Stocks Rally Late on Deal Hopes – Nasdaq up 1.2%
Global markets saw another highly volatile session overnight as sentiment swung sharply on conflicting developments out of the Middle East. Risk assets came under early pressure after President Trump flagged the possibility of a US naval blockade of the Strait of Hormuz, before rebounding strongly later in the day as reports suggested Iran was willing to engage in further negotiations. US equity markets finished firmly higher across the board. The Dow Jones rose 0.63% to close at 48,218, while the S&P 500 gained 1.02% to 6,886. The Nasdaq outperformed, climbing 1.23% to end the session at 23,183. In fixed income markets, US Treasury yields moved lower, with the 2-year yield falling 2.3 basis points to 3.772% and the 10-year yield easing 2.4 basis points to 4.293%. The US dollar closed the day lower, having initially risen over 0.5% against the majors, with the DXY ultimately slipping 0.27% to 98.43 on the day. Commodity markets experienced significant intraday swings, particularly in oil. Prices surged more than 8% at one stage before paring gains later in the day. Brent crude settled 2.90% higher at $97.97 per barrel, while WTI rose 1.34% to $97.87. Gold was comparatively subdued but remained volatile within recent ranges, edging 0.20% lower to $4,740.31 by the New York close.
More US Data Today to Hit Fed Expectations
We saw key US inflation numbers hit Federal Reserve rate expectations last week, and later today we have more updates that could push investors’ hopes of any cuts further down the curve or, indeed, out of the door. Last month’s meeting minutes indicated that the Fed is still pricing in another rate cut before the end of the year; however, the impact of the war in the Middle East on last week’s PCE and CPI data, and general expectations for inflation to remain elevated, have pulled back on those expectations, and the market is now pricing in just a 28% chance that we will see a 25-basis-point cut by the December meeting. Today’s PPI data could add to those fears, with anything higher than the expected +1.1% month-on-month print for the headline figure or +0.4% month-on-month for the core data leading to a further pullback on rate cut expectations. Longer term, this should be dollar-supportive; however, in the current environment, expect the dollar to continue trading in line with its haven status.
Another News-Driven Trading Day Ahead
At the risk of sounding like a broken record, markets are expected to remain highly sensitive to geopolitical headlines, with ongoing developments in the Middle East likely to continue driving price action in the sessions ahead today. Asian markets are expected to start on the front foot today after Wall Street rallied well on talk of potential peace negotiations; however, investors are expected to remain cautious throughout the day given the swings in updates we have seen over the recent weeks. There is little of note on the macroeconomic calendar in either the Asian or London sessions today; however, we do have some scheduled events in the New York day that could add some spice to an already volatile mix. Key US PPI (exp +1.1% m/m) and core PPI (exp +0.4% m/m) are due out early in the session, while later in the day we are set to hear from several central bank officials, including the Bank of England’s Andrew Bailey and the ECB’s Christine Lagarde, as well as several Fed members, which could provide further direction for markets.
