Market Open: Inflation Data Steals the Spotlight
Traders concentrate on producer and consumer inflation as Fed pricing tightens
Global markets started the session with a softer tone for jobs and a firmer view that the Federal Reserve will ease policy next week. Early equity gains were recorded as traders reacted to weaker U.S. labour signals that increased the likelihood of a Fed rate cut. Attention now turns to U.S. producer price index data scheduled for this morning and consumer price index data expected tomorrow. Strong prints could produce short term volatility in rates markets, but few market participants expect either release to fundamentally alter the policy path that is being priced in for the coming week.
Rates and the Fed: Pricing a Cut
Markets fully price 25 basis points and reassess the odds of a larger move
Markets are pricing in a 25 basis point reduction in policy rates on September 17, and the odds of a half point move have risen following fresh job market revisions. The U.S. Labor Department reported that job growth was overstated by 911,000 jobs in the 12 months through March, suggesting that labour market momentum faded earlier than previously believed. That news pushed two year Treasury yields to around 3.55 percent, while 10 year yields were near 4.09 percent. Treasury supply remains a focus for traders today with a $39 billion auction of 10 year notes on the schedule alongside the incoming inflation prints. The combination of fresh economic data and large supply will be closely watched by fixed income desks for clues about term premium and the scope for further declines in short dated yields.
Equities: Modest Gains, Retailers in Focus
European stocks inch higher as consumers and corporate updates capture attention
Global equities rose early in the session. Europe’s STOXX 600 registered a slight gain with retail names outperforming after a strong sales update from fast fashion giant Inditex. That report gave investors some confidence over consumer resilience heading into the autumn quarter. In France, bond yields held steady after President Macron named Sebastien Lecornu as prime minister. The appointment signalled a commitment to press on with a minority government and to maintain a pro business reform agenda, which in turn offered some reassurance to investors concerned about policy continuity.
Commodities and Safe Havens
Gold posts record and oil responds to regional events
Gold has been one of the most notable performers, spiking to an intraday record of $3,673.95 per ounce before a partial retracement. The bullion has benefited from a weaker dollar, sizeable central bank purchases, dovish monetary policy expectations and rising geopolitical uncertainty. Year to date gains have been dramatic with prices cited as having risen almost 40 percent this year following a 27 percent jump in 2024 according to recent market commentary. Traders will watch gold closely for clues about risk appetite and real rate expectations heading into the Fed decision.
Crude oil benchmarks were firmer after reports that Israel struck Hamas leadership in Qatar. Brent was trading just under $67 per barrel while West Texas Intermediate was above $63. Despite the headline risk, the note in market commentary that events in the Middle East have had a limited lasting impact on oil prices over the past two years suggests traders will be cautious about overreacting unless the situation escalates significantly.
Geopolitics and Policy Risks
Regional incidents and political moves add to background noise
Several geopolitical and policy developments are contributing to market noise. Poland shot down drones that entered its airspace during a widespread Russian attack in western Ukraine, an incident described by the NATO member as an act of aggression and notable as the first time a member of the alliance has fired shots in that conflict. In Washington, President Trump urged European Union officials to impose tariffs on China as part of a broader strategy to pressure Russia. On the legal front a federal judge temporarily blocked the administration from removing a Federal Reserve governor, creating an early complication for White House plans and raising questions about central bank independence.
Stablecoins and the Dollar: A Structural Story
Private digital money could reinforce dollar dominance and attract regulatory attention
The rise of dollar pegged stablecoins is now prompting a reassessment of global currency dynamics. Stablecoins are increasingly used by cryptocurrency traders for instant settlement between tokens and benefited from recent U.S. legislative moves that require full backing by liquid assets such as cash and Treasury bills. The market has more than doubled in the past 18 months to almost $280 billion and some projections suggest potential expansion to $2 trillion within three years. The universe is dominated by two large providers, which together account for more than 80 percent of supply, and roughly 99 percent of stablecoins are dollar backed even though most transactions take place outside of the United States.
Those features create both demand for U.S. dollar assets and regulatory concern. Stablecoins offer rapid settlement and the ability to bypass exchange controls and other frictions. That has drawn the attention of China which is examining the development of yuan backed stablecoins while continuing work on a sovereign digital currency. Economists at the International Monetary Fund have urged regulators to get better visibility on the new digital payment rails because opacity in data could mask risks to the international financial system. For markets, the key implication is that private sector dollar vehicles could reinforce international demand for U.S. Treasury bills and shape cross border payment flows over time.
What to Watch Today
Inflation readings and Treasury auctions will set the tone into the Fed meeting
Today’s calendar is led by the U.S. producer price index for August at 8:30 AM Eastern time and the $39 billion 10 year Treasury auction. Traders will parse the PPI for signs of underlying cost pressures that could roll through to consumer prices. The Treasury sale will test demand for longer dated supply in a market that has recently repriced rate cut expectations. Together these events will frame positioning into the Fed meeting next week and will likely determine how materially yields move ahead of the policy decision. With gold and oil already reacting to broader macro and geopolitical cues, the coming 48 hours promise to be decisive for traders seeking to reconcile inflation data with an increasingly dovish policy outlook.
