US equity futures are flat as the market struggled for traction ahead of today’s core PCE report and as investors ponder the Fed’s next policy move following a raft of much stronger than expected US data. As of 8:00am, S&P futures are unchanged while Nasdaq futures drop 0.1% leaving stocks poised to extend their recent run of losses once the cash market reopens; in premarket trading Mag 7 names are mixed with NVDA (-0.8%) being the largest underperformer. Bond yields are also flat as is the USD which set for its biggest weekly advance since the start of August. Brent crude reversed an earlier drop and was trading at session highs not far from $70. Overnight, the biggest headline was a series of 232 tariffs announced by Trump, including 100% on branded pharma, 50% on housing products, 30% on furniture and 25% on heavy trucks, which sent truckmaker PACCAR up more than 5%, while shares in several European peers dropped. However, the details on the pharma tariff suggest easier conditions on the exemptions. WSJ also released an article suggesting the possible chips tariff from the White House to boost domestic production. Today’s economic data slate includes August personal income and spending, the PCE price index (8:30am), the final U. of Michigan sentiment and inflation expectations (10am), Kansas City Fed services activity and Bloomberg US economic survey (11am).
In premarket trading, Mag 7 stocks are mixed (Amazon +0.3%, Microsoft +0.5%, Alphabet +0.3%, Meta Platforms -0.08%, Apple -0.9%, Tesla +0.4%, Nvidia -0.5%).
Drugmakers are inching higher after President Donald Trump announced a plan to impose a 100% tariff on branded and patented drug imports and included exemptions for companies with US manufacturing. Citi says the news “lifts a significant overhang, as political uncertainties have kept investor interest at bay for most of this year.” Eli Lilly & Co (LLY) +1%, Merck (MRK) +1.2%.
Apellis Pharmaceuticals (APLS) falls 6.2% as Goldman Sachs cuts its rating on the clinical-stage biopharmaceutical company to sell.
Concentrix (CNXC) slumps 21% after the call-center operator gave a fourth-quarter profit outlook below consensus estimates.
Harrow (HROW) rises 1.6% after entering into an agreement to acquire Melt Pharmaceuticals Inc.
Intel (INTC) climbs 4% and GlobalFoundries (GFS) gains 9% after the Wall Street Journal reported that the Trump administration is weighing a new plan to reduce US reliance on chips made overseas.
Paccar (PCAR) gains 6% as Trump sets a 25% tariff rate on heavy trucks made outside of the US.
Wayfair (W) declines 2% after President Trump announced new industry-specific tariffs targeting heavy trucks, kitchen cabinets, bathroom vanities, and upholstered furniture.
After a $15 trillion rebound in global equities from April’s lows, traders now face a wall of uncertainty as tariff headlines return to unsettle markets and investors fret about inflated valuations for big tech companies. Fed policy, the upcoming earnings season, and the threat of a US government shutdown are also weighing on sentiment. Attention now turns to Friday’s inflation report and key monthly jobs data next week.
“Excitement on AI and Fed rate cuts turbo-charged the bull market and sent global​ and US equities to new highs,” Barclays Plc strategists led by Emmanuel Cau wrote in a note. “But with much of the Goldilocks narrative arguably in the price now, and positioning higher, investor fatigue is palpable as we hit an air pocket ahead of next week’s non-farm payrolls report and third-quarter earnings.”
There shouldn’t be any big surprises in today’s core PCE print: economists are predicting core PCE rose 2.9% y/y in August, the same pace as the previous month. Goldman estimates that “both personal income and personal spending increased by 0.4% in August. We estimate that the core PCE price index rose 0.21% in August, corresponding to a year-over-year rate of +2.92%. Additionally, we expect that the headline PCE price index increased 0.25% in August, or increased 2.72% from a year earlier.”
