It’s been a pretty quiet session on the data and news side, but a lively one on the markets front. The US PCE was of course the main highlight of the day and the data came in line with expectations across the board. We had also the Canadian GDP which showed a bigger contraction than expected in Q2, but that’s old news as we are almost at the end of Q3 with the markets focusing on Q4.
We started to get more action in the markets once the US stock markets opened. The S&P 500 and the Nasdaq sold off dragged lower by Nvidia losses. The catalyst was a WSJ report saying that Alibaba developed a new AI chip to help fill Nvidia void in China.
The Chinese are of course trying to make their own AI chips given the interference from Trump’s adiministration. While Nvidia fell, Alibaba obviously rose.
The selloff in the major stock indices led to a wave of risk-off flows. We saw gold and short-term Treasuries rallying, and the US dollar and bitcoin falling. You can also throw in there some month-end flows. Nevertheless, it was mostly noise and the data next week will be the ultimate trend setter.
At the end of the session, Fed’s Daly posted on her Linkedin account that it will soon be time to recalibrate policy. She expects the tariff-driven inflation to be short-lived and therefore favours lowering interest rates to help the labour market, which in her view is slowing.
It looks like a September cut is a done deal no matter what. It might eventually be just a one and done, but they really want to cut in September and then see what happens with the data. If they cut into strength, it could be another policy mistake…
Source: https://investinglive.com/