Futures Flat Ahead Of Royal FOMC Rumble

US equity futures are flat into today’s Fed decision, with the long end of the yield curve moving lower. As of 8:10am ET, S&P and Nasdaq futures are down 0.1%, with Nvidia lower in premarket trading after the FT reported that China has ordered some companies to terminate orders for a certain type of AI chip (AMD -1%, AVGO flat). Other Mag7 names are flat. Cyclicals are under pressure. In other assets ahead of the Fed, the dollar is near its lowest level in three years although it is catching a bid after losing nearly 1% the last two days, while gold held near a record high. The commodity complex is weaker with notable losses in silver and coffee, each down more than 2.2%. In addition to the Fed today, we also have Housing starts and building permits ahead of tomorrow’s jobless data.

In premarket trading, Mag 7 stocks are mixed with Nvidia 1% lower in premarket trading after the FT reported that China has ordered some companies to terminate orders for a certain type of AI chip (Tesla -0.8%, Alphabet +0.4%, Microsoft +0.3%, Apple -0.1%, Amazon -0.3%, Meta -0.3%). Here are the other notable premarket movers:

• Cytokinetics (CYTK) inches 1% higher after the drug developer, which is offering $550 million in convertible notes, said it met Monday with US regulators about the company’s application for aficamten and still expects a decision by late December.
• Manchester United (MANU), the Premier League’s fallen giant, falls 9% after revenues flat-lined and losses continued to mount.
• New Fortress Energy (NFE) shares soar 24%, set to extend Tuesday’s record 45% rally, after billionaire Wes Edens’ firm finalized a seven-year deal worth $4 billion to supply liquefied natural gas to Puerto Rico.
• Vtex (VTEX), the e-commerce software platform, rises 5% after Jefferies raised the recommendation to buy, saying the recent declines after second-quarter results have been overdone and the longer term growth prospects remain intact.
• Workday (WDAY) shares are up 9% as Elliott Investment Management says the human-resources software company has made substantial progress in recent years. Analysts were also positive about the company’s outlook, while Piper Sandler upgraded the stock to neutral from underweight.

The record-breaking stock rally faces a big test today, with all eyes on what could prove to be a historic Fed rate decision (where we could get as many as 4 dissents, an unprecedented outcome) and the subsequent Powell’s press conference (full preview here). With equity positioning stretched, some strategists have been warning about a pullback. Anything but a dovish tilt could disappoint. For the FOMC rate decision, a 25bp rate cut is fully priced into swaps market. Including the 25bp cut priced in for today’s FOMC decision, around 70bp of easing is anticipated by year-end. In the lead-up to the meeting, traders have been hedging potential for at least one 50bp cut resulting from one of the year’s three remaining policy meetings — occurring today and in October and December

Fed watchers expect differing views on employment and inflation will prevent officials from promising an aggressive pace of cuts. Still, bond traders are stepping up options wagers on at least one 50bp cut in this year’s three remaining policy meetings. Options markets are pricing in a move of about 0.7% in the S&P 500 after the Fed, according to Citigroup strategists.

“There’s the potential for big divergence between officials,” wrote Deutsche Bank AG strategist Jim Reid. “There’s also the possibility of multiple dissents. The last meeting saw two governors dissent for the first time since 1993, whilst Trump-appointee Stephen Miran has also joined the board now.”

The decision comes as stocks look stretched according to Bloomberg. Equity positioning for CTAs is currently in the 95th percentile of a 30-year range, and their next course of action is to take profit, according to UBS strategists. Citadel strategist Scott Rubner said US stocks could experience turbulence in coming weeks before finishing the year with a flourish.

“We expect some short-term correction in risk assets,” she said. “Vulnerability is very high and the US is especially very highly concentrated. But we’re still confident in fundamentals, and we still think it would be more of a healthy correction.”

