Powell Proffers Nothing New As Light Docket Awaits

WHERE WE STAND – Trading conditions were pretty cagey for the most part yesterday, firstly as we awaited remarks from Fed Chair Powell, and then in the aftermath of those remarks after J-Pow told us nothing he hadn’t already said last Wednesday.

Unsurprisingly, Powell’s remarks were, by and large, a ‘copy and paste’ of those he made at the post-meeting press conference last week. Frankly, if the Fed Chair’s assessment of the economy had shifted significantly in the space of six days it would be cause for all of us to be rather concerned. In any case, it hasn’t, with Powell still of the view that downside employment risks have risen, that ‘one-time’ price increases are likely to make themselves known over the next several quarters, and that longer-run inflation expectations remain in line with the 2% target. No surprises, and certainly nothing to steer me away from my base case of a 25bp cut at each of the October and December meetings.

In a similar vein, there was little-to-nothing within those remarks to move the needle especially much for financial markets, hence the relatively rangebound, and subdued trading conditions which took hold across the board. As a result of this, equities softened a touch, though small caps notably outperformed as a sector rotation took hold; Treasuries trod water across the curve; while, the dollar also traded in sideways fashion.

The one asset to buck this trend was, yet again, gold, as the yellow metal surged another 1%, and notched another all time high. There will come a day, at some stage, when bullion doesn’t print a new ATH, though momentum is firmly, and undeniably, with the bulls for the time being. At risk of repetition, the fundamental bull case is clearly still a solid one, amid the risk of inflation expectations un-anchoring, simmering geopolitical risk, and increased demand for diversification from reserve allocators. The path of least resistance leads higher, and dips remain buying opportunities.

Speaking of reserves, reports yesterday indicated that China is now seeking to store gold reserves of foreign nations within their vaults. I never offer investment, or any other form of advice in this note, but I’d wager that no matter if you’re a friend, or a foe, of Beijing, keeping your gold tucked up under the mattress is probably a much safer bet!

Anyway, as alluded to, markets elsewhere didn’t do all that much through Tuesday. Treasuries ticked a little firmer though remained contained well within recent ranges, though in truth the main interest for DM Govvies yesterday came here in the UK, not only amid reports that the fiscal ‘black hole’ now amounts to £30bln, but also after a 30-year gilt sale drew its lowest demand in three years. I still have no intention whatsoever to be anything other than short long-end Gilts for the time being, as the fiscal doom-loop deepens.

Nor do I have any intention to abandon my bullish equity view, with yesterday’s modest downside on Wall Street quite clearly a buying opportunity in my mind, as economic and earnings growth both remain robust, and as the Fed’s ‘run it hot’ strategy tilts risks to both firmly to the upside, while a looser policy backdrop juices the rally rather nicely. The path of least resistance is still higher and, as usual, the intraday action seen yesterday is little more than noise.

I have, though, thrown in the towel on my quite long-running bearish USD view.

I wrote up rather a long note on this yesterday (please drop me a line if you’d like a read), but essentially the DXY has been consolidating since the start of the summer, with the buck having had its worst start to the year in at least the last three decades. Add to this, recent labour market softness being more of an adjustment to tariffs, as opposed to a sign of any underlying structural weaknesses, plus the Fed leaning in hard to support economic growth, benefits from the ‘One Big Beautiful Bill Act’ increasingly being felt as we move into 2026, a Trump Admin that will likely soon pivot towards more of a deregulation agenda and, lastly, a ‘Trump put’ to underpin the economy into next year’s midterms.

Furthermore, one must also recognise that nothing else in G10 looks especially attractive – the UK is stuck in a fiscal shambles; the eurozone is deep in a mess of political instability; Japan is hamstrung by the BoJ’s snail’s pace approach to tighter policy; and, in China, a debt-deflation spiral continues.

Throw all that together, and it feels like a solid mix to bring about a return of ‘US exceptionalism’, and to permit the market to move back towards the right-hand side of the ‘dollar smile’.

LOOK AHEAD – A relatively light docket awaits today, with little that’s likely to move the needle especially much.

The latest German IFO sentiment data is due this morning and, while being set to show a marginal uptick in business confidence, should be taken with a bit of a pinch of salt, given the loose relationship that ‘soft’ data has had with comparable ‘hard’ figures this cycle. Elsewhere, US new home sales are seen having held broadly steady at 650k last month, while the 5-year Treasury auction tonight should proceed relatively smoothly.

Other than that, there’s scheduled remarks from 2027 voter Daly, as well as external BoE MPC member Greene, which round out the schedule.