More stock all-time highs as markets eye US PCE figures

* US data beats on jobless claims and durable goods, but dollar slides

* SNB cuts by 25bps, signals possibility of more reductions

* ECB doves to push for rate cut in October, hawks to dig in

* S&P 500 closes at record high with materials strong, energy major laggard

FX: USD gave back half of the prior day’s gains as it settled marginally below the pivot level at 100.61. There were mixed drivers with strong US data but possible quarterly rebalancing taking a hold on the greenback. Initial jobless claims fell for a third straight week signalling ongoing solidity in the labour market.

EUR shrugged off dovish chatter about an October ECB rate cut. Media sources said next month’s policy decision was “wide open”. Markets now price in around a 75% chance of a move; that was below 30% after the last meeting. Wednesday posted the year-to-date high at 1.1214.

GBP popped up to a new cycle top at 1.3434 before closing just off here. ‘UK exceptionalism’ still appears to be in play, with stagnation in Europe especially evident. That pushed EUR/GBP back closer to recent lows and below a key support level at 0.8339.

USD/JPY printed a narrow ranged doji candle denoting some indecision. Treasury yields picked up very modestly, but eyes are on the LDP election with three main contenders. See below for more detail.

AUD moved back up to recent highs reversing the prior day’s fall and also easing overbought conditions. NZD/USD finished off peaks of 0.6332, with the December 23 high of 0.6369 next in view. USD/CAD traded in a relatively range and remained above the August lows around 1.3436.

US Stocks closed in the green. The S&P 500 added 0.40% to settle at 5,745. The tech-dominated Nasdaq 100 gained 0.72% to finish at 20,115. The Dow closed 0.62% higher at 42,175. China stimulus prospects saw China-related stocks surge. Materials and tech outperformed with the former supported by China and the latter boosted by stellar Micron earnings. The tech company jumped nearly 15% as it reported bigger than forecast top and bottom lines with guidance also strong. The S&P 500 enjoyed the 42^nd record close of the year and has risen over 22.5% from its closing low in early January.

Asian stocks: Futures are positive. Asian stocks were again mostly in the green with indices looking through the tepid Wall Street session. The ASX 200 saw gains across the board. The Nikkei 225 outperformed as yen weakness helped exporters. The Shanghai Composite and Hang Seng both extended gains, with hopes of more stimulus of capital into top banks.

Gold continued higher with another new top at $2685. The precious metal has now posted a seven-day win streak and has closed at record highs in six of those sessions. Dollar weakness and ongoing geopolitical uncertainty helped buoy demand.

Day Ahead – US Core PCE

The Fed’ favoured inflation gauge, the core PCE price index, is forecast to print at 0.2% m/m and 2.7% y/y. The headline prints are seen at 0.1% m/m and 2.3% y/y. Economists will watch the rounding but a streak of mild, target-consistent monthly readings, cooler than the August core CPI figure, is expected. The FOMC’s September policy statement said officials had gained greater confidence in inflation moving sustainably toward target. They judged risks to employment and inflation goals are roughly in balance.

Still, the Fed did not declare victory on inflation; but it is close to target, with focus now more on labour market data. A weak set of PCE numbers, which includes the personal consumption and income figures, could hit the dollar. A weak weekly close below 100.61 on the dollar index could be significant.

Chart of the Day – USD/JPY sat on major retracement level

Focus will be on LDP election initially ahead of the US inflation release. There are three leading candidates with the winner potentially affecting the yen. Koizumi, the son of the former PM, has been called the ‘continuity candidate’ so is likely to continue current BoJ policies supporting gradual rate hikes. Ishiba leans hawkish and could push for hikes, buoying the yen. Lastly, Takaichi is a big supporter of monetary easing, more in line with former PM Abe, and her victory would very probably weigh on the yen. A confirmed winner is set to come in around 3pm Tokyo time.

USD/JPY is trading around the midpoint of the early 2023 low and this year’s top, at 144.58. The next major Fib level (38.2%) is 148.68 with near term resistance at 147.21, with initial support at the 21-day SMA at 143.38.