Truckmaker PACCAR Inc. climbed more than 5% in premarket trading after President Donald Trump levied new tariffs on imports of heavy vehicles. Shares in several European peers dropped. However, market expectations for the real-world impact of a 100% product-based drug tariff remain low, given the large spending commitments already made by large-cap pharma over the next five years (AZN $50 bn, ROG $50 bn, GSK $30 bn, NOVN $23 bn, UCB $2 bn, SAN $20 bn). In some respects, this could be seen as a positive if there is a line in the sand over Section 232, particularly given the exemptions many products could see.
Europe’s Stoxx Europe 600 index edged higher by 0.3% as investors look past President Trump’s latest tariff announcements (including a 100% duty on branded or patented pharmaceuticals starting Oct. 1), but is still set for back-to-back weekly declines for the first time since June. Daimler Truck Holdings AG and Volkswagen AG’s Traton SE declined, while Sweden’s Volvo AB, which manufactures trucks in the US, gained. Healthcare stocks underperformed following new US duties on pharmaceutical products. Here are the biggest movers Friday:
Noba Bank jumps as much as 30% from its SEK70 offer price as the Swedish financial services firm’s shares began trading in Stockholm on Friday, opening at SEK84.9 and trading as high as SEK90.9
EssilorLuxottica gains as much as 2.1% after its Stellest eyeglass lenses receive FDA marketing authorization for myopia correction. RBC highlights that this becomes the first and only spectacle lens of this type to be approved
ArcelorMittal rises as much as 5% in Amsterdam trading, hitting the highest level since March. Traders cite a report in German business daily Handelsblatt that the EU Commission plans to impose tariffs in the next few weeks
Gulf Keystone Petroleum rises as much as 8.4% on confirmation that oil exports from the Kurdistan region of Iraq will resume soon
InterContinental Hotels shares climb as much as 3.4% after the firm receives a double upgrade to overweight at JPMorgan, which highlights its earnings visibility “in times of RevPAR uncertainty”
Most European Big Pharma stocks were broadly flat on Friday morning after US President Donald Trump announced a fresh round of tariffs, including a 100% duty on branded or patented pharmaceuticals starting Oct. 1
Pennon Group falls as much as 2.3% as analysts say the water company’s guidance implies slightly slower FY earnings growth, with JPMorgan saying the update may result in some Ebitda downgrades
Brunello Cucinelli shares extend Thursday’s plunge triggered by a report from Morpheus Research. The short seller alleged that the luxury company is misleading investors about its Russian business, claims the firm rejected
Ceres falls as much as 16%, the most in over seven months, after the clean energy technology developer reported an operating loss of £18.7 million for the first half of the year
Health care stocks did fall at the open but were quick to erase losses. Technology names underperform, as they did in Asia, after the Wall Street Journal reported the White House is weighing a plan to reduce semiconductor imports.
Asian stocks fell, with a key regional benchmark falling by the most in over three weeks, as chipmakers and Chinese tech shares pulled back after recent gains. The MSCI Asia Pacific Index fell 1%, with TSMC, Xiaomi and Alibaba among the biggest drags. Equities declined in South Korea, Hong Kong, mainland China, Taiwan and India. Health-care stocks slipped after US President Donald Trump unveiled 100% tariffs on branded or patented pharmaceutical products effective from Oct. 1. A gauge of Asian tech hardware stocks followed US peers lower amid valuation concerns after recent rallies. Korea’s Kospi fell more than 2%, the most in nearly two months, as foreigners sold chip shares. The Hang Seng Tech Index dropped by a similar measure, its worst decline since May. India’s Nifty 50 declined for a sixth-straight session, poised for its longest losing streak since March.
In FX, the Bloomberg Dollar Spot Index falls 0.1% with muted price action across the G-10 complex. The dollar is on track for its best week since early August as a run of data showing resilience in the US economy forced traders to reassess the Federal Reserve’s scope for cuts
In rates, treasuries are a touch stronger with yields richer on the day, although remain within a basis point of Thursday’s close, after trading in a narrow range overnight with modest selling flows in the long end. Treasury 10-year yields remain near Thursday’s closing levels, trading at around 4.17% with European bonds slightly firmer over the early London session. European government bonds edge higher.
