Chinese equities outperform

All the US majors closed with decent gains on Friday, following a difficult week. Equities were supported by the latest inflation update, which was generally viewed favourably. Core PCE, the Fed’s preferred inflation measure, rose 2.9% year-on-year in August, unchanged from the previous month. While still well above the Fed’s 2% inflation target, Friday’s update wasn’t viewed as hot enough to quash the possibility of another two 25 basis point rate cuts before year-end.

This upbeat interpretation helped to bolster sentiment across the main US stock indices. The small-cap, domestically focused Russell 2000 led the rally, ending the day up 1%. The Dow, S&P 500 and NASDAQ tacked on 0.7%, 0.6% and 0.4% respectively. Despite these gains, the majors all closed lower for the week.

For the week, the S&P 500 slipped 0.3%, marking its weakest stretch since early August, while the Nasdaq fell 0.7%, the Russell 2000 lost 0.6% and the Dow edged lower by 0.2%, ending a three-week winning run.

Source: TN Trader

Investors had second thoughts about the size and effectiveness of investments in the artificial intelligence (AI) space. Key amongst these was NVIDIA’s $100 billion investment in ChatGPT owner, OpenAI. Analysts were starting to question the ‘circularity’ of the move, whereby NVIDIA invests in its customers, thereby giving them the resources to carry on buying its chips.

Investors were also questioning the Fed’s appetite for additional rate cuts going into the year-end. Last week brought the release of strong housing data, a large upward revision to second-quarter GDP, better-than-expected Durable Goods, and, perhaps most importantly, a sharp drop in weekly Unemployment Claims.

All this helped to encourage the view that the US central bank may be in less of a hurry to ease monetary policy further, given the strength of the US economy, on top of tariff uncertainty.

Maybe the market will get more clarity this week, which is a busy one for labour statistics, rounding off on Friday with the latest Non-Farm Payroll data. This has been very poor of late and subject to some thumping revisions. In contrast, the weekly Unemployment Claims data, along with a subdued Unemployment Rate, suggest that labour market concerns may be overdone.

US stock index futures were all sharply higher in early trade on Monday. Could this be the start of another rally as we head towards the fourth quarter? Or will there be other obstacles for US equities this year?

One possible issue is the usual political battle in Congress to agree on a government budget. This needs to be sorted by the close of play tomorrow. This time, President Trump has warned that a failure to reach an agreement will result in federal job losses, which could turn out to be permanent.

European stock indices were firmer across the board in early trade this morning. Investors took their lead from Friday’s bounce-back across Wall Street, together with strength across US stock index futures this morning.

Source: TN Trader

On the corporate front, German airline Lufthansa said it expects to generate more than €2.5 billion in annual free cash flow as it targets earnings margins of 8–10% over the next two years. The airline also announced plans to cut 4,000 mostly administrative jobs in Germany by 2030 while committing €600 million to build a new cargo hub at Frankfurt airport.

In biotech, Genmab revealed an $8 billion deal to acquire Utrecht-based cancer drugmaker Merus, signalling further consolidation in the pharmaceutical space.

The US dollar was weaker overnight against all the majors. The Dollar Index topped 98.00 last week, hitting its best levels in over a month. This represented a decent recovery, given that the index fell to a multi-year low, just under 96.00 twelve days ago, straight after the US central bank cut rates by 25 basis points, as expected.

The dollar got a boost last week following the release of a clutch of stronger-than-expected US data releases. Existing Home Sales, New Home Sales, Durable Goods and the revision to second quarter GDP all surprised to the upside. Meanwhile, US Unemployment Claims fell sharply.

All-in-all, the data forced investors to temper their expectations concerning rate cuts for the rest of the year, and that helped to lift the US dollar. This week sees a clutch of FOMC speakers. But there’s also a string of labour market statistics, concluding on Friday with the latest Non-Farm Payroll update, so plenty to keep the Forex markets busy.

