stock futures wavered early on, repeating a pattern of the past two sessions that gave way to extended rallies. There was no pause for Gold however: the yellow metal's unprecedented rally pushed higher on efforts by China to bolster its role in global bullion markets. Bullion powered beyond $3,780 an ounce, putting the metal on track for its best month since 2020. The rally gained fresh momentum on Tuesday after Bloomberg reported that the People’s Bank of China is looking to be a custodian of sovereign reserves, courting friendly countries to buy bullion and store it within its borders.
Investors are rushing to gold as the prospect of rapid US interest rate cuts enhances the appeal of non-interest-bearing assets. The metal is also drawing haven demand amid geopolitical upheaval and pressure on the Federal Reserve from the Trump administration to lower rates, stocking fears about inflation.
Traders are awaiting fresh Fed signals ahead of a speech by Chair Jerome Powell on Tuesday as earnings season looms as the next big test for stocks. Coming up as well is the first of three shorter-term debt auctions, beginning with a $69 billion sale of two-year notes.
“The cross-asset landscape is defined by the duality of tech-driven sentiment, embodied by Nvidia’s outsized role in AI, and policy scrutiny over Fed independence,” wrote Pepperstone research strategist Ahmad Assiri. “Equities continue to enjoy a positive tilt, the dollar struggles to find upside traction while gold has cemented itself as the market’s most compelling anchor.”
US stocks are holding gains from a $15 trillion rally since April’s lows, shaking off trade tensions and concerns about stretched valuations as traders bet a dovish Fed will fuel earnings amid excitement over artificial intelligence. The view was reinforced Monday as Nvidia pledged to invest as much as $100 billion in OpenAI, although this has sparked questions about the circular nature of funding in AI and making many wonder where the money will come from:
While AI companies have been quick to unveil plans for spending, they’ve been slower to show how they will pull in revenue to cover those expenses. Consulting firm Bain & Co. predicted that firms will need to find a combined $2 trillion to fund computing power by 2030, but their revenue is likely to fall $800 billion short of that.
“With the Fed turning dovish, the risk is that if you’re on the sidelines and the market moves away from you, you’ll never be able to catch up,” said Patrick Brenner, chief investment officer of multi-asset at Schroders Plc. “We have some exposure but we’re not completely risk-on. If we see a dip, we are ready to buy more.”
Europe's Stoxx 600 rose 0.5% after data showed the euro area’s private sector expanded at the fastest pace in 16 months. Nearly all European sectors in the green, lifted by utilities and European wind energy companies, after a US judge ruled Denmark’s Orsted could resume work on its nearly-completed wind farm. The retail sector is the best performer, lifted by Kingfisher, which rose as much as 20% after the home-improvement group raised its full-year guidance. The biggest laggards are healthcare and insurance equities. Here are the biggest movers Tuesday:
Earlier in the session, Asian stocks struggled for direction as a rally in semiconductor companies was offset by losses in China and Hong Kong. The MSCI Asia Pacific Index excluding Japan was little changed, after earlier rising 0.4%. Chipmakers TSMC and Samsung Electronics provided the biggest boost following Nvidia’s announcement of as much as $100 billion investment in OpenAI to build data centers. Japanese markets were closed for a holiday. Equity benchmarks in Hong Kong and mainland China fell more than 1% as a months-long rally took a breather. Baidu’s shares slumped most since April after a 50% jump in the stock price this month. Asian stocks have had a stellar run this year as a weaker US dollar and cheaper valuations drove investors away from American assets. The region’s equities are on track to outperform US peers by the most since 2017.
In FX, the pound falls after UK PMIs miss expectations across the board. Swedish krona tops G-10 currencies after surprise cut but a hawkish outlook from the Riksbank.
In rates, Treasuries see small rally across the curve with yields lower by 1bp to 2bp on the day. UK Gilts outperform in fixed income, with 10-year yields falling about three basis points following lower-than-expected UK PMI data for September. At the same time, the UK’s 30-year bond sale got the fewest orders since 2022. The rally in gilts supports gains in Treasuries after the UK curve bull flattened. US session focus includes manufacturing PMIs and 2-year note auction. Fed Chair Powell is scheduled to speak on the economic outlook at 12:35pm New York.