In commodities, WTI crude futures are little changed near $65 a barrel. Gold is unchanged around $3,748/oz. Bitcoin is flat around $109,000.
Looking at today’s calendar, US economic data slate includes August personal income and spending, the PCE price index (8:30am) U. of Michigan sentiment and inflation expectations (10am), Kansas City Fed services activity and Bloomberg US economic survey (11am). Fed speaker slate includes Barkin at 9am, delivering keynote remarks on the outlook for the economy, followed by a Q&A. Bowman at 1pm discussing the monetary policy with Q&A.
Market Snapshot
S&P 500 mini little changed
Nasdaq 100 mini -0.1%
Russell 2000 mini -0.2%
Stoxx Europe 600 +0.2%
DAX +0.3%
CAC 40 +0.4%
10-year Treasury yield little changed at 4.17%
VIX +0.2 points at 16.95
Bloomberg Dollar Index little changed at 1207.85
euro little changed at $1.1677
WTI crude -0.2% at $64.87/barrel
Top Overnight News
David Einhorn warned that the trillion-dollar AI infrastructure spending spree — by companies such as Apple and OpenAI — may lead to “tremendous” capital destruction, even if the technology proves transformative. BBG
Tech giants are on a debt-fueled AI spending spree, raising roughly $157 billion so far this year — up about 70% from the same period last year. Some worry the hype may be overblown, drawing parallels to the dot-com bubble. BBG
The AI boom has ushered in one of the costliest building sprees in world history. Over the past three years, leading tech firms have committed more toward AI data centers, chips, and energy than it cost to build the interstate highway system over four decades, when adjusted for inflation. WSJ
Trump announced that imported heavy trucks will be subject to a 25% levy, while kitchen cabinets and bathroom vanities will be hit with a 50% charge. BBG
Trump said there could be a government shutdown; he also called on the Fed to lower rates again, saying the US is the only country where strong numbers are reported and stocks still go down.
The Trump administration is weighing a new plan to reduce dramatically the U.S.’s reliance on semiconductors made overseas, hoping to spur domestic manufacturing and reshape global supply chains. The policy’s goal is to have chip companies manufacture the same number of semiconductors in the U.S. as their customers import from overseas producers, with companies who don’t maintain a 1:1 ratio paying a tariff. WSJ
European Big Pharma shares held steady following Donald Trump’s threat to slap a 100% tariff on branded or patented drugs unless they invest in the US. Many European firms already have factories under construction, Panmure Liberum said. BBG
Indonesia’s central bank said it is intervening “boldly” in financial markets to stabilize the rupiah as it falls toward a record low. BBG
Japan’s Tokyo CPI comes in cooler than anticipated, with headline at +2.5% (vs. +2.5% in Aug and below the Street’s +2.8% forecast) and core at +2.5% (down from +3% in Aug and below the consensus estimate of +2.9%) BBG
Meta is set to face a charge sheet from the EU for failing to adequately police illegal content, risking fines for violating the bloc’s content moderation rulebook: BBG
Oracle, Silver Lake, and MGX will be the main investors in TikTok US with a combined 45% ownership: CNBC
Meta is reportedly in talks with Alphabet’s Google to integrate Gemini for enhanced ad-targeting capabilities, according to The Information.
Punchbowl surmises, on the US shutdown situation, that “with just four days until government funding runs out, both Republicans and Democrats seem unnaturally comfortable with their positions in the fight.”
Trade/Tariffs
US President Trump said that as of October 1st, 2025, a 25% tariff will be imposed on all “Heavy Trucks” made in other parts of the world, according to Truth Social.
US President Trump said that as of October 1st, 2025, the US will impose a 50% tariff on all kitchen cabinets, bathroom vanities, and associated products, and a 30% tariff on upholstered furniture, according to Truth Social.
