Futures Dip As Record-Breaking Rally Runs Out Of Steam

US equity futures are fractionally lower with small caps lagging as the record-breaking rally in stocks appeared to be running out of steam. At 8:15am ET, S&P 500 futures slid 0.1% after all major US indexes hit all-time highs on Thursday, however Nasdaq 100 futures are still in the green amid an relentless tech bid: Microsoft rose in premarket trading, leading the Mag 7 after it avoided a hefty antitrust penalty from the European Union. Europe’s Stoxx 600 eased as well. Incremental headlines after yesterday’s close were limited as Fed policy and AI development continue to support bulls over job market concerns or geopolitics. On trade, Bessent and Chinese VP will meet in Madrid next week. Yields are 1-2bp higher and USD is higher. Commodities are mixed, with oil and base metals higher, while precious metals are lower. Today’s econ data slate is just the September prelim University of Michigan sentiment at 10am New York time.

In premarket trading, Mag 7 stocks are mostly higher with AMZN and AAPL lagging (Microsoft +1%, Nvidia +0.1%, Amazon -0.07%, Meta +0.01%, Tesla +0.1%, Apple -0.3%, Alphabet +0.2%)

Adobe (ADBE) rises about 3% after giving a strong quarterly revenue outlook, suggesting that the software maker is seeing a payoff from its investment in AI features.
Alaska Air (ALK) gains 2% as an upgrade from UBS gives the stock a clean sweep of buy ratings among analysts.
Array Technologies (ARRY) declines 5% as BofA assigns the solar tracking technology firm its only negative analyst rating, downgrading to underperform based on tariff drag.
RH (RH) falls 8% after the luxury furniture company cut its sales outlook for the full year, citing mounting impacts from new US tariffs that resulted in delays to a seasonal catalog.
Stellantis’ US shares (STLA) fall 3%, giving back some of the gains booked on Thursday following comments from CEO Antonio Filosa on dealer inventory levels and the company’s tariff talks with Washington. UBS tempered the optimism this morning, claiming the risk-reward profile looks “unattractive” in the near-term.
Super Micro Computer (SMCI) gains 5% after the server company announced the availability of its Nvidia Blackwell Ultra solutions
Warner Bros. Discovery (WBD) is up 6%, set to extend Thursday’s 29% rally as Paramount Skydance, the Hollywood studio taken over by independent filmmaker David Ellison, is said to be preparing a bid for the company.

Stocks repeatedly scaled all-time highs after a raft of data this week pointed to a strained labor market and relatively contained inflation, sealing a Fed cut when policymakers meet next week. Some now question whether the rally has further room to run as seasonal weakness and geopolitical uncertainty linger. Meanwhile swaps pricing indicates traders anticipate the equivalent of between two or three quarter point cuts through year-end, with some wagering on a jumbo half-point cut next week (odds about 10%).

Claudia Panseri, chief investment officer for France at UBS Wealth Management, cautioned that markets were reaching the limit of pricing in Fed support: “I would say that the market is overestimating the scale of rate cuts across the 12 coming months,” she said. “As for next week, some investors will be disappointed if there’s not a 50 basis-point cut, and I don’t think there will be.”

While the slowdown in the labor market has raised concerns that the Federal Reserve may have stayed on pause for too long, Bank BofA strategist Michael Hartnett said markets are betting that policymakers would still be ahead of the curve once they begin cutting rates. A rally in banks and other rate-sensitive stocks, along with a decline in investment-grade credit spreads, signal that investors are “saying the Fed can cut with credibility and is cutting into US growth re-acceleration,” he said.

Analysts expect small caps to outperform over the next twelve months, with the potential for a 20% advance in the Russell 2000, compared with calls for an 11% jump in the S&P 500, as highlighted in today’s Taking Stock column. BI strategist Gillian Wolff notes the Russell 2000 broke above the key psychological level of 2,400 this week and at 68, the 14-day RSI remains far from overbought levels — prior highs were marked by RSI above a 73-handle.