In commodities, WTI futures push higher into early US session and trade over 1% up on the day, capping additional gains in Treasuries. Brent trades above $67/barrel. Gold blows past more records, up about $42 for the session to $3,789/oz.
Today's US economic data slate includes September Philly Fed non-manufacturing, 2Q current account balance (8:30am), September manufacturing PMI (9:45am) and Richmond Fed manufacturing (10am). Fed speaker slate includes Goolsbee (8:30am, 3:30pm), Bowman (9am), Bostic (10am) and Powell (12:35pm)
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APAC stocks eventually traded mixed as the positive sentiment from Wall Street failed to sustain during APAC trade despite a lack of fresh catalysts, whilst there was an absence of Japanese volume as participants were away due to the Autumnal Equinox holiday. ASX 200 eked gains, once again lifted by gold miners as the yellow metal printed fresh all-time highs, although upside was capped by a deterioration in Flash PMIs. Hang Seng and Shanghai Comp eventually traded lower with catalysts sparse, but amid the hangover from the anticlimactic Trump-Xi call last week, whilst Hong Kong markets braced for the Super Typhoon, expected to be the worst since at least 2018. KOSPI was again supported by the strong performance in its Tech sector after the NVIDIA/OpenAI announcement. Nifty 50 trimmed its earlier mild gains with the index continuing to be hampered by the US H-1B visa update.
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European bourses (STOXX 600 +0.5%) opened with a slight positive bias, with a couple of indices opening lower. However, as the session progressed, sentiment picked up a touch, and sauntered higher to current peaks. European sectors hold a strong positive bias, with only a couple of industries residing marginally in the red. Retail takes the top spot, buoyed by strength in Kingfisher (+17%) after it reported strong metrics and upgraded its guidance. Healthcare is found right at the foot of the pile, no company-specific drivers but perhaps some jitters surrounding Trump’s move to link paracetamol use during pregnancy with autism.
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Fed Speakers
DB's Jim Reid concludes the overnight wrap
Our Q3 survey launched yesterday with questions on your perception of Fed independence, where we are with German stimulus versus early year expectations and whether there is a bubble in various asset classes. Regular questions also get an airing to see where your views have evolved over the months, quarters and years. It will stay open until Thursday morning and all help filling it in will be gratefully appreciated. You can complete here. Speaking of surveys, Adrian Cox and Stefan Abrudan have just published highlights from our exclusive dbDataInsights survey of AI use and fears among people in Europe and the US. Young people are most worried, while their older colleagues aren’t bothered. Click here for more.
Risk assets continued to move higher over the last 24 hours, with the S&P 500 (+0.44%) racing ahead to yet another record high. Tech news again drove this optimism as Nvidia (+3.93%) announced a strategic deal with OpenAI that will see the chipmaker invest as much as $100bn in helping OpenAI build new data centers and other AI infrastructure. In turn, the NASDAQ (+0.70%) the Mag-7 (+0.75%) also hit new highs, with the Mag-7 now up +20.43% year-to-date.
So increasingly, the profile of US equity gains is looking very much like 2023 and 2024 again, where the annual gains are being driven by a very narrow group of stocks. Indeed, the S&P 500 is now up +13.81% so far this year, whereas the equal-weighted version is only up +7.65%. Or in other words, it’s been the Magnificent 7 driving the gains, and most of the index has seen a steady, but not spectacular performance this year. As my CoTD showed yesterday (link here), the spectacular performance has been away from the US where we also showed that there has been a decent correlation between low starting valuations for 2025 and strong returns.
The other asset class to reach yet more record highs was gold, which rose +1.67% to $3,747/oz and now up more than +42% on a YTD basis. So that now leaves gold prices well on track for their strongest annual performance since 1979, when prices surged +127% against the backdrop of the oil crisis after the Iranian Revolution, which caused a fresh surge for inflation and led investors to seek out gold as a hedge against that. In real terms gold prices didn't actually cross the highs seen around this time until earlier this month some 45 years later (see my CoTD last week here on this). While gold hit a fresh record, Bitcoin moved lower (-2.20%), along with the likes of Ethereum (-6.55%) as some momentum has come out of crypto in the last several days. On this topic Marion in my team published a paper yesterday that posits Gold and Bitcoin as viable alternatives to the dollar for Central Bank reserve assets. It's full of interesting charts and you can find it on our Research Institute site here.
