Record highs abound, except for the usual Reuters spot

A look at the day ahead in US and global markets from Mike Dolan

Record highs in the stock market have reignited around the world — though not yet for the usual suspects in the Nasdaq and.

Despite a rare stumble on the artificial intelligence theme after Nvidia’s (NASDAQ: and declining interest. rates.

So much so that if you adjust the S&P500 for the huge contribution of Big Tech megacaps, it now shows the equal-weighted index hitting record highs with gains of more than 10%.

Underscoring this, it hit a new high on Thursday, and both Europe hit new highs on Friday as well.

And that expansion of what many feared was an overly concentrated market is another sign of some normalization of market behavior, along with a return of volatility indicators closer to long-term averages and a resumption of the negative correlation between yield stocks and bonds.

For many, that’s a much more sustainable constellation, and the economic picture supports that through Labor Day Monday.

US GDP growth was revised higher in the second quarter on Thursday, while core PCE inflation measures were marked lower and weekly unemployment figures were little changed.

Friday’s release of July’s monthly PCE reading is next and is expected to be similarly benign, allowing the Federal Reserve to continue with its first quarter-point interest rate cut next month – while the market prices a total of 100 points basic. of relaxation until the end of the year.

Wall St stock futures were higher again ahead of the month’s final trading day, and Treasury yields were down slightly from Thursday’s slight gains.

Calming the bond market in a week of heavy selling of new debt was an affirmation late Thursday of Fitch’s AA+ US sovereign credit rating with a stable outlook.

Borrowing costs across the economy are generally falling, with the average rate on popular 30-year mortgages in the US falling to 6.35% this week, the lowest since May 2023.

Clearly, Fitch’s review said the US fiscal profile will remain largely unchanged regardless of who wins the upcoming presidential election, citing structural strengths including high per capita income and financial flexibility as supporting the credit rating.

And despite a flurry of election trading earlier in the summer, the dramatic change in fortunes in the polls and betting markets barely flickered against the backdrop of buoyant US markets in general.

Democratic Vice President Kamala Harris’ late entry into the presidential race after President Joe Biden withdrew in July has tightened the race against Republican nominee Donald Trump. A Reuters/Ipsos poll this week showed her leading 45% to 41%, and another in Friday’s Wall Street Journal confirmed she had been marginal before – with betting markets now seeing her as the clear favourite.

Harris’ first interview with a major news organization since becoming the Democratic nominee aired Thursday on CNN, but there was little to cloud the market’s views on what her presidency would look like.

In Europe, the inflation and interest rate picture was arguably even better.

Eurozone inflation fell to a three-year low of 2.2% this month, just outside the European Central Bank’s 2.0% target and boosted the case for a second interest rate cut by ECB of the year in September – just before the start of the Fed. .

A day earlier, Germany’s EU-harmonized headline inflation rate actually hit the 2.0% target for the first time in nearly 3½ years.

Money markets currently see a 60% chance of the ECB cutting rates a third time by October – slightly lower than on Thursday. Euro/dollar has stabilized following this week’s strong rebound from one-year highs.

The inflation picture in Japan is slightly different.

Core inflation in Japan’s capital accelerated for a fourth straight month in August, surpassing the central bank’s 2 percent target and supporting market expectations for more interest rate hikes ahead.

Dollar/yen held steady just above 145.

But it was a much bigger development – it hit its best levels in more than a year as authorities scramble to shore up recent falls in government bond yields, with August business surveys due to be released on Saturday.

Rising dollar sales by Chinese corporations – triggered by changing expectations about the greenback – could turn into a short-term “bump”, boosting the yuