US Stocks Surge After PCE Data – S&P Up 1%
US stock markets surged on Friday after key PCE inflation data met expectations, increasing the likelihood of a 25-basis point cut in September. The S&P 500 and Nasdaq both gained over 1%, closing up 1.01% and 1.13% respectively, while the Dow added 0.55% to reach another record high. US Treasury yields also advanced, with the 2-year yield rising by 3.2 basis points to 3.925%, and the benchmark 10-year yield increasing by 3.8 basis points to 3.905% by the end of trading. The dollar strengthened alongside Treasuries, gaining 0.3% on the DXY and returning to recent ranges against major currencies. Oil prices dropped as news broke that OPEC+ would increase output next month, with Brent falling 1.43% to $78.90 and WTI taking a steeper hit, down 3.11% to $73.55. Gold also declined, losing 0.9% to close around $2,497 per ounce due to the stronger dollar.
Inflation Data Pushes Dollar Higher
The US PCE Price Index data released on Friday met expectations, leading to increased bets that the Federal Reserve will opt for a 25-basis point cut at the upcoming meeting. US rate futures now indicate a 31% chance of a 50-basis point cut, down from 35% before Friday’s data. Traders are now turning their attention to the plethora of job numbers due later this week, which could further shape expectations. The dollar has experienced sharp inflows in recent weeks, dropping to annual lows against other major currencies, amounting to a 2.6% decline over the month. However, some in the FX markets believe this move is overdone and anticipate further dollar strength in the coming days, provided data continues to align with expectations and hopes for a soft landing grow.
Another Quiet Monday to Start a Big Trading Week
Markets are expected to open on a positive note this morning in Asia, following a strong day on Wall Street that capped off a busy week on Friday. Hopes for a soft landing in the US have naturally buoyed sentiment among trading partners, with Asian markets poised for a good start to the week. The macroeconomic event calendar is sparse today, and with Bank Holidays in both the US and Canada, traders expect rangebound markets. However, there are concerns that volatility could increase towards the end of the day as liquidity thins. Traders will be closely monitoring newswires for any geopolitical updates that could move markets, but overall, most expect quiet trading conditions ahead of what could be a lively week.
