Fed Rate Cut Bets Drive Stocks, Commodities, and Currencies

Source: Krish Capital Pty Ltd

Index Update

U.S. stocks closed higher, with the Nasdaq hitting a new record on gains in chipmakers, while the Dow and S&P 500 also advanced modestly. Weak labor market data reinforced expectations of a Fed rate cut in September, with growing speculation of a larger 50 bps move. In corporate news, Fox fell after Lachlan Murdoch took control following a family trust resolution, and Dell slipped after its CFO resigned.

Market Movers

On Monday, the top gainers were Eightco Holdings Inc. (+3,008.97%), followed by Sentage Holdings Inc. (+237.13%). On the contrary Professional Diversity Network, Inc. (-33.54%), and MEI Pharma, Inc. (-29.08%) declined the most the same day.

Commodities Update

Oil prices extended gains as both WTI and Brent futures rose, supported by OPEC+’s decision to raise output only modestly by 137,000 bpd from October, well below previous hikes. The smaller increase reflected the group’s cautious approach amid expectations of a market surplus. Prices were also buoyed by the threat of additional U.S. sanctions on Russia after intensified attacks on Ukraine, raising concerns about supply disruptions. However, gains were capped as Saudi Arabia cut prices for crude sales to Asia, signaling weaker demand in the region.

Gold surged to a record high near $3,650 per ounce, fueled by growing bets on multiple Federal Reserve rate cuts this year after a weaker U.S. jobs report. Expectations of easing monetary policy, combined with safe-haven demand amid geopolitical tensions and trade concerns, have strengthened bullion’s rally. The metal has gained nearly 40% year-to-date, supported by U.S. dollar weakness, central bank buying, and global uncertainty.

Macro Updates

U.S. Small Business Optimism Hits Seven-Month High

The NFIB Small Business Optimism Index rose to 100.8 in August, its strongest reading since January but just shy of expectations. Improved sales outlooks and earnings boosted sentiment, while wage pressures persisted as more firms raised or planned to raise pay, posing risks of stickier inflation. Labor quality remained the top challenge, with 21% citing it as their main concern, and 32% still reporting unfilled job openings—a level historically high despite easing slightly from July.

Dollar Steadies Near Seven-Week Low Ahead of Jobs Revision and Inflation Data

The dollar index held at 97.4, close to its weakest level in nearly two months, as labor market concerns reinforced expectations of Fed rate cuts. Investors awaited employment benchmark revisions that could show significant job losses, alongside upcoming PPI and CPI reports that may guide the Fed’s next move. Markets largely expect a 25 bps cut at the upcoming meeting, though some are positioning for a deeper 50 bps reduction.

Bonds Commentary

U.S. 10-year Treasury yields hovered near 4%, a five-month low, as weak labor market signals strengthened expectations of Fed rate cuts. Investors awaited significant employment data revisions and key inflation reports this week, with markets largely pricing in a 25 bps cut at the upcoming meeting and some positioning for a larger 50 bps move.

Futures Update

U.S. stock futures edged higher as investors awaited revisions to U.S. employment data and key inflation reports, with sentiment supported by expectations of upcoming Federal Reserve rate cuts amid signs of a cooling labor market. Major indexes recently closed at record levels, led by strength in technology. On the corporate front, Robinhood and AppLovin rose on news of their inclusion in the S&P 500, while Broadcom extended gains on optimism over artificial intelligence-driven revenue growth. Meanwhile, Oracle was set to report earnings, Anglo American and Teck Resources agreed to merge, and ASML took a $1.5 billion stake in French AI start-up Mistral AI. 

Following signs of weakness in the broader market, major indices experienced a choppy session and traded within a limited range on Monday. The S&P 500 edged up by 13.65 points, or 0.21%, closing at 6,495.16. From a technical perspective, the index found support at key levels and gradually moved higher, suggesting the potential for further gains in the near term. However, a break below Monday’s lows could signal a shift, with near-term downside risks becoming more imminent. Additionally, the 14-day RSI is nearing the midpoint, which may indicate the potential for an upward trend. Key support levels are around 6,433, while resistance is expected near 6,555.