In European markets, European stocks are subdued on Friday as investors await the Federal Reserve meeting next week. Automobile and retail shares are biggest laggards, while mining and utilities equities are the best-performers.
The Stoxx Europe 600 Index was little changed at 554.86. Here are the biggest movers Friday:

European miners are outperforming on Friday thanks to a broad rise in metal prices, with gold, copper, aluminum and nickel all gaining ground
Hannover Rueck SE shares rise as much as 3.4%, the most since April, after UBS raised the recommendation on the German reinsurance company to buy from neutral on earnings resilience
Inwido rises as much as 6%, reaching the highest in two months, as Berenberg initiates on the Swedish windows and door manufacturer with a buy rating
Vallourec shares rise as much as 6.3%, the most in over two months, after the tubular product maker said it has won a major contract from Petrobras that could generate up to $1 billion in revenue
European energy firms are lagging the wider market on Friday as oil extends a decline after the International Energy Agency projected an even bigger surplus next year
Novartis drops as much as 2.9% after the stock was downgraded to sell from neutral at Goldman Sachs. The analysts say the Swiss drugmaker’s valuation looks “stretched” given the increasing impact of generic competition following drug patent expiries in the coming years
Ocado shares plunge as much as 12% extending losses booked in late trading on Thursday. Morgan Stanley analysts noted “negative readacross” from comments made on US grocer Kroger’s conference call yesterday

French bonds lagged most regional peers ahead of a Fitch Ratings update on the country, due after the close. French assets have been unsettled after former Prime Minister Francois Bayrou lost a confidence vote, failing to muster enough support to rein in the budget deficit.  “The market is already incorporating at least one or two or even three downgrades,” Vincent Mortier, chief investment officer at Amundi SA, told Bloomberg TV. “We’re still far away from a sub-investment-grade rating. The market has been quicker than the rating agencies to adjust the levels.”

Earlier in the session, Asian equities advanced, as technology shares extended their rally on rising expectations that the Federal Reserve will cut interest rates next week.  The MSCI Asia Pacific Index rose as much as 1.1%, poised for a seventh day of rise in its longest winning streak since May 2024. South Korea’s Kospi notched another all-time high, after SK Hynix announced it had completed development of its next-generation AI memory chip. Shares in Hong Kong also rose, with Alibaba surging amid optimism over its AI infrastructure plans. Risk appetite has been improving in Asia as tariff worries ease on progress in US trade talks. The return of optimism on the AI trade, a liquidity-driven rally in Chinese stocks and expectations that Fed cuts will allow Asian central banks room to ease further have helped power the advance. Tech got a boost this week from Oracle Corp.’s upbeat cloud-business outlook. Stocks also climbed Friday in Taiwan, Japan and Australia. Indonesia’s key equity gauge jumped more than 1% on optimism over plans from the nation’s new finance minister. Here Are the Most Notable Movers

Ain Holdings Inc. shares jumped after the Japanese pharmacy operator raised its full-year operating profit guidance. Meanwhile, Fuji Oil Co. shares surged following a takeover offer from Idemitsu Kosan Co.
Infosys shares rise as much as 2.3% to their highest in seven weeks after the software firm said it will buy back shares worth 180 billion rupees ($2 billion).
Aristocrat Leisure shares fall as much as 4.5%, the most since May 14, after the Australian game machine operator said Dylan Slaney will replace Moti Malul as CEO of the interactive division.
Star Plus Legend shares rise as much as 22% in Hong Kong, the most since July 30, after a media report saying that a robot dog created by the company and Hangzhou Unitree Technology will make its first appearance soon.
Malaysian car distributor Bermaz Auto Bhd. fell to a record low after its first-quarter net income slumped 88%, weighed by strong competition from Chinese automakers.
Ascletis Pharma shares rise as much as 6.6% in Hong Kong after the company said Chairman Jason Wu and Executive Director Judy Wu are demonstrating “strong faith” in its long-term value and future prospects.
Verisilicon Microelectronics shares surge as much as 20% to a record high, resuming trading following a halt, after the company announced plans to buy a Shanghai chip tech firm.
Alibaba Group Holding Ltd.’s stock gained the most in about two weeks after the company initiated a series of moves intended to shore up its place in China’s AI development boom.
Anritsu shares jump as much as 13% to the highest intraday level since Nov 2021 after Goldman Sachs initiates a buy rating on the Japanese measurement instruments company on expectations of profit growth driven by AI and data center businesses.
Timee shares plunged as much as 18%, the most in a year, after the part-time job app developer’s quarterly sales missed estimates, spurring concern about weakness in its food industry operations.

In FX, the dollar rebounded from back-to-back losses. The yen lags G-10 currency peers, down by 0.5%, and set for a third consecutive weekly decline. The pound trimmed a weekly gain after the economy showed a sluggish start to the third quarter, with gross domestic product flat and slowing from the previous month.

In rates, treasuries pulled back from Thursday’s advance alongside weakness in Europe, with the US 10-year yield rising two basis points to 4.05%. Yields are biased slightly higher amid bigger losses for bunds during European morning following German and French CPI data. US front-end to 10-year yields are cheaper by as much as 1.5bp with 2s10s curve barely 1bp steeper on the day. Long-end yields are little changed, flattening 5s30s by about 1bp. German and UK counterparts lag US 10-year by 2bp and 1bp. Gilt yields are higher and the pound is weaker after UK economy flat-lined in July.

In commodities, gold pares gains after testing another record, but is still up by $6 to $3,639/oz as money pours into bullion-backed ETFs. Copper and nickel also rise to buoy miners in Europe. Oil prices reverse an earlier decline, with Brent trading up 1% and shy of $67/barrel.

Looking ahead, today’s calendar includes the US September University of Michigan Survey, UK July monthly GDP, Italy’s Q2 unemployment rate, and Canada’s July building permits. Central bank speakers include the ECB’s Rehn, Kocher, and Nagel, as well as the BoE’s inflation attitudes survey.

Market Snapshot

S&P 500 mini -0.1%
Nasdaq 100 mini little changed
Russell 2000 mini -0.5%
Stoxx Europe 600 -0.1%
DAX -0.3%
CAC 40 -0.4%
10-year Treasury yield +2 basis points at 4.04%
VIX little changed at 14.68
Bloomberg Dollar Index +0.2% at 1199.62
euro -0.1% at $1.172
WTI crude +0.6% at $62.74/barrel

Top Overnight News

Trump says Charlie Kirk’s murder suspect has been captured and is in police custody
The US will pressure G7 countries to hit India and China with sharply higher tariffs for buying Russian oil in an attempt to force Moscow into peace talks with Ukraine, according to four people briefed on the plans. FT  
China on Thursday warned Mexico that raising tariffs on Chinese goods will be considered “appeasement” to US “bullying,” after Mexico mulled plans to impose import duties of up to 50%. Nikkei
Allianz and AllianceBernstein are among global firms boosting holdings of Chinese government bonds after a selloff driven by a rotation into stocks sent yields to multi-month highs. Analysts also expect the PBOC to resume purchases. BBG
US Treasury Secretary Scott Bessent plans to meet with Chinese Vice Premier He Lifeng and other senior officials next week in Madrid to continue their discussions on trade, economic and national security issues, the Treasury said on Thursday. RTRS
Brazil’s Supreme Court sentenced former president Jair Bolsonaro to 27 years in prison for plotting a coup after his 2022 election defeat. Marco Rubio said the US will respond “accordingly.” BBG
OpenAI is moving closer to a for-profit structure under a new deal with Microsoft, giving its nonprofit parent an equity stake of more than $100 billion. The plan faces resistance from Elon Musk and regulatory scrutiny. BBG
Sam Altman and Nvidia’s Jensen Huang will announce investments worth billions of dollars in UK data centers next week, people familiar said. BBG
Adobe (+3.8% premkt) shares rose on a strong revenue forecast, suggesting investments in AI features are paying off.  Reported solid quarterly results, and upped its Revenue, net new ARR, and EPS guidance which should help push back on bear thesis. 
Gold ETF holdings jumped about 25 tons this week — the sixth-highest weekly gain this year — on the back of Fed rate-cut bets, weaker yields and central-bank demand. Still, Phillip Nova warned long-term holding is riskier amid volatile momentum-driven trading. BBG

Trade/Tariffs

US Treasury Secretary Bessent will travel to Spain and the UK on September 12th-18th on a trip that includes government and private sector meetings in London. Bessent will meet with Chinese Vice Premier He and other senior Chinese officials next week in Madrid, while Bessent and He are to discuss key US-China national security, economic and trade issues, including TikTok and anti-money-laundering cooperation. Furthermore, Bessent will also meet with Spanish government counterparts to discuss the US-Spain relationship and is to join US President Trump in the UK for an official state visit with King Charles.
China’s Commerce Ministry said planned Mexican tariffs on China are too seriously affect Mexico’s business environment and confidence of enterprises in investing in Mexico, while it added that China will take necessary measures to safeguard legitimate rights and interests.
Taiwan said it will continue advanced talks with the US and seeks more equitable reciprocal trade terms with the US, while Taiwan and the US affirmed that some progress was made in trade talks

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly higher following the gains on Wall St, where the major indices climbed to record highs after a jump in Initial Jobless claims further boosted Fed rate cut pricing. ASX 200 edged higher with outperformance in Real Estate, Miners, Materials & Financials spearheading the advances as Fed rate hike expectations boost global risk sentiment. Nikkei 225 extended on record highs and approached closer towards the 45,000 level despite little fresh pertinent drivers. Hang Seng and Shanghai Comp traded mixed with tech leading the gains in Hong Kong after it was reported that Alibaba (9988 HK) and Baidu (9888 HK) are using internally designed chips for training AI models are to adopt their own AI chips in a major shift for Chinese tech, while the mainland lagged amid frictions, with the US reportedly to urge G7 to impose high tariffs on China and India over Russian oil purchases.

Top Asian News

Japanese and US finance ministers’ joint statement noted as trusted partners, the United States Department of the Treasury and the Japanese Ministry of Finance agreed to continue their close consultations on macroeconomic and foreign exchange matters, while they reaffirmed that exchange rates should be market-determined and that excess volatility can have adverse implications for economic and financial stability.
Japanese Member of the House of Representatives Takaichi leads in a Kyodo poll to be next head of Japan ruling party.
Chinese finance minister says local debt swap programme is achieving results. China’s finance minister vows to resolutely curb new local hidden debt.
Japan’s former Top Currency Diplomat Gyoten says BoJ must take into consideration concerns that weak JPY could accelerate inflation; Japan’s interest rates are too low and are contributing to the JPY weakness.

European bourses (STOXX 600 -0.3%) opened modestly firmer across the board, but sentiment slipped as the morning progressed to display a negative picture – nothing really behind the turn. European sectors are split down the middle, and with little overall newsflow driving this at the moment. Basic Resources takes the top spot, buoyed by strength in underlying metals prices. Insurance and Utilities follow closely behind. Autos is found at the foot of the pile, and then joined by Retail and Energy

Top European News

UBS Global Wealth Management expects ECB to remain on hold in 2025 (prev. 25bps cut in Dec); Now expect ECB to remain on hold for a prolonged period
ECB’s Simkus says inflation has stabilised at the target and labour market is in a good situation, adds economic activity is quicker than previously observed. Inflation risks are significantly high.
ECB’s Villeroy says another rate cut is possible in coming meetings; upward risks to inflation are lower than downward, via Bloomberg.
ECB’s Kazaks says risks remain elevated; a meeting-by-meeting approach is still appropriate, via CNBC; December meeting is ‘rich’.
ECB’s Muller says rates in the right place at the moment.
ECB’s Rehn says the risk that inflation remains slower than the target level should not be underestimated. Must be mindful of downside risks to inflation stemming from cheaper energy and a stronger EUR.
ECB’s Kocher says the gap between Austrian inflation and EZ average is far too high; growth and inflation outlook presented at the meeting was little changed; will decide meeting-by-meeting and changes to risk landscape.
Ipsos data: UK public inflation expectations at 3.6% (prev. 3.2%) for the coming year and 3.4% (prev. 3.2%) for the following 12-month period, 5-year 3.8% (prev. 3.6%)

FX

DXY is attempting to claw back some lost ground after declining on Thursday in the wake of the jump in US weekly claims data, which overshadowed the mostly in-line/slightly firmer (on an underlying basis) CPI report. Pricing for next week’s FOMC rate decision was largely unchanged with markets reluctant to price a 50bps reduction. With regards to personnel at the Fed, the latest reporting suggests US Treasury Secretary Bessent met this week with Warsh, Lindsey, and Bullard as the search for the next Fed chair continues. Ahead, focus is on UoM data for September. DXY sits towards the bottom end of Thursday’s 97.47-98.08 range.
EUR is steady vs. the USD after gaining yesterday in the wake of a broadly softer dollar and what turned out to be a hawkish ECB policy announcement. Source reporting has suggested that an October cut is very unlikely. However, the matter could be revisited in December alongside the latest economic projections. We have heard from a slew of ECB speakers this morning, who have largely echoed Lagarde’s remarks that policy is in the right place. Afterhours, focus will be on Fitch’s review of France. EUR/USD ventured as high as 1.1747 before pulling back. If upside resumes, the WTD peak sits at 1.1780.
JPY is softer vs. the USD and at the bottom of the G10 leaderboard. Focus this week for Japan has primarily been on the fallout from political uncertainty after PM Ishiba announced his resignation, with pressure this morning potentially exacerbated by the Kyodo poll. The inference for markets has been that the upheaval in Japan could derail BoJ tightening expectations. Elsewhere, a joint statement between the US and Japan has reaffirmed their commitment to close consultations on foreign exchange matters and reaffirmed that exchange rates should be market-determined. USD/JPY is currently contained within Thursday’s 146.98-148.19 range.
GBP is on the backfoot vs. the USD following an in-line M/M outturn for UK GDP at 0%, leaving the 3M/3M rate at 0.2%, as expected. Looking ahead, Pantheon expects “GDP growth will probably undershoot the MPC’s forecast for Q3 slightly after today’s release, but that should have little effect on interest rates”. Cable sits towards the middle of Thursday’s 1.3490-1.3583 range.
Antipodeans are both softer vs. the USD after faltering alongside the pullback in risk sentiment in early European trade. Macro drivers for both remain on the light side and as such, the risk environment and broader moves in the USD are likely to provide the greatest source of traction for AUD/USD and NZD/USD.
PBoC set USD/CNY mid-point at 7.1019 vs exp. 7.1081 (Prev. 7.1034).

Fixed Income

A softer start to the final session of a packed week. Today’s docket is a little lighter stateside, University of Michigan is the main data event while scheduled speakers are light aside from POTUS on Fox at 13:00BST, an interview likely to focus on Charlie Kirk. Currently, USTs are lower by a handful of ticks in a thin c. five tick range which is comfortably within Thursday’s 113-09 to 113-29 band. September aside, Treasury Secretary Bessent met this week with Warsh, Lindsey, and Bullard regarding the Chair position. Will be speaking with sitting officials’ post-blackout. His goal is to add one or two names to the list of candidates.
Bunds are softer, continuing to pullback from the 129.38 peak that printed yesterday in reaction to US weekly claims. Entered today’s session just above the 129.00 mark but has since slipped below the figure and is at a 128.84 trough. Very much focussed on the post-ECB sources. In short, a move in October is off the cards (-1.3bps implied) with policymakers generally of the view that further easing is not required to get inflation to the 2.0% target; however, the December meeting (-3.8bps implied) is the point to review this when new forecasts will be available including the first look at 2028. ECB speak today has been mixed but has largely echoed commentary from Lagarde on Thursday.
Gilts are just in the red, but outperforming peers. Outperformance that is a function of the morning’s growth data. Where the headline metrics were as expected for the M/M and 3M/3M, the Y/Y missed consensus and the manufacturing/production breakdown was very weak, printing beneath the forecast range. Notably, the M/M only just avoided being a negative print, helped out by some favourable 1dp rounding. A series that was sufficient to lift Gilts to a 91.75 peak, posting gains of 11 ticks at best. However, as the morning progressed this strength has waned and the benchmark is well off best, but still outperforming peers. The data has had no impact on BoE pricing, with markets not looking for a move until around March 2026.
OATs are lower, in-fitting with peers. Awaiting the sovereign review from Fitch, due after the US close. Into this, OATs trade in-line with Bunds and the OAT-Bund 10yr yield spread holds just below the 80bps mark. Fitch has France at AA-, negative. Fitch last updated on March 14th, highlighting high levels of debt and a poor record of fiscal consolidation as points of weakness, adding the negative outlook is reflective of significant fiscal risks.

Commodities

Crude opened lower, but traded with an upward bias since the European cash open, taking the complex into the green; currently resides at session highs. Some of the downbeat sentiment may be on EU officials suggesting it is unlikely the G7 will impose 100% tariffs on China and India, as India is a vital partner in trade and security matters, according to FT. WTI currently resides in a 61.69-62.83/bbl range while Brent sits in a USD 65.71-66.91/bbl range.
Precious metals are steadily gaining despite this morning’s dollar strength and in tandem with a rally in silver, which climbed above the USD 42/oz level. Spot gold currently resides in a USD 3,622.75-3,649.35/oz range. All-time high still sits at USD 3,674.69/oz printed on 9th September.
Base metals trades firmly despite the weaker sentiment and stronger dollar, and with little in terms of newsflow to explain price action, although supply-side headlines yesterday suggested Peruvian copper output fell 2% in July. 3M LME copper resides in a USD 10,054.35-10,127.20/t range at the time of writing.
US Energy Secretary Wright says the faster EU phase out of Russian energy would be helpful in ending the Ukraine war; thinks EU could phase out Russian oil and gas faster.
Commerzbank raised gold price forecast to USD 3,800/oz by end-2026 (prev. USD 3,600/oz); raises silver end-2025 forecast to USD 41/oz to USD 43/oz; raises platinum forecast for 2025-end to USD 1,400/oz (prev. USD 1,350/oz).

Geopolitics: Middle East

Israel’s UN envoy to the Security Council said Israel will act against the leaders of terror wherever they are hiding.
Qatar’s PM said to the UN Security Council that the Israeli attack on Hamas leaders in Doha is a violation of Qatar’s sovereignty, and the attack, which was carried out while we are engaged in mediation, exposes Israel’s intentions to derail peace efforts. Furthermore, Qatar’s PM said Israeli leaders show no regard for hostages’ lives and Qatar will continue its humanitarian and diplomatic role to spare bloodshed, but will not tolerate any infringement on sovereignty and security.

Geopolitics: Ukraine

The US is to urge G7 to impose high tariffs on China and India over Russian oil purchases, while finance ministers from G7 leading economies will discuss a US proposal for a round of new measures on Friday, according to FT.
EU officials say it is unlikely G7 will impose 100% tariffs on China and India as India is a vital partner in trade and security matters, according to FT.
Japan’s Chief Cabinet Secretary Hayashi said Japan is to impose additional asset freeze, export controls, and sanctions on Russia over Moscow’s invasion of Ukraine, while he added they are to lower the price cap on Russian crude oil from today.
Japan’s Trade Ministry said they are to restrict exports to additional entities, including six in China, two in Turkey, and one in the UAE, as part of sanctions against Russia’s invasion of Ukraine.
NATO Secretary General Rutte and Supreme Allied Commander to hold joint press conference at NATO headquarters today at 16:00 BST.

US Event Calendar

10:00 am: Sep P U. of Mich. Sentiment, est. 58, prior 58.2

DB’s Jim Reid concludes the overnight wrap

As we approach the end of the week, markets have been in a buoyant mood over the last 24 hours, continuing into this morning’s Asian session, with investor attention squarely focused on the slightly higher than expected US August CPI release, and the notably higher than expected jobless claims data. The influence of the latter won out with December fed futures spiking to price in 76bps of cuts immediately after the numbers, having been at 68bps before the release. We ended up pricing in 72bps at the close. This overshadowed a slightly hawkish ECB meeting where sources later suggested that the ECB are inclined to keep rates on hold in this cycle unless there is an economic shock. Equities extended their recent rally, with the S&P 500 (+0.85%), Nasdaq (+0.72%), and the Mag-7 (+1.13%) all notching fresh record highs.

Starting with the US CPI report, headline inflation rose by +0.4% month-on-month (m/m) in August, up from +0.2% in July and above the +0.3% consensus forecast. Core inflation matched expectations at +0.3% m/m, unchanged from July but it did come in at 0.345%, just shy of rounding up. However, it was outsized increases in volatile categories such as airfares (+5.8% m/m) and lodging (+2.3% m/m) that pushed the core reading higher, with the Cleveland Fed’s trimmed mean CPI measure rising by a more moderate +0.26% m/m. Indeed, with airfares CPI not entering into the Fed’s preferred core PCE inflation measure, our US economists’ projection for August core PCE has declined to +0.22% m/m after the CPI print. Overall, they see the CPI data pointing to continued strength in service prices, but to potentially more moderate tariff impacts than previously anticipated. See their full take here

Alongside CPI, initial jobless claims for the week ending 6 September rose to +263k, well above the +235k expected. The state of Texas accounted for most of this increase so some of this spike was likely due to temporary distortions. Still, it was yet another data point adding to a picture of a softening US labour market.

The combined data prompted a rally in US Treasuries, with 10yr yields falling -6bps lower after the print before closing -2.5bp on the day to 4.02%. 30yr yields saw a larger -4.2bps decline, even as they sold off a little after an average 30yr auction. However, the front-end rally ran out of steam as the day went on and 2yr yields closed a mere -0.1bps lower as markets remained hesitant to price in much risk of a 50bps cut, with September Fed pricing unchanged at 27bps. The dollar index weakened slightly, posting a -0.25% decline.

Equities responded positively to the lower rates outlook. The S&P 500 (+0.85%) and Nasdaq (+0.72%) both advanced to fresh records, supported by continued enthusiasm around AI. The Magnificent 7 gained +1.13%, although Oracle slipped -6.23% after three consecutive days of gains. But the equity gains were widespread with 436 advancers within the S&P 500 being the most we’ve seen since May 27, while the small cap Russell 2000 (+1.83%) surged to within 1% of its own record high reached back in November 2021.

Turning to Europe, the ECB held rates steady at 2%, as widely expected, but this was accompanied by some hawkish hints that led markets to price out prospects of another rate cut. The ECB saw the risks to growth as “more balanced” amid fading trade uncertainty and a resilient domestic economy. President Christine Lagarde stated that the “disinflationary process is over” and repeated that policy is “in a good place”. While there was a dovish tweak with the 2027 core CPI forecast being lowered from +1.9% to +1.8%, Lagarde did not focus on this, rather calling the downwardly revised +1.9% headline CPI projection for 2027 a “minimal deviation” from target. Overall, our European economists see the ECB as increasingly comfortable with 2% policy rates, and they continue to expect the next ECB move to be a hike in late 2026. See their full reaction here.

In response, markets effectively removed any pricing of an October rate cut and are now pricing only 10 bps of easing by next March (-3.1bps on the day), which marks the first time that another 25bp rate cut has been less than 50% priced. That sent 2yr bund yields +3.3bps higher, though the 10yr yield (+0.4bps to 2.65%) was little changed amid the US bond rally.

The euro gained +0.33% against the dollar on the day, and European equities rose as the STOXX 600 climbed +0.55%, with the CAC 40 up +0.78% and the DAX +0.30%.

Elsewhere, oil prices fell, with Brent crude down -1.66% to $66.37/bbl as the International Energy Agency projected a larger record oil market surplus for 2026. That outweighed ongoing geopolitical concerns after Russia’s drone incursions into Poland on Tuesday night. Warsaw’s allies including France and Germany pledged to expand their air policing over Poland, but we are yet to hear if Europe and the US will announce new sanctions in response.

In Asia, the Hang Seng tech index is leading the way with a rise of +2.18%, while the Hang Seng itself is +1.53%, bringing its five-day gain to over 4% and positioning it for its highest close since August 2021. Meanwhile, the KOSPI is up by +1.28%, supported by a notable surge of over 7% in one of its major heavyweights, SK Hynix, after the company announced the successful completion of its next-generation high bandwidth memory chip, HBM4, which is essential for AI applications. Elsewhere, the Nikkei (+1.08%) is rising for the third consecutive session, reaching new record highs despite the uncertainty following Prime Minister Ishiba’s resignation. The Shanghai Composite (+0.20%) is seeing more muted gains alongside US equity futures which are currently flat as I type. 

Looking ahead, today’s calendar includes the US September University of Michigan Survey, UK July monthly GDP, Italy’s Q2 unemployment rate, and Canada’s July building permits. Central bank speakers include the ECB’s Rehn, Kocher, and Nagel, as well as the BoE’s inflation attitudes survey.