US President Trump said that as of October 1st, 2025, the US will impose a 100% tariff on any branded or patented pharmaceutical product unless the company is building its pharmaceutical manufacturing plant in America, according to Truth Social.
The Trump administration is reportedly weighing a new plan to dramatically reduce the US’ reliance on semiconductors made overseas, according to WSJ sources. Companies that do not maintain a 1:1 ratio over time would have to pay a tariff, sources said.
US-China
US President Trump signed an executive order on TikTok, saying he had good talks with Chinese President Xi and that China is fully on board. He noted that American investors will take over the platform, with TikTok investors to include Ellison, Michael Dell, and Rupert Murdoch. Trump said he is satisfied with security concerns, praised Xi’s approval, and highlighted that Oracle (ORCL) is playing a very big part, according to Reuters.
US Vice President Vance said TikTok will be valued at around USD 14bln, adding that Americans will control the algorithm and that he wants it to be fair, according to Reuters.
In a sign of the fragile engagement, people close to the White House said Trump has not committed to going to Beijing, with a firm date for the visit contingent on China’s continued cooperation on issues ranging from trade to fentanyl, according to WSJ.
US Deputy Secretary of State confirmed a meeting with her Chinese counterpart took place on Thursday evening, according to Reuters.
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mostly lower after being subdued for a bulk of the session following a similar performance stateside after hot US data, with traders now looking ahead to the Fed’s preferred gauge of inflation. Sentiment in the region was hampered by US President Trump announcing tariffs of 100% on pharmaceuticals, 50% on kitchen cabinets, bathroom vanities and associated products, 30% on upholstered furniture, and 25% on all heavy trucks made outside the US. ASX 200 eventually eked out mild gains, but the healthcare sector was the biggest laggard after Trump’s 100% tariff announcement on pharmaceuticals. Tech also weakened, though losses were cushioned by outperformance in metals and mining. Nikkei 225 was modestly softer but held above the 45,500 level after briefly dipping below, with pharma stocks weighing following Trump’s tariff announcement, and with little follow-through from softer-than-expected but prior-matching Tokyo CPI data. Hang Seng and Shanghai Comp largely conformed to regional losses, with little follow-through from Trump signing the executive order on TikTok, in which he also noted he had good talks with Chinese President Xi, although the Mainland later oscillated on either side of the unchanged mark. KOSPI was the regional laggard, heavily pressured by the tech sector and pharma, whilst reports also suggested South Korea fired warning shots at a North Korean commercial vessel for crossing the maritime border, according to Yonhap. Nifty 50 was also subdued with the nation’s pharma stocks pressured after President Trump’s tariff announcement.
Top Asian News
Japanese government revised July real wages to -0.2% vs preliminary estimate of +0.5%, according to Reuters.
Japanese Finance Minister Kato said he will not comment on FX levels, according to Reuters.
India’s government has drafted a proposal to relax foreign investment rules for e-commerce exports, according to Reuters.
PBoC injected CNY 165.8bln via 7-day reverse repos with the rate at 1.40%; injected CNY 400bln via 14-day reverse repo.
European bourses (STOXX 600 +0.2%) are modestly firmer across the board and have traded with a slight upward bias throughout the morning. The region has seemingly shrugged off the latest barrage of tariff levies announced by Trump, but with some analysts suggesting that the pharma-specific ones are not as bad as feared. European sectors hold a strong positive bias, with only a couple of sectors marginally lower. Most of the focus this morning has been on the latest Trump tariffs, where he announced 100% tariffs on Pharma, 50% on kitchen cabinets, and 25% on heavy trucks.”; for the latter, Daimler Truck (-2.5%) moves lower, whilst Volvo (+3%) remains in the green. Bernstein writes that Daimler Truck could be most affected by these tariffs, given its high exposure to the US; analysts add that Paccar (+5% pre-market) stands to benefit the most. Delving into the pharma tariffs, some analysts have suggested the announcement may actually provide some relief for traders; focus is on the caveat that a Co. will not be subject to the tariff rate if they are building a pharma plant in the US. So, whilst the sector was initially underperforming, some heavyweights have managed to climb out of negative territory – namely those which have already announced plans for plants in the US; Roche (+0.2%), AstraZeneca (U/C). Jefferies writes that “overall, we think this is a win for Pharma and shouldn’t have a material impact”. In US pre-market trade, the likes of Eli Lilly (+1.7%) and Viking (+1.4%) both move higher.