Trump will be watching the Fed’s decision from the UK, where PM Keir Starmer is seeking to strengthen ties with the US. Tech firms including Microsoft and OpenAI announced plans to spend tens of billions of dollars on technology infrastructure in the UK, while British drugmaker GSK pledged to invest $30 billion in the US over the next five years.

In other trade news, Trump said he spoke to Indian PM Modi in a move that offers to ease tensions between the two major economies amid a fight over tariffs and New Delhi’s purchases of Russian oil. And China released a Wells Fargo banker it earlier blocked from leaving the country, according to a person familiar with the matter, ahead of a potential in-person meeting between Trump and China’Xi Jinping.

In corporate news, Apple’s smartphone sales in China in the weeks leading up to the iPhone 17 launch fell 6%, a deeper slump than is typical ahead of a new release. Klarna’s CEO is overhauling how he controls his roughly $1.1 billion stake in the financial technology firm, just days after its US listing. Private equity giants Blackstone and BlackRock are said to be vying to invest billions of dollars with Saudi Arabia’s new AI company, Humain.

Ahead of Wednesday’s Fed decision, the Bank of Canada is expected to cut its benchmark overnight rate to 2.5%, after weak jobs data and a second-quarter contraction.

European stocks edge higher, led by tech. Germany’s DAX outperforms after a gain in SAP. Here are some of the biggest European movers today:

• Centrica shares gain as much as 3.6% after Morgan Stanley upgraded the stock to overweight as the analysts say the shares aren’t fully valuing even its existing business.
• DiaSorin shares rise as much as 2.7%, among the best performers in the Stoxx 600 Health Care Index on Wednesday morning, after the stock was upgraded to buy from neutral at UBS.
• Sanofi shares climb as much as 1.5% after the French drugmaker said a Phase 2a study of its experimental drug brivekimig in patients with hidradenitis suppurativa (HS) led to clinically meaningful improvements in primary and key secondary endpoints.
• PZ Cussons shares rise as much as 10%, the most since February as they rebound from the lowest level since 2001, after it delivered results mildly ahead of estimates.
• McBride climbs as much as 17%, the most in eight months, following full-year results from the personal care products maker, which Peel Hunt says demonstrate “consistent delivery.”
• PostNL shares jump as much as 10% after the delivery company outlined 2028 financial goals above current expectations ahead of its capital markets day.
• ProSiebenSat.1 Media shares fall as much as 7.5% in Frankfurt trading after analysts at Oddo BHF downgrade to neutral, reduce price target to €7.5 from €9.
• GTT drops as much as 4.2% as Oddo BHF flags a slight slowdown of order momentum for the French engineering company.
• Hexagon Composites shares fall as much as 16% after offering 42 million shares at NOK14, representing a 13.6% discount vs. Tuesday’s close.
• Diversified Energy shares drop as much as 6.4% in London, after the firm said overnight that an investor is offering shares in the company at a discounted price.
• Norbit falls as much as 6.3% after shareholder Draupnir Invest offers 3.25 million shares in the company at NOK200 per share, representing a 6.5% discount vs. Tuesday’s close.
• Nestle shares fall as much as 0.7% in early trading and continue to trade near a nine-year low after the early departure of Nestle Chairman Paul Bulcke.

In the UK, Bank of England policymakers got yet another unwelcome signal of sticky price pressures ahead of their rates decision on Thursday. Inflation held at its highest in more than 1 1/2 years in August, reinforcing expectations that the Monetary Policy Committee will keep rates on hold at 4%.

Earlier in the session, Asian equities swung in a narrow range after hitting an all-time high, as gains in Hong Kong and mainland China offset losses in tech-heavy South Korea and Taiwan. All eyes remain focused on the Federal Reserve’s interest-rate decision due later. The MSCI Asia Pacific Index was little changed, with Chinese Internet titans Alibaba and Tencent among the biggest boosts while chipmakers TSMC and Samsung Electronics dragged on the gauge. The regional benchmark notched its first record close in more than four years on Tuesday. China’s gains are “mostly driven by the tech companies due to rapid AI development and growing evidence of monetization,” said Vey-Sern Ling, managing director at Union Bancaire Privee “Against a backdrop of supportive government policies, cheap valuations and a cyclical bull case for emerging markets driven by US rate cuts and weaker dollar.” A gauge of Chinese stocks listed in Hong Kong surged 2.2% to the highest since July 2021. Heavyweights including Alibaba and Baidu climbed on positive analyst reports.

In FX, the Bloomberg Dollar Spot Index is little changed, sterling steady after UK inflation matched expectations. Euro-area headline CPI for August was revised lower.

In rates, treasuries hold small gains led by long-end tenors ahead of Fed rate decision at 2pm New York time, flattening the curve with 30-year yields lower by around 2.5bp on the day. US market tracks bull-flattening in European bonds, led by Germany’s, following long-end auctions and UK CPI data. With US front-end yields little changed, 2s10s and 5s30s spreads are about 2bp flatter on the day; 10-year near 4.01% is down about 1.5bp with bunds and gilts in the sector outperforming by about 0.5bp. Treasury auctions resume Thursday with $19 billion 10-year TIPS reopening; Tuesday’s 20-year bond sale drew good demand. European bond markets grind higher in line with Treasuries.

In commodities, gold slides from another record high, down by around $19 to $3,670/oz. Oil prices drops too, Brent trades closer to $68/barrel.

Today’s US economic data slate includes August housing starts/building permits at 8:30am; FOMC announcement is at 2pm.

Market Snapshot

• S&P 500 mini little changed
• Nasdaq 100 mini unchanged
• Russell 2000 mini little changed
• Stoxx Europe 600 +0.1%
• DAX +0.3%
• CAC 40 little changed
• 10-year Treasury yield -2 basis points at 4.01%
• VIX +0.2 points at 16.55
• Bloomberg Dollar Index little changed at 1189.27
• euro -0.2% at $1.1844
• WTI crude -0.7% at $64.08/barrel

Top Overnight News

• China told its tech firms to stop buying Nvidia’s AI chips and terminate all existing orders, the FT reported. The chipmaker’s shares fell premarket (NVDA -1.5%). BBG
• Fired BLS head Erika McEntarfer said her dismissal represented a “dangerous step” for the economy, and could erode confidence in economic statistics. WSJ
• Washington will begin the process of renegotiating the USMCA on Wed (Canada’s Carney travels to Mexico on Thurs, and USMCA will likely be a major topic of discussion in those meetings). FT
• Japan’s exports fell for a fourth month, with shipments to the US posting the steepest drop in more than four years. BBG
• Microsoft, OpenAI and other US companies announced plans to spend tens of billions of dollars on technology infrastructure in Britain. BBG
• US Democrats are expected to unveil their CR counteroffer today, Punchbowl citing sources reports that this will include a permanent extension of the Obamacare enhanced premium tax credits
• UK inflation stuck at an 18-month high of 3.8% in August, a reading that may encourage BOE policymakers to lay the groundwork for a longer pause on rates at tomorrow’s policy decision. BBG
• Foreign investors in US assets are rushing to hedge their exposure to the dollar, in a sign of increased nervousness about the impact of Trump’s agenda on the world’s dominant currency. FT
• The Bank of Canada is expected to cut its key rate 25 bps to 2.5%, restarting monetary easing after holding borrowing costs steady for three consecutive meetings. BBG

