In terms of data releases, there won’t be any major ones from Europe on the economic calendar today. The US NFIB small business optimism index for August is the only release that will come about during the session and that’s a nothing burger. So, European traders will be left to their own devices in digesting the market mood after the softer US jobs report on Friday last week.
So far to start the week, precious metals remain the standout movers. Gold continues to race to fresh record highs, backed by a strong bucket of fundamental narratives that is building on the technical breakout from last week. The precious metal is up another 0.4% so far today to $3,648 currently. Meanwhile, silver is also riding on that momentum in securing a push above $41 this week – its highest levels since 2011.
The French political situation is also one to be wary of after François Bayrou was ousted as prime minister in a confidence vote yesterday. The result was expected though but the market reaction has been rather sanguine for the time being. Long-end yields in France continue to come off the boil and that’s helping to calm some nerves at least. The euro also hardly responded, though perhaps the result was well expected. However, what comes next for France might still offer up some risks to euro area assets.
Besides that, the start of the week also featured a political ousting in Japan as well with Shigeru Ishiba finally deciding to resign after the disastrous upper house elections back in July. It took him long enough as the writing was already on the wall but it did still hit at markets a fair bit on the announcement. USD/JPY opened up with a gap higher yesterday near 148.00 but has now more than filled that gap by now with the pair back down to 147.30. A win for the gap traders. 👊🏼
As for the dollar itself, it remains in a more vulnerable spot after the non-farm payrolls data at the end of last week. Markets are now well expecting the Fed to be more aggressive in cutting rates but is a 50 bps move on the table for September? The timing of the FOMC blackout period is really not helping, not to mention with more key US data still to come this week.
And that brings us to the countdown to the US CPI report on Thursday. All eyes will be on that to shore up the market odds and pricing we’re seeing at the moment. A softer set of numbers could stoke the flames of a 50 bps rate cut call for next week but what happens if we suddenly start to see stronger evidence of tariffs passthrough in the inflation data?
If it is the latter, things will get really dicey with Fed policymakers not having a chance to clearly communicate their intentions. But that just means we have to watch out for “leaks” and some subtle reporting, with policymakers needing to defer to that to do their bidding.