Top European News
Italy’s Economy Minister said the digital euro plan will take two years to be implemented, according to Reuters.
Volkswagen (VOW3 GY) cut output and paused production at its German EV plants, according to Bloomberg.
French PM Lecornu’s interview is now expected to be published within Saturday’s edition of Le Parisien, via Politico; delayed due to an editorial strike.
ECB SCE: 1yr and 5yr inflation forecasts rise. Inflation: 1yr: 2.8% (prev. 2.6%) 3yr: 2.5% (prev. 2.5%). 5yr: 2.2% (prev. 2.1%) Growth 1yr: -1.2% (prev. -1.2%).
FX
After two sessions of solid gains for DXY, the rally has paused for breath. Whilst the price action on Wednesday left many desks scratching their heads, yesterday’s upside was clearly driven by US data; Q2 GDP, weekly claims and durables. ING adds that the surge in the USD has likely also been assisted by positioning. The next potential inflection point for the USD comes via today’s PCE data with Y/Y core PCE expected to hold steady at 2.9% (a view backed by Powell earlier this week) and the M/M rate seen declining to 0.2% from 0.3%. Tariff headlines have re-emerged over the past 24 hours with focus on pharma, furniture and several other sectors. However, the vague language around the pharma actions has seen equity indices take the news in their stride. DXY has ventured as high as 98.53 but has been unable to test Thursday’s best at 98.60.
EUR is a touch firmer vs. the USD after a couple of bruising sessions, which have seen the pair pull back from a 1.1820 peak on Wednesday to a 1.1645 low yesterday. Price action has largely been driven by the USD rather than anything EUR-specific. This morning’s ECB SCE saw little follow-through into EUR, with the report seeing a 20bps pick-up in the 1yr inflation forecast to 2.8% and the 5yr projection rise to 2.2% from 2.1%. EUR/USD inched above its 50DMA at 1.1679.
JPY is flat vs. the USD after a recent run of losses, which have seen USD/JPY rise from a 147.51 base on Wednesday to a current session peak @ 149.95, taking out its 50 and 200DMAs in the process. Price action for the pair has largely been dictated by interest rate differentials as a combination of cautious Fed speak and strong US data has supported US yields. From the Japanese side of the equation, soft Tokyo inflation metrics overnight have also added to the trend, with the pair now eyeing a potential test of 150 to the upside.
GBP is attempting to atone for recent losses vs. the USD, which have seen Cable slip from a WTD peak on Tuesday at 1.3537. This week has been a quiet one from a UK perspective, aside from a disappointing flash PMI report on Tuesday, which was hampered by ongoing angst surrounding the upcoming UK budget on November 26th.
Antipodeans are broadly steady vs. the USD with both pairs pausing after the prior day’s heavy selling. Newsflow and data were light during APAC hours, though a pullback in copper kept AUD capped.
PBoC set USD/CNY mid-point at 71152 .vs exp. 7.1439 (Prev. 7.1118)
Fixed Income
USTs are in a very thin 112-07 to 112-13+ band awaiting a packed US docket. Focus lies on US PCE where headline is seen at 0.3% (prev. 0.2%) M/M with the core at 0.2% (prev. 0.3%) M/M, following PPI and CPI desks looked for the core figure between 0.28-0.35%. Fed speak thereafter from Barkin (2027) and Bowman (voter), followed by the latest AtlantaFed GDP Now, at 3.3% for Q3 as of September 17th.
Bunds are contained as we look to US data and Fed speak (see USTs). Bunds spent the morning towards lows of 127.89 before picking up modestly as the general risk tone came off initial highs. Action that has taken the benchmark to a 128.13 peak, with gains of around 10 ticks at best. No move to the latest ECB Consumer Expectations Survey. The one- and five-year inflation views were increased while the three-year horizon was maintained.
Gilts are flat. UK specifics are very light so far. Domestic politics is increasing in focus as PM Starmer comes under increasing pressure from figures within the broader Labour Party. On this, next week’s party conference will draw significant attention, but before that at 11:00BST, Starmer will be speaking on “patriotic renewal”. That aside, Gilts likely to conform to the lead from USTs given the busy afternoon of US events. As it stands, the benchmark is near enough unchanged in 90.26-52 confines.
Italy sells EUR 6bln vs exp. EUR 5-6bln 2.85% 2031, 3.60% 2035 BTP, EUR vs exp. EUR 1-1.25bln 4.00% 2035 BTP Green & EUR 1.5bln vs exp. EUR 1-1.5bln 2034 CCTeu.
Commodities
WTI and Brent remained balanced after another day of gains, making highs at USD 65.34/bbl and USD 69.68/bbl respectively on Thursday. This morning, the benchmarks surpassed those peaks by c. USD 0.05/bbl early in the session before falling back into yesterday’s range. As it stands, WTI and Brent are trading near session lows of USD 64.99/bbl and USD 69.37/bbl respectively. Newsflow very light this morning.
Spot gold continues to trade rangebound amid recent dollar strength and into a packed US agenda, currently within USD 3,734-3,755/oz parameters. A consolidation just off its USD 3791/oz ATH, after an aggressive move which started at the end of August with XAU is up nearly 13% since then. Markets are awaiting US Core PCE later today, the Fed’s key measure of inflation.
3M LME copper is a little lower today. After making a high at USD 10.48K/t, copper prices fell back and closed the day down 0.5% in Thursday’s session. Action on Thursday was initially a continuation of the Grasberg-induced gains, before being added to by updates from China. On Grasberg, the Indonesian Mining Minister said production at Freeport’s mine has not resumed following disruption earlier in the week. As a reminder, that site accounts for around 3% of global supply.
Iraq is in talks with Vitol to handle crude oil sales once Kurdish pipeline restarts, according to Bloomberg.
A force majeure notice was issued at three French LNG terminals due to a power sector strike; strike blocking ship reception at all terminals, says Reuters citing Elengy.
Indonesia Mining Minister says production at Freeport (FCX) has not resumed, stoppage affects output and revenue; spoke with Freeport about extending the mining permit to past 2041.
Geopolitics: Nato
European officials privately told Russia they are ready to shoot down jets and view Russia’s Estonia incursion as deliberate, according to Bloomberg.
French President Macron said France stands ready to support Denmark in assessing the situation and contributing to the security of Danish airspace, according to X.
Geopolitics: Ukraine
US President Trump said Ukraine has a shot at getting territory back and that Russia is doing poorly, adding that he is dissatisfied with what Russian President Putin is doing, according to Reuters.
IAEA said a drone was downed and detonated around 800 metres from the perimeter of Ukraine’s South nuclear power plant overnight, noting that 22 UAVs were observed late last night and this morning and that its team heard gunfire and explosions, according to Reuters.
US President Trump said he believes Turkey will halt purchases of Russian oil, adding that it is harder for Hungary and Slovakia as they are landlocked with one pipeline, according to Reuters.
Geopolitics: Middle East
US President Trump said he had good talks on Gaza and really good talks with Israeli PM Netanyahu, adding that a hostage deal could happen soon, according to Reuters.
US President Trump said he will not allow Israel to annex the West Bank, according to Reuters.
Iranian Foreign Minister says agreement with IAEA will be valid as long as there is no ‘hostile action taken against Iran’, including re-instatement of UN sanctions.
Turkeys’ Erdogan says he discussed with US President Trump steps to improve defence cooperation, supports Trump’s vision of global and lasting peace in Gaza and Palestine.
Geopolitics: Other
US President Trump said he had good talks with Turkish President Erdogan and that the meeting was conclusive on many things, according to Reuters.
South Korea fired warning shots at a North Korean commercial vessel for crossing the maritime border, according to Yonhap.
Iran and Russia have come to a USD 25bln agreement to construct four nuclear power plants in Iran, via IRNA.
US Event Calendar
8:30 am: Aug Personal Income, est. 0.3%, prior 0.4%
8:30 am: Aug Personal Spending, est. 0.5%, prior 0.5%
8:30 am: Aug Real Personal Spending, est. 0.2%, prior 0.3%
8:30 am: Aug PCE Price Index MoM, est. 0.3%, prior 0.2%
8:30 am: Aug PCE Price Index YoY, est. 2.7%, prior 2.6%
8:30 am: Aug Core PCE Price Index MoM, est. 0.2%, prior 0.3%
8:30 am: Aug Core PCE Price Index YoY, est. 2.9%, prior 2.9%
10:00 am: Sep F U. of Mich. Sentiment, est. 55.4, prior 55.4
DB’s Jim Reid concludes the overnight wrap
Markets continued to struggle yesterday, with a broad-based selloff that saw the S&P 500 (-0.50%) post a third consecutive decline. The main catalyst was a strong batch of US data, which meant investors dialled back their expectations for rapid Fed rate cuts, and pushed front-end Treasury yields higher. So that meant rate-sensitive sectors like tech took a hit, with the Magnificent 7 (-0.95%) dragging down the broader equity market. Moreover, that bond selloff carried over into Europe, and UK gilts underperformed as investor doubts grew about the country’s fiscal position, amidst calls from some within the governing Labour Party for PM Starmer to ease the fiscal rules. And tariffs were back in the spotlight too, as President Trump announced further sectoral tariffs, including on pharmaceutical products. So lots of themes for investors to digest.
That US data was the big market driver yesterday, as it painted a more resilient economic picture than previously thought, which undercut some of the calls for faster rate cuts. Most notably, the weekly initial jobless claims fell to just 218k in the week ending September 20 (vs. 233k expected), which was the lowest level since July, and pushed back against fears of a labour market slowdown. Moreover, quite a bit of the Q2 data got revised in a hawkish direction, with GDP growth revised up half a point to an annualised +3.8% rate. And core PCE inflation was also revised up a tenth to +2.6%. So again at the margins, that suggested that the US economy had been pretty resilient after Liberation Day. Indeed, the so-called “core GDP” measure of real final sales to private domestic purchasers was revised up a full point to a +2.9% rate.
However, this resilient data also meant investors priced out the likelihood of rapid rate cuts over the months ahead. In fact, only 39bps of cuts are priced in at the remaining two meetings this year, down -3.9bps on the day. So that’s almost half way between 25bps and 50bps, implying that markets think it’s almost a toss-up as to whether we get one or two more cuts this year. In turn, that led to a selloff in US Treasuries, with front-end yields seeing the biggest moves. So the 2yr yield (+5.1bps) moved up to 3.66%, and the 10yr yield (+2.3bps) rose to 4.17%.
Against that backdrop, we did hear from several Fed speakers yesterday, although they consistently stuck to their recent messages in each case. So Chicago Fed President Goolsbee sounded cautious on future cuts, saying that he was “a little uneasy with too much front-loading”. And Kansas Fed President Schmid continued to lean on the hawkish side, saying “inflation remains too high while the labor market, though cooling, still remains largely in balance”. But Vice Chair for Supervision Bowman was more dovish, and she said that recent data had shown “we have a more fragile labour market than we were expecting to see”. Otherwise, Governor Miran, who dissented in favour of a larger 50bp cut at last week’s meeting, said that “I would rather act proactively and lower rates as a result ahead of time, rather than wait for some giant catastrophe to occur”.
With investors pricing in slower rate cuts, that meant equities lost further momentum yesterday, and the S&P 500 (-0.50%) posted a third consecutive decline for the first time in a month. The decline was a broad-based one, and there were bigger falls for the Magnificent 7 (-0.95%) and the small-cap Russell 2000 (-0.98%). Sentiment also hasn’t been helped by the prospect of a government shutdown next week, as funding is due to expire on September 30, and there’s still no sign of a breakthrough between Republicans and Democrats. And over in Europe, the STOXX 600 (-0.66%) also fell back to its lowest level in nearly 3 weeks.
Elsewhere in Europe, UK gilts were back in the spotlight yesterday, with the 10yr yield (+8.7bps) posting the biggest increase in the G7 yesterday. That came amidst growing speculation around the country’s fiscal position, particularly after Greater Manchester Mayor Andy Burnham said in an interview that “We’ve got to get beyond this thing of being in hock to the bond market.” And in another interview, he called for £40bn of additional borrowing to build council houses. Although Burnham isn’t an MP, he’s considered a potential challenger to PM Starmer as Labour leader, so the headlines added to market speculation that the direction of travel would be towards higher borrowing in the years ahead, particularly if Starmer were replaced as leader. Indeed, the UK was the only G7 country yesterday where the 2s30s yield curve steepened, and the long end of the curve has usually been much more sensitive to fiscal concerns.
A similar pattern was evident across Europe yesterday, albeit to a lesser extent. Indeed, France’s 10yr yields (+3.3bps) closed at a post-2011 of 3.60%, which hasn’t been seen since the height of the Euro crisis. That left the Franco-German 10yr spread at 83bps, which is its highest closing level since January, with new PM Lecornu still trying to pass a budget that cuts the deficit, in a National Assembly fractured between different political groups. Otherwise, yields on 10yr bunds (+2.6bps) and OATs (+4.3bps) also moved higher, whilst the 2yr German yield (+1.7bps) got back to its level on Liberation Day again, closing at 2.03%.
Overnight, tariffs have come back into the headlines, as President Trump announced a new set of sectoral tariffs. So from this Wednesday October 1, the US will impose a 100% rate on branded or patented pharmaceutical products, 50% on kitchen cabinets, 30% on upholstered furniture, and 25% on heavy trucks. That meant investors got a fresh reminder about the trade war, and the impact has already been evident in Asian markets. For instance, pharmaceutical companies have been among the worst performers this morning in Japan’s Nikkei (-0.46%), with losses for Chugai Pharmaceutical (-5.12%) and Sumitomo Pharma (-5.21%).
Speaking of Japan, the Tokyo CPI print for September came out overnight, which showed a downside surprise of +2.5% in the headline CPI (vs. +2.8% expected). However, that was partly because the Tokyo government expanded the entitlement for free childcare, and that was a policy specific to Tokyo that won’t apply nationwide. So Japanese government bond yields have seen little change this morning, with the 10yr yield up +0.2bps. Elsewhere in Asia, equities have also lost ground, including the Hang Seng (-0.65%), the CSI 300 (-0.42%) and the Shanghai Comp (-0.18%), whilst South Korea’s KOSPI (-2.77%) is currently on track for its worst day in nearly two months. But looking forward, US equity futures have held broadly steady, with those on the S&P 500 up +0.02%.
To the day ahead now, and data releases include US PCE inflation for August, and the University of Michigan’s final consumer sentiment index for September. Otherwise, there’s Canada’s GDP report for July, and the ECB’s Consumer Expectations Survey for August. Meanwhile, central bank speakers include the ECB’s Cipollone and Escriva, along with the Fed’s Barkin and Bowman
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