The Japanese yen has outperformed recently and led gains among other major currencies. After a stretch of weakness, the move signals that investors are looking for safer ground, particularly with the backdrop of US government shutdown risks and broader market uncertainty. Last week, the USD/JPY broke above resistance around 148.50. But it was unable to take out the key 150.00 level and is now testing 148.50 as support.

Source: TN Trader

Towards the end of the Asian Pacific session, gold managed to break above $3,800 per ounce, marking yet another record intra-day high. Investors are increasingly jumping on the gold bandwagon as safe-haven demand remains strong.

The looming threat of a potential US government shutdown added to gold’s appeal, amplifying the metal’s role as a hedge against uncertainty. Demand appears to be broadening, with large purchases no longer dominated by global central banks.

The daily MACD remains in overbought territory, but it has flattened out over the past six weeks. This suggests that buying momentum has dropped off, even as gold continues to hit fresh all-time highs. Can it make further gains from here? Quite possibly. But the more time that the MACD spends in overbought territory, the greater the chances of a pullback.

Source: TN Trader

At the beginning of this month, silver finally broke above $40 per ounce. Since then, it hasn’t looked back. Overnight, it briefly broke above $47 to hit its highest level since May 2011, just as it was coming off its all-time high around $50.

Silver has gained over 17% in September so far. But, as with gold, its daily MACD shows that it is very overbought. Traders should be prepared for a significant pullback. But timing such a move is incredibly difficult, and there’s nothing in the rules (because there are no rules) that says silver can’t rally further and become even more overbought.

There’s no doubt that, after a very slow start, silver is finally playing catch-up with gold. And it could be that silver’s rally has further to run, once it puts in a decent correction, thereby allowing the daily MACD to reset.

Source: TN Trader

Crude oil prices were sharply lower in early trade on Monday. Front-month WTI was down over 1%, having broken back down below $65 per barrel. Crude prices rallied strongly last week in a move which saw WTI rally 7% from last Monday’s low to Friday’s high.

Buyers came in as Ukraine continued to launch successful attacks on Russia’s energy infrastructure, causing concerns that supply could be interrupted for a significant period. This proved to be the case as, at the end of last week, Russia announced an extension to a ban on gasoline exports, while adding a partial ban on diesel exports until the year-end.

Source: TN Trader

Offsetting this was news that Iraq and Kurdistan had agreed to reopen a joint pipeline for the first time since March 2023, enabling an estimated 230,000 barrels per day for export. In the meantime, demand growth continues to slow, as countries switch to alternatives and increasingly move to electrify their power grids.

Bitcoin was firmer in early trade this morning. Last week, Bitcoin broke below an intermediate area of support around $110,000. But it surged back above there this morning as investors went back into ‘risk-on’ mode.

It was a similar situation with Ether. Having broken below $4,000 last week and filling a gap from early April, Ether looks in much better shape to start the week. With the dollar lower and US stock indices marching back up towards record highs, investors have piled back into cryptos.

The question now is whether the rally will trigger fresh unwinding of leveraged long positions? Or if cryptos can move back towards their own all-time highs.

The VIX was little changed this morning, having pulled back sharply from the highs hit in the middle of last week. Even with risks such as the potential US government shutdown and key labour market data later in the week, the decline in volatility reflects a market that is comfortable holding steady near record highs. For now, spikes in volatility have been short-lived, often fading as quickly as they appear.

The subdued reading suggests that traders are not positioning aggressively for downside moves. Instead, most remain focused on the bigger picture of Fed policy and upcoming jobs data, using the calm backdrop to maintain positions rather than hedge heavily.

Last week’s modest pullback highlighted cracks in the AI trade, but the broader trend in equities remains intact. September, typically a challenging month for markets, has so far been navigated with relative ease.

The focus this week is squarely on Friday’s nonfarm payrolls report, with markets hoping for a balanced print that validates expectations for additional rate cuts. For now, the US dollar remains under pressure, while gold and silver extend their record-breaking runs. Any short-term pullbacks in precious metals continue to be met with aggressive buying.

A government shutdown threat looms, but investors appear to view it as more bark than bite. Until proven otherwise, the bulls maintain control — though upcoming data releases could bring the next test.