For rates markets, this week was always going to mostly be about Fedspeak and the week kicked off in a slightly hawkish direction on that front, notwithstanding Miran's expectedly dovish comments. Atlanta Fed President Bostic (non-voter) gave an interview with the WSJ, where he said he only pencilled in one rate cut for this year, and that he was “concerned about the inflation that has been too high for a long time”. Later on, St Louis Fed President Musalem (voter) said that “there is limited room for easing further without policy becoming overly accommodative”, while Cleveland Fed President Hammack (non-voter) suggested policy was only “very mildly” restrictive. So by and large there was a reluctance to firmly commit to further easing. Admittedly, Governor Miran gave a speech in which he described policy as “very restrictive” and argued that “the appropriate fed funds rate is in the mid-2 percent area”. But given Miran was outvoted at the last meeting as the only member to vote for a 50bp cut, markets weren’t reactive to his remarks as a signpost for near-term policy.
Those comments led investors to slightly dial back the expected pace of rate cuts over the months ahead. For instance by the close, futures priced in 43bps of cuts by the December meeting, down -1.7bps compared to Friday. So, there’s high confidence that we’ll get one more cut this year, but a bit more doubt on the second. And it’s worth remembering that it would have only taken one member to shift the median dot back from 3 cuts in 2025 to 2, so it was already on a knife-edge at the last meeting. Meanwhile, with investors dialling back their rate cut pricing, that led to a uptick in Treasury yields across the curve. So, the 2yr yield (+3.1bps) rose to 3.60%, whilst the 10yr yield (+2.0bps) moved up to 4.15%. We’ll hear from Fed Chair Powell as well today, but given there haven’t been material data developments since last week’s press conference, our US economists expect his tone to align closely with his remarks last week.
Back in Europe, there was a bit more of a risk-off tone yesterday, with the STOXX 600 down -0.13%. That included an underperformance for the DAX (-0.49%), which was driven by declines for Porsche (-8.22%) and its parent Volkswagen (-7.09%) after they cut their forecast for this year’s profit. So that left the two as the worst performers in the DAX index. Meanwhile, sovereigns also lost modest ground, with yields on 10yr bunds (+0.2bps), OATs (+0.6bps) and BTPs (+1.2bps) all moving higher. We're getting closer to the start of the German fiscal money hitting the economy as we edge towards Q4. Our economists believe that the money will materialise quickly. Over the summer it does seem that money originally earmarked for infrastructure has been diverted more towards consumption-oriented spending. That actually might get into the economy quicker but will cast doubts over whether the long-run growth rate will be influenced as much as hoped. Elsewhere UK assets saw a relatively stronger performance, with the FTSE 100 (+0.11%) and 10yr gilts (-0.3bps) both rallying.
Asian equity markets are mixed with low trading volumes given there is a Japanese holiday. In the region, Chinese stocks are at the forefront of losses, with the Hang Seng (-0.92%) lower as local technology stocks pull back from a remarkable rally over the past month. The CSI (-0.83%) and the Shanghai Composite (-0.96%) are also trading significantly lower, as risk sentiment fluctuates between hopes for stimulus and signs of sluggish domestic growth. Conversely, the KOSPI (+0.33%) and the S&P/ASX 200 (+0.55%) are higher. US equity futures are down just under a tenth of a percent with US Treasuries not yet trading due to the Japanese holiday.
Early morning data indicated that Australia’s business activity growth decelerated in September, hindered by weaker new orders and renewed pressures on exports. The S&P Global Flash composite PMI for Australia decreased to 52.1 in September from 55.5 in August, remaining above the 50 threshold for the 12th consecutive month. The services activity index fell to 52.0 from 55.8 the previous month, while the manufacturing PMI dropped to 51.6 from 53.0 as output growth also slowed.
Looking at the day ahead now, data releases include the September flash PMIs from the US and Europe. Central bank speakers include Fed Chair Powell, the Fed’s Bowman and Bostic, and the ECB’s Muller, Kocher and Cipollone.