Headlines

* Trump and Harris to face off in crucial 90-minute TV debate

* Markets tread water with currencies range bound in tight ranges

* S&P 500, Nasdaq 100 rise, crude slides as CPI awaits

* Gold moves higher as Treasury yields weaken with rate cut awaited

FX: USD traded in a tiny range printing a doji with markets awaiting today’s US inflation data. The first US Presidential debate between VP Harris and Trump takes place at 21.00 ET. If Trump emerges as a clear winner from the debate, we should see a bid to the buck. This is due to loose fiscal, tight monetary and protectionist policies being more likely under Trump 2.0 and dollar-positive.

EUR closed marginally lower in quiet trade. Germany released final August CPI data which was unchanged from the preliminary data at 1.9% y/y. A 25bps ECB rate cut is fully priced into Thursday’s meeting. But President Lagarde may be reluctant to give much away in terms guidance for more easing. She is likely to stress total data dependence.

GBP also traded quietly on fresh in-line wage data. Earnings in the July quarter hit estimates at 5.1%, lower than the prior but still sticky. There is currently only a small chance of a BoE rate cut next week (16%).

USD/JPY printed another inside day as prices near very strong support at 141.68, the August spike low and last week’s low at 141.76. There are reports that suggest the BoJ sees no need to tighten rates and more policy normalisation next week.

AUD printed a marginal down day again as longs seem to be losing the 50-day SMA at 0.6669 and a major Fib level at 0.6671. USD/CAD popped higher for a third straight day and is trading just above the 200-day SMA at 1.3588.  

US Stocks: Stocks were mixed with tech bouncing.  The S&P 500 gained 0.45% to settle at 5,495. The tech-heavy Nasdaq 100 added 0.90% to finish at 18,829. The Dow closed 0.23% lower at 40,736. Downbeat updates from Ally Financial ((-17.6%) and JPMorgan (-5.2%) just after the cash open sparked risk-off trade and a clear flight-to-quality. This move eased through the session, with a slightly more upbeat update from Bank of America. Apple lost its fight against a EUR 13bn tax order to Ireland and expects to record a one-time tax charge in Q4 of up to USD 10bn.

Asian stocks: Futures are mixed. Asian stocks rebounded with little news flow. The ASX 200 was boosted by utilities and financials’ strength. The Nikkei 225 was higher but muted. The Hang Seng was mixed with Alibaba the biggest gainer. Shanghai Composite lagged amid mixed China trade data and protectionist measures by the US House.

Gold ticked higher as bond yields slid. The 10-year Treasury yield dropped to levels last seen in June 2023. The 2-year Treasury yield, which tracks the Fed Funds rate closely, dipped close to the March 2023 low.

Day Ahead –US CPI and UK GDP

Consensus looks for US consumer prices to remain steady at +0.2% m/m in August, with the annual print at 2.6% from the prior 2.9%. The core rate is expected to stay unchanged at +0.2% m/m with the y/y steady at 3.2%. Shelter inflation is forecast to slow in August after some surprising strength in rents in July. Core services ex-shelter inflation could be a bit stronger in August compared to July but the upside risk in categories lie airfares do not feed into the Fed’s favoured measure, PCE. A steady report is likely to cement a 25bps rate cut next week. This highlights that inflation has slowed and the biggest risk to the Fed mandate is now squarely on the labour market.

UK GDP for the third quarter is forecast to print at 0.3% m/m. The service sector is expected to rebound after it contracted in June with stronger retail sales and leisure activity. Better weather should see manufacturing and construction expand. Markets only price 45bps of BoE rate cuts by year-end compared to over 110bps for the Fed. 

Chart of the Day – Gold hovering below all-time highs

The direction of travel for US interest rates is clear now, as Fed Chair Powell said recently at Jackson Hole. Lower borrowing costs are positive for gold as it doesn’t pay any interest. Of course, key now will be the pace and size of those cuts. Interestingly, ETF inflows have turned positive with four straight months of buying. Geopolitics could also be an important driver in the run up to the US presidential election. Ukraine support, Middle East and China tensions could all see shifting sides post-November.

Gold has been tracking sideways since busting up through the previous record high set in July at $2483. Gold bugs pushed up prices in mid-August with a fresh upside breakout and subsequent intraday peak at $2531. Since then, the precious metal has more or less traded in a range between that top and a few dips below $2483. The longer it tracks sideways, the bigger the breakout should be.