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Risk-on sentiment lifted U.S. markets as expectations for a Fed rate cut grew following an uptick in consumer inflation and another weak jobs report. The S&P 500, Nasdaq, and Dow all reached record highs, with the Dow outperforming and climbing to over 46,000 points, driven by gains in Goldman Sachs, Caterpillar, and Home Depot, three of its heaviest weights. 10-year Treasury yields traded below 4%, their lowest since early April. Meanwhile, the dollar index dipped further, remaining near a three-year low.
Economics: U.S. consumer inflation accelerated in August, with headline CPI rising 2.9% YoY, up from 2.7% in July, the highest annual increase since January but in line with expectations. Core CPI, which excludes food and energy, remained steady at 3.1% YoY. (chart on Market Data)
The uptick in overall inflation was driven by higher shelter and food costs, while core inflation held steady, indicating persistent underlying price pressures. Overall, inflation this year has not been as severe as many had feared following the tariff increases. Also, the latest weekly jobless report of 263k was the highest in four years and came above forecasts. Following these updates, markets lowered the bets on a jumbo (50bp) rate cut by the Fed next week and are pricing in a 93% chance of a quarter-point reduction.
Monetary Policy: The ECB paused its rate-cutting cycle on Thursday, a widely expected move, keeping the deposit facility at 2.00%, the main refinancing rate at 2.15%, and the marginal lending facility at 2.40%. Policymakers signalled they are not yet comfortable easing further as they await clarity on how the Trump administration’s 15% tariffs will weigh on growth and inflation. While the economy is holding up better than feared, supported by a strong labour market, trade with the U.S. is being constrained, and risks remain from a stronger euro, geopolitical tensions, and the uncertain transmission of inflation.
Headline inflation is projected at 2.1% in ‘25, moderating to 1.7% in ‘26 and 1.9% in ‘27, broadly around the ECB’s target. Traders are pricing in a 20% chance for a quarter-point rate cut by year-end.
“The domestic economy is showing resilience, the labour market is solid and risks are more balanced,” ECB president Lagarde said.
Crude oil dropped over 2% today as both the International Energy Agency and the U.S. Energy Information Administration released reports showing rising global supply and softening U.S. demand.
Earnings: Digital media software firm Adobe (mcap $149bn) reported strong results after the close, beating top and bottom estimates and offering a solid outlook for the current quarter, also above analysts' expectations. On an annual basis, profits increased 14% while sales rose 11%. Shares advanced 3% in extended trading following a flat regular session, but the stock remains lower by21% YTD.
In geopolitics, Russia sent at least 19 drones into Polish airspace yesterday, prompting NATO jets to intercept and Warsaw to request emergency consultations with allies under NATO’s Article 4. In the Middle East, Qatar has firmly denied Israeli accusations that it is sheltering Hamas terrorists, adding to ongoing tension.
In domestic politics, Brazil’s Supreme Court convicted former President Jair Bolsonaro of plotting a coup after his 2022 election loss, raising the prospect of decades in prison.
IPOs: Two New York-based companies listed on Nasdaq today. Figure Technology, a blockchain-based lender, debuted after pricing its IPO at $25. It raised $787mn and was valued at $5.3bn. Shares opened at $36 and closed at 31 for a 24% rally.
LB Pharmaceuticals, a biotech firm focused on schizophrenia treatments, went public at $15. It raised $285mn, bringing its valuation to $382mn. Shares opened at $19, reflecting a 27% jump, but closed at $17.30, up 15%.
See you tomorrow.
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