Corporate News

• Abu Dhabi National Oil Co. said it will not proceed with a proposed $19 billion offer for Australian natural gas producer Santos Ltd.
• China’s internet watchdog has instructed companies including Alibaba Group Holding Ltd. and ByteDance Ltd. to terminate orders for Nvidia Corp.’s RTX Pro 6000D, the Financial Times reported, citing people with knowledge of the matter.
• Eli Lilly & Co.’s obesity pill prompted enough weight loss in a large clinical trial to be meaningful for patients and have far-reaching implications for the field, doctors said.
• Apple Inc.’s smartphone sales in China in the weeks leading up to the iPhone 17 launch fell 6% from the year-earlier period, a deeper slump than is typical ahead of a new flagship product release.
• Qatar’s sovereign wealth fund will take a $500 million stake in copper producer Ivanhoe Mines Ltd., deepening its push into the global mining industry.
• Alarm firm Verisure Plc announced it’s planning to raise about €3.1 billion ($3.7 billion) via an initial public offering in Stockholm.
• Microsoft Corp., OpenAI and other American companies announced plans to spend tens of billions of dollars on technology infrastructure in the UK, part of a series of business deals that coincide with Trump’s visit to the nation this week.
• TikTok’s US operations would be acquired by a consortium that includes Oracle Corp., Andreessen Horowitz and private equity firm Silver Lake Management LLC under a deal Trump is set to discuss with Chinese President Xi Jinping this week.
• Nestlé SA Chairman Paul Bulcke will step down early after investors questioned his handling of the ouster of the food company’s former chief executive officer due to an undisclosed romantic relationship with a subordinate.

Trade/Tariffs

• Chinese state media noted regarding US-China trade talks in Madrid that China will review and approve matters related to TikTok, technology export and intellectual property in accordance with the law, while it added that an agreement on TikTok is in the interests of both sides.
• China and the US are in the “final stage” of negotiations for a state visit to Beijing by US President Donald Trump, with bulk purchases of American goods a critical part of the deliverables, according to sources cited by South China Morning Post.
• USTR Greer and South African Trade Minister Tau are expected to meet on Thursday, via Bloomberg citing sources.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed with global risk sentiment cautious ahead of the crucial FOMC policy decision where the Fed is expected to deliver its first rate cut for this year. ASX 200 was pressured with underperformance in the Consumer Discretionary, Real Estate, Miners and Materials sectors front-running the declines, while there was some resilience seen in Utilities, Energy and Tech. Nikkei 225 swung between gains and losses and briefly returned to the 45,000 level with price action choppy following initial currency headwinds and mixed Japanese trade data in which Exports fell for a 4th consecutive month, albeit at a much slower-than-feared pace, while Imports printed a wider-than-anticipated contraction. Hang Seng and Shanghai Comp gained with the Hong Kong benchmark led higher by tech strength as Baidu (9888 HK) rallied after an analyst upgrade due to optimism regarding its in-house chip venture and with SMIC (981 HK) testing domestically-made advanced chip-making machinery. Furthermore, Hong Kong Chief Executive Lee made several pledges in his policy address, while China also recently issued measures on increasing consumption.

Top Asian News

• Hong Kong Chief Executive Lee reaffirmed economic growth of 2%-3% for this year in the annual policy address, while he said they will accelerate development of the northern metropolis area close to the mainland China border, will continue to increase public housing supply, and create land for large development projects. Lee also stated that Hong Kong is to set up a working group to boost AI development and is to set up a task force to help mainland Chinese companies go overseas. Furthermore, Lee said the Hong Kong Monetary Authority is to encourage banks to establish regional headquarters in Hong Kong, and the HKEX is to lure more Southeast Asia companies for secondary listing.
• China trials its first advanced tools for AI chipmaking with SMIC (981 HK) testing domestically-made machinery as Beijing seeks to rival US-made processors, according to FT.
• Wells Fargo (WFC) banker who had been barred from leaving China for several months, has been allowed to return to the US, according to the Washington Post.
• China August crude iron ore output +8.8% Y/Y at 81.63mln metric tons, according to stats bureau Alumina +7.5% Y/Y. Refined Copper +14.8% Y/Y. Lead +3.7% Y/Y. Zinc +22.8% Y/Y.
• Indonesian Central Bank unexpectedly cut rates by 25bps to 4.75% (exp. 5.00%, prev. 5.00%)

European bourses (STOXX 600 +0.1%) are mixed and price action has been rangebound throughout the morning, as traders await the FOMC later today. European sectors are mixed, and aside from top performer, the breadth of the market is fairly narrow. Tech tops the sectoral list today, following on from outperformance seen in Chinese tech-names such as Baidu; as a reminder, the Co. received an analyst upgrade related to its in-house chip venture and with SMIC (981 HK) testing domestically-made advanced chip-making machinery.

