Markets Meander Amid Dearth Of Catalysts

WHERE WE STAND – The buck continued to bound higher yesterday, in an otherwise uneventful session, making this newfound dollar bull rather content indeed.

It must be said, that fresh catalysts were lacking across the board, with little by way of impactful news- or data-flow to move the needle especially much. To that end, the most interesting thing I learned yesterday is that BoE Governor Bailey is a West Brom fan.

Days of that ilk, though, can be useful at times, not only as they give us all a bit of a chance to catch our breath, but also as they help give a steer as to which direction the ‘path of least resistance’ currently leads.

For the buck, with the caveat that EoM/Q flows could well be influencing things already, that path looks like it leads to the upside for now, as participants increasingly buy into the idea that the Fed’s ‘run it hot’ strategy now tilts risks to the economic outlook firmly to the upside. Concurrently, there remains little to like about the rest of G10, as the UK’s fiscal doom loop deepens by the day, and as the eurozone remains mired in political peril of its own. I saw murmurings yesterday of the French examining a possible 8% wealth tax – please, Rachel, don’t get any ideas!

As alluded to earlier, there was little by way of fresh fundamental developments through the day, though, along with his footballing remarks, BoE Governor Bailey did pop up with some dovish, if data-dependent, commentary as well, noting that there is still ‘some further journey down in rates’, though the timing of future cuts will depend on how the inflation outlook develops. Given the rapidly emerging degree of slack emerging in the labour market, and dismal demand outlook, even before the prospect of further tax hikes in the late-November Budget, I still see the curve as being priced far too hawkishly in terms of the BoE policy path, with the next 25bp cut not fully discounted until next April. Long the March, June, and September 2026 SONIA futures still make a lot of sense to me.

Long equities also continues to make a lot of sense, even if the major Wall St benchmarks did little more than move sideways for most of the day yesterday. The bull case has been a solid one for quite some time now, with the S&P having gone over 100 days without a daily loss of at least 2%, and remains firmly intact, with the underlying economy resilient, and earnings growth robust. Furthermore, the Fed’s ‘run it hot’ approach, resulting in a looser policy stance, sooner than expected, tilts risks to the outlook to the upside, and marks a restoration of the ‘Fed put’ dynamic with which participants have become so familiar over the years.

Something else that we’ve become familiar with, more in recent weeks than years, is the seemingly never-ending run of record highs for gold. Well, that run has now come to an end, as bullion traded basically flat yesterday, and didn’t managed to notch a fresh high, with the stronger buck posing a headwind. Before anyone frets that this might spell the end of bullion’s strong recent run, I’d not be especially worried just yet, particularly with the recent forces behind the upswing, and the steeper Treasury curve – such as, the erosion of Fed independence, and risk of inflation expectations un-anchoring – haven’t exactly disappeared. To me, gold remains a buy on any dips.

LOOK AHEAD – A relatively busy docket ahead today, though while things look busy, it’s questionable the degree to which scheduled releases will move the needle in the grand scheme of things.

Stateside, headlining proceedings will be the final read on Q2 GDP, set to remain unrevised, pointing to growth of 3.3% on an annualised QoQ basis, though this figure is still skewed by the volatile net exports component, and the impacts of tariff front-running in Q1. Also from the US, we receive last month’s durable goods orders and existing home sales reports, plus the weekly jobless claims stats, where the continuing claims print pertains to the September NFP survey week.

Elsewhere, the Swiss National Bank should stand pat this morning, maintaining the policy rate at 0.00%, though policymakers will once again leave the door open to a return to negative rates in the future, should circumstances warrant it. Meanwhile, a slightly ridiculous 8 FOMC members are due to speak throughout the day, quite literally the definition of too many cooks spoiling the broth, while the US sells 7-year notes tonight.