Stocks Rally After Inflation Print – Dow up 1.6%

US Stock markets got a bit of a reprieve in trading on Friday after what had been a tough week as the PCE Price Index data came in largely on expectations, increasing hopes of a September rate cut from the Fed. The Dow led the way higher, finishing the day up 1.64%, followed by the S&P which added 1.11% and the Nasdaq which gained 1.03% on the day. US Treasury yields took a hit across the board, the 2-year losing 5.4 basis points to move down to 4.389% and the 10 -year dropping 5.6 basis points to 4.200% while the dollar trod water against most of the majors. Oil prices took a dip again as talk of a ceasefire in Gaza continued to hit newswires, Brent down 1.5% to $81.31 and WTI off 1.4% to $77.16. Gold pushed higher in light of the weakening yields, adding 0.8% to close the NY session at $2,383 an ounce.

Central Banks in Focus this Week

It is a huge week ahead for traders and probably top of the list for risk events in the coming days will be rate updates from the Fed, the Bank of Japan and the Bank of England. The Fed is firmly expected to keep rates on hold, however both the BOJ and the BOE will be live events which should see plenty of volatility in the markets around their rate decisions and consequent statements and press conferences.  Debate reigns in the market as to whether the Bank of Japan will hike rates or adjust its bond purchasing activities this month and traders are expecting more moves in the Yen over the course of the week. The Bank of England is also a ‘live’ event with the market currently pricing in a 49% chance of a cut on Thursday as high services and Core inflation data battle with lower CPI and political pressure to cut rates.

Quiet Trading Day to Kick Off a Massive Week

There is very little on the macroeconomic event calendar for the first three sessions of the week and traders are expecting to see rangebound conditions ahead of what is potentially a pivotal week for the year. There is a raft of lower tier data out of the UK due early in the European session, but this is not expected to have a significant impact on markets and nothing of note in the other two trading sessions. However, given the huge amount of data, central bank rate decisions and other economic updates later in the week, today is largely being considered a calm before the storm type of day as the market adjusts before some potentially big moves in products.