It was a risk-on day for financial markets, with crude oil ending up nearly 3% and gold reaching new record highs.
U.S. stock traders enjoyed gains as well, with the S&P and Nasdaq marking their fourth consecutive day in the green.
Headlines:
- Japan’s Producer Price Index (PPI) slowed from 3.0% year-on-year in July to 2.5% in August, below the 2.8% forecast.
- The Japanese BSI Manufacturing Index improved from -1.0 to +4.5 in August, surpassing the +2.5 forecast.
- Australia’s August Melbourne Institute (MI) Inflation Expectations edged down from 4.5% to 4.4% for the next 12 months.
- The ECB cut the main deposit rate by 0.25% as expected, downgraded growth forecasts, and upgraded core inflation estimates.
- In her press conference, ECB President Lagarde emphasized a data-dependent approach, noting they are monitoring a range of inflation indicators and plan to keep rates “sufficiently restrictive.”
- Canada’s building permits surged 22.1% month-on-month in July, exceeding the 6.5% forecast, with the previous reading revised from -13.9% to -13.0%.
- The IEA reduced its 2024 demand growth forecasts due to weaker Chinese and global demand.
- Crude oil prices are rising as Hurricane Francine impacts production in the Gulf of Mexico.
- U.S. headline PPI increased by 0.2% month-on-month in August (0.1% expected; previous figure revised to flat), while core PPI rose by 0.3% month-on-month (0.2% expected; previous reading revised from 0.0% to -0.2%).
- U.S. initial jobless claims for the week ending September 6 totaled 230K (227K estimate; previous 228K).
- Oracle shares hit record highs on strong AI demand estimates, extending its post-earnings rally; tech sector giants Nvidia, Meta, and Alphabet rose roughly 2%.
Market Price Action
Most asset classes started the day with a lackluster performance, except for bitcoin and crude oil, which both surged early on.
Crude oil saw significant gains due to renewed supply concerns, with Hurricane Francine impacting over 40% of production operations in the U.S. Gulf of Mexico. This rally occurred despite the IEA's downgraded global demand forecasts.
U.S. equity futures remained mostly steady in the early sessions but stayed in positive territory throughout the day. Stronger-than-expected U.S. PPI figures caused a minor dip, but the tech sector, led by Oracle, Nvidia, and Meta, helped indices record their fourth consecutive day of gains.
Gold prices surged to new all-time highs at $2,556.86 per ounce, likely driven by expectations of a potential Fed rate cut in September, as the FOMC continues to deliberate between a 0.25% and a 0.50% reduction in U.S. borrowing costs.
FX Market Behavior: U.S. Dollar vs. Major Currencies
Volatility was evident in dollar pairs from the start, as traders adjusted their positions following the previous session’s U.S. CPI release.
USD/JPY began the day with a sharp rise and remained positive until London market hours, before turning lower during the U.S. session. AUD/USD and NZD/USD saw initial risk-on gains during the Tokyo session but retraced before gaining momentum again later in the day.
The ECB’s decision to cut borrowing costs by 0.25% as anticipated and downgrade growth forecasts did not derail EUR/USD’s upward trajectory. The ECB also slightly raised its core inflation estimates, and President Lagarde emphasized a data-dependent approach.
Despite stronger-than-expected headline and core PPI figures from the U.S., the dollar experienced a selloff. USD/JPY and USD/CHF fought against the trend but ultimately succumbed to dollar weakness.
USD/CAD managed to remain in positive territory, likely due to the Bank of Canada’s (BOC) stance on potential further easing, which limited the Canadian dollar’s gains from crude oil rallies and increased risk appetite.
Upcoming Potential Catalysts on the Economic Calendar:
- Eurozone industrial production at 9:00 am GMT
- Canada’s wholesale sales and capacity utilization rate at 12:30 pm GMT
- U.S. import prices at 12:30 pm GMT
- U.S. preliminary University of Michigan (UoM) consumer sentiment index at 2:00 pm GMT
- China’s industrial production, retail sales, and fixed asset investment at 2:00 am GMT (Sept. 14)
Markets may experience a quieter end to the week due to a lack of data flow, but the U.S. preliminary UoM consumer sentiment index could prompt significant movements in dollar pairs and the stock market.
Keep an eye on China’s data release over the weekend, as these figures could influence market sentiment early next week.
