Headlines

* Gold marks fresh record high as inflation “set the stage” for Fed rate cut

* ECB cuts by 25bps as expected, but caution about more policy easing lifts euro

* US stocks rally, Dow, S&P 500 record highs back in sight

* Donald Trump says there will not be another debate with VP Harris

FX: USD moved lower after coming up against strong retracement resistance again at 101.85 in the Dollar Index. Remember that the euro holds a strong sway in the index, with roughly a 56% weighting. Weekly initial jobless claims ticked up marginally showing a softer labour market, while PPI came in as expected. The marginally higher core higher CPI print meant just the quarter point rate cut is most likely from the Fed next week. But it also sees more focus is probably on jobs data going forward.

EUR rose over 0.5% on the day the ECB cut rates as predicted. We all knew that was happening, but the bank also refrained from offering any guidance about future policy and more cuts. See below for more commentary.

GBP bounced off support at a minor retracement level and the July top around 1.3037, mainly on dollar weakness. UK rates had softened recently, and it is unclear whether this was a function of the soft UK GDP data on Wednesday or more just a wider expectation that global rates will be taken lower and in the UK too.

USD/JPY moved lower with eyes on Wednesday’s spike low at 140.70. We had more hawkish BoJ comments, this time from Tamura who said he sees the need for the bank to keep raising rates. On the flip side, we saw weaker than expected Japan PPI data.

AUD jumped for a second straight day as it now aims for 0.6750 and above. Positive risk sentiment certainly helped cyclical high beta currencies with the kiwi also outperforming. The 50-day SMA is above at 0.6669 and a major Fib level at 0.6671. USD/CAD traded around the 200-day SMA at 1.3588.  The better risk mood and an oil rebound helped the loonie.

US Stocks: Stocks saw decent gains once more with the tech leading the way.  The S&P 500 gained 0.75% to settle at 5,595. The tech-laden Nasdaq 100 added 0.97% to finish at 19,423. The Dow closed 0.58% higher at 41,096. Communication services outperformed with no sectors in the red. The major indices are up for a fourth straight day which is the longest win streak since mid-August. The benchmark S&P 500 is just 1.26% away from its record close at 5669.

Asian stocks: Futures are in the green. Asian stocks jumped as Wall Street’s gains post-US CPI were seen in the region. The ASX 200 moved high on energy and tech while mining stocks underperformed. The Nikkei 225 outperformed, up over 3.3% on broad-based buying. Yen softness helped with shares of exporters rebounding. The Hang Seng was boosted by tech and the broader risk-on mood. The Shanghai Composite lagged amid potential new protectionist measures on EV technology.

Gold finally burst through resistance making fresh all-time highs at $2560 and closing very near its peak. We said on Wednesday that the more prices track sideways, the bigger the breakout would be. Recent daily higher lows have signalled ongoing appetite from investors. The top is the metal’s 33^rd record settlement high so far this year.

Day Review – ECB Meeting

The ECB did as expected – cut rates and also stressed their highly data dependent stance. The staff projections were largely unchanged though core inflation was revised higher due to services. Going forward, there is not a lot of major data out until the October meeting, while inflation will likely remain sticky.

There is also a feeling that policymakers may only move policy when the quarterly staff projections are released, with the next in December. That said, there is a risk that the ECB’s growth forecast for the region is still too optimistic. That could eventually mean the bank will have to cut rates more aggressively next year. We did get the usual “ECB sources” story after the press conference which didn’t offer too much. It said officials have not ruled out an October rate cut but is unlikely for now. A move before December would take exceptional negative growth surprises.

Chart of the Day – Oil bouncing up to key support/resistance

Global growth worries and some specualtive selling have recently been weighing on energy and metals. Brent traded below $70 for the first time in more than two years, while WTI dropped to a December 2021 low. We’ve had warnings about an oversupplied market potentially taking prices into the $60s, with demand being questioned at a time of robust and expanding supplies. OPEC’s inability to predict demand was on clear display after the group held onto a 2024 demand growth forecast of more than 2 million barrels per day, more than double what the EIA forecast in its outlook.

That said, crude has rebounded over the last couple of days  with oversold conditions easing on short covering and supply risks from Hurriance Francine. We note in the week to September 3, speculators cut their net long in WTI and Brent futures to a 12-year low, potentially leaving the market exposed to a bounce on price-friendly news. Key support in Brent is at $70.07, the March 2023 low, with firm resistance at $72.47 and around $75.