Top European News

• ECB’s de Guindos says current rate is „appropriate”, via Welt; No reason for ECB to intervene with TPI (Transmission Protection Instrument).
• French socialist leader says there is currently no indication of French PM Lecornu’s plan, according to Bloomberg

FX

• After a session of losses yesterday, DXY is a touch firmer in the run-up to today’s FOMC policy announcement. In brief, the Fed is expected to cut rates by 25bps, with focus on guidance, vote split and updated SEP/dot plots. Thereafter, attention will shift to Fed Chair Powell’s press conference, whereby markets will be attentive to how forthcoming he is over additional near-term easing. Note, as an extra curve ball for the market, President Trump is due to be interviewed on Fox at 20:00BST. DXY sits towards the lower end of Tuesday’s 96.55-97.38 range.
• EUR is a touch softer vs. the USD after hitting a multi-year high yesterday @ 1.1878. Incremental EUR drivers are lacking with final Y/Y HICP revised a touch lower to 2.0% from 2.1% and the latest ECB wage tracker (2025 wage growth seen at 3.158% vs. prev. forecast 3.152%) passing with little in the way of fanfare. On the former, the ECB observed that early signs suggest lower and more stable wage pressures in H1 2026. Note, ECB’s Nagel is due to speak at 18:00BST. If EUR/USD continues its ascent higher, ING suggests that 1.1910 „looks like the final resistance level before 1.20 is hit”.
• The Yen is fractionally firmer vs. the USD, extending its winning streak to a third session. Overnight, Japanese trade data saw a smaller-than-expected deficit thanks to a smaller-than-forecast contraction in exports. Following the data, Pantheon Macroeconomics stated it expects the 15% universal duty on Japanese goods, imposed by the US to „weigh on Japanese exports for the rest of the year”. USD/JPY hit a fresh low for the month overnight @ 146.22 before picking up to levels north of 146.50.
• GBP was largely unreactive to the latest UK inflation data, which saw August Y/Y headline CPI hold steady at 3.8%, as expected. Core declined to 3.6% from 3.8% (in-line with consensus) and services declined to 4.7% from 5.0% (exp. 4.8%). This could have implications for the UK’s fiscal picture, which remains perilous with the latest reporting suggesting the OBR told UK Chancellor Reeves that it will downgrade productivity forecasts for the UK economy. Cable is currently contained within yesterday’s 1.3598-1.3672. This could have implications for the UK’s fiscal picture, which remains perilous with the latest reporting suggesting the OBR told UK Chancellor Reeves that it will downgrade productivity forecasts for the UK economy. Cable is currently contained within Tuesday’s 1.3598-1.3672.
• Antipodeans are both are softer vs. the USD and at the bottom of the G10 leaderboard with fresh macro drivers from Australia and New Zealand lacking.
• CAD is a touch weaker vs. the USD ahead of the BoC rate decision, which is expected to see the Bank cut rates by 25bps, according to 25/32 surveyed by Reuters. Markets assign a 92% chance of such an outcome and an 8% chance of a larger 50bps reduction. A 25bps outturn would see rates slip below the current midpoint of the BoC’s neutral estimate.
• PBoC set USD/CNY mid-point at 7.1013 vs exp. 7.1021 (Prev. 7.1027).

Fixed Income

• USTs in a holding pattern into the FOMC. Unchanged in a very thin band for the first part of the European morning. In terms of the Fed, a 25bps cut is the base case though markets continue to imply a slim chance of a larger 50bps move. Attention thereafter will be on forward guidance, to see if the FOMC implies further easing or retains a data-dependent stance; the vote split and dots of interest on this point. Note, during Chair Powell’s press conference President Trump will be speaking to the media as part of his UK state visit. More recently, a bout of strength was spurred by the FT reporting that China has ordered its large tech firms to stop ordering the China-specific NVIDIA chip. An update that has weighed on the broader risk tone and spurred USTs to a 113-21 peak with gains of 4 ticks at best.
• Gilts gapped higher at the open following the UK CPI. opened with gains of 13 ticks before extending another 10 to an initial 91.62 peak (91.70 notched post-NVDA). Upside that was driven by the August inflation report. In brief, the majority of the release was as expected though, the services components came in cooler-than-expected and have spurred the morning’s modest dovish move. The release does not change the narrative of unchanged this week from the BoE or the view that inflation will likely tick higher in the months ahead. Countering the bullish impetus, and possibly factoring into the pullback towards and below opening levels seen as the morning progressed (before the NVDA update, at least), was renewed focus on the Autumn Budget. Overnight, multiple press reports suggest the OBR will be downgrading their assessment of UK productivity, a cut which will amplify the already difficult fiscal situation Chancellor Reeves finds herself in.
• Bunds were initially in-fitting with USTs with specifics light. Thereafter, some modest upside was seen after UK CPI, but this proved fleeting. As the morning progressed, the benchmark began to pull back a little more and notched a 128.71 low. However, this was superseded by the risk move seen on the FT-NVDA report, propelling Bunds to a 128.98 peak with gains of 27 ticks at best. No move seen to the final EZ HICP, revised down to 2% (prelim. 2.1%) for the headline Y/Y while the core and super-core figures were unrevised. A dual-tranche German auction spurred little reaction in Bunds.
• Germany sells EUR 0.786bln vs exp. EUR 1.0bln 1.25% 2048 and EUR 1.13bln vs. exp. EUR 1.5bln 2.90% 2056 Bund.

Commodities

• Crude opened modestly on the backfoot and has trickled lower throughout the morning. Downside in the crude complex was exacerbated by reports that China’s CAC has reportedly informed firms such as Alibaba (9988 HK / BABA) and ByteDance to terminate their testing and orders of NVIDIA’s (NVDA) RTX Pro 6000D, via FT citing sources; in order to focus on China’s domestic semiconductor industry. WTI currently resides in a 62.91-63.55/bbl range while Brent sits in a USD 67.01-67.68/bbl range.
• Precious metals decline with headwinds seen from a firmer dollar alongside selling pressure in metals, including a 1% drop in silver, shortly after Shanghai commodities trade got underway, and with demand subdued ahead of today’s Fed rate decision. Spot gold currently resides in a USD 3,662.63-3,695.52/oz range with Tuesday’s high (USD 3,703.24/oz) the latest all-time high.
• Base metals are lower across the board amid the broader risk aversion and firmer USD sparked by reports that China’s CAC has reportedly informed firms such as Alibaba (9988 HK / BABA) and ByteDance to terminate their testing and orders of NVIDIA’s (NVDA) RTX Pro 6000D, via FT citing sources. 3M LME copper fell back under USD 10k/t and resides in a USD 9,931.05-10,136.70/t range at the time of writing.
• Deutsche Bank lifts gold price forecasts next year to USD 4,000/oz average (prev. USD 3,700/oz); Silver lifted to USD 45/oz (prev. USD 40/oz)

Geopolitics: Middle East

• Japan will not recognise a Palestinian state at the UN General Assembly, according to Asahi.
• „Israel Broadcasting Corporation Quotes Palestinian Sources Familiar with the Negotiations: We Are Ready to Discuss Stopping the War. But in a Different Way Than In the Past”, according to Sky News Arabia.
• Iranian Foreign Ministry Spokesperson says Araqchi will hold a call with German, British and French counterparts this Wednesday.

Geopolitics: Ukraine

• IAEA team at Ukraine’s Zaporizhia nuclear power plant reported hearing shelling close to the site on Tuesday and saw black smoke rising from three locations nearby after multiple artillery shells struck an area outside of the nuclear power plant site perimeter, although there were no reports of casualties or equipment damage.
• EU intends to propose additional sanctions on more Chinese firms linked to the Russian war effort, via Politico; diplomat adds that discussions on the 19th sanctions package are now expected on Friday and potentially includes the addition of Chinese firms.
• Russian Deputy Foreign Minister Ryabkov says Russia is in contact with the US on various issues, and dialogue continues, via Ria; adds that Russia is ready to deepen energy cooperation discussions with the US, including on Sakhalin 1 project.

US Event Calendar

• 7:00 am: Sep 12 MBA Mortgage Applications, prior 9.2%
• 8:30 am: Aug Housing Starts, est. 1365k, prior 1428k
• 8:30 am: Aug P Building Permits, est. 1370k, prior 1362k
• 8:30 am: Aug Housing Starts MoM, est. -4.41%, prior 5.2%
• 2:00 pm: Sep 17 FOMC Rate Decision

DB’s Jim Reid concludes the overnight wrap

After a relentless rally over recent sessions, risk assets struggled to keep up their momentum over the last 24 hours, with the S&P 500 (-0.13%) slipping back from its record high. The moves come ahead of today’s Fed decision, which could well be one of the most interesting in recent times. Of course, it’s widely expected that we’ll get the first rate cut since December. But all eyes will also be on the quarterly dot plot for where officials think rates will move next, as there’s the potential for a big divergence between different officials. And on top of that, there’s also the possibility of multiple dissents, particularly after the last meeting saw 2 Governors dissent from for the first time since 1993, whilst Trump appointee Stephen Miran has also joined the Board now. So, lots of themes to keep an eye on.

In terms of the decision, it’s widely expected that we’ll see a 25bp rate cut today, which would lower the target range for the fed funds rate down to 4%-4.25%. Interestingly, at the time of the last FOMC decision in July, a cut at today’s meeting wasn’t seen as a foregone conclusion at all, particularly with tariffs keeping inflation above target. But two days later, on August 1, we had a very underwhelming jobs report, which included the biggest downward revisions in years. So that undercut the previous message of labour market resilience after Liberation Day and led to a lot more concern about the “maximum employment” side of the Fed’s mandate. In turn, that meant Fed officials increasingly signalled that a cut was possible, and Chair Powell said in his Jackson Hole speech that the “downside risks to employment are rising.”

In the time since that jobs report in early August, markets have priced in a September cut as the most likely outcome, and that message was reinforced by the most recent jobs report a couple of weeks ago. Indeed, it showed payrolls up by just +22k in August, and the June print was even revised into contractionary territory. So that cemented investors’ conviction in a 25bp cut and led to a brief period of speculation about whether the Fed might do a larger 50bp cut, just like they did at the September 2024 meeting.

Even if today’s decision ends up being a 25bp cut as expected, this meeting still has the potential for dissents in both directions. In fact, yesterday saw Trump’s appointee Stephen Miran sworn in as a Fed Governor, so he’s taking part in this FOMC meeting. And our US economists write in their preview (link here ) that they expect him to dissent in favour of a 50bp cut. There’s also the potential for dissents by Governor Bowman and Governor Waller, who both voted for a 25bp cut at the last meeting. And on the hawkish side, they write that the most likely candidate for a dissent is Kansas City Fed President Schmid.

With the Fed preparing to cut rates, US Treasuries continue to rally yesterday across the curve. So, the 2yr yield (-3.5bps) fell to 3.50%, and the 10yr yield (-1.0bps) fell to 4.03%. Moreover, the 30yr yield (-1.2bps) fell to 4.65%, which is its lowest since early April in the week after Liberation Day. That momentum has continued into this morning, with the 30yr yield down another -0.7bps to 4.64%, so that’s helping to ease investor fears around the US fiscal situation as well. And this decline was clear among real yields too, and the 10yr real yield (-1.1bps) fell to 1.65% yesterday, its lowest closing level since October 2024.

However, with Treasury yields continuing to fall, that put more downward pressure on the US Dollar, with the dollar index falling to its weakest level since February 2022. And conversely, that helped the Euro to move up to $1.1867, marking its highest closing level since September 2021. Of course, the Fed’s pivot towards rate cuts has also been a factor, particularly given the ECB has now paused its own easing cycle, as that’s narrowing the differential between the two central bank rates.

Interestingly, that Treasury rally yesterday occurred despite a strong batch of US data, which pushed back against the weaker narrative we’ve seen from the labour market data. For instance, retail sales were up +0.6% in August (vs. +0.2% expected), and industrial production rose +0.1% (vs. -0.1% expected). So that boosted optimism about the growth outlook, and the Atlanta Fed’s GDPNow tracker is now pointing to an annualised growth rate of +3.4% in Q3. That would be almost in line with the +3.3% growth rate in Q2, suggesting the economy has kept up its momentum since the Liberation Day tariff announcements in early April.

Nevertheless, that stronger data was unable to support the equity rally, as the S&P 500 (-0.13%) slipped back from its record high on Monday. To be fair, it wasn’t all bad news, with the Magnificent 7 (+0.55%) advancing to a new record, whilst energy stocks (+1.73%) were the biggest sectoral outperformer in the S&P after Brent crude (+1.53%) hit a two-week high of $68.47/bbl. But there was weakness more broadly, and it was the third consecutive day where decliners outnumbered advancers in the S&P 500.

Over in Europe, equities saw even deeper losses, with major indices like the STOXX 600 (-1.14%) and the DAX (-1.77%) posting sizeable declines. As in the US, that came despite some robust economic data, with the expectations component of the German ZEW survey unexpectedly rising to 37.3 in September (vs. 25.0 expected). In the meantime, 10yr yields only saw a slight increase, with those on 10yr bunds (+0.2bps), OATs (+1.0bps) and BTPs (+0.4bps) all moving a bit higher.

On the theme of central banks, we’ll also get a decision from the Bank of Canada today, who are widely expected to deliver a 25bp rate cut of their own. As with the Fed, anticipation about a rate cut has risen notably since the last meeting, and yesterday that got further support after inflation surprised on the downside in August. The release showed headline CPI only rising to +1.9% (vs. +2.0% expected), which helped Canadian sovereign bonds to rally across the curve, with the 10yr yield (-1.7bps) falling to a 4-month low of 3.15%.

Overnight in Asia, the major equity indices have put in a mixed performance ahead of the Fed’s decision. The Hang Seng (+1.41%) is the biggest outperformer this morning, with the index currently on track for its highest close since 2021. And that’s come alongside gains for the CSI 300 (+0.60%) and the Shanghai Comp (+0.41%). However, Japan’s Nikkei (+0.04%) is basically flat, whilst South Korea’s KOSPI (-0.67%) has lost more ground, finally falling back after a run of 11 consecutive daily gains. Looking forward, US equity futures are fairly subdued, with those on the S&P 500 (-0.05%) posting a slight decline, but European futures have been stronger, with those on the DAX up +0.30%.

To the day ahead now, and the main highlight will be the Federal Reserve’s policy decision, along with Chair Powell’s press conference. We’ll also get a policy decision from the Bank of Canada. And central bank speakers include ECB President Lagarde, as well as the ECB’s Muller, Escriva, Cipollone and Nagel. Otherwise, data releases include the UK CPI print for August, along with US housing starts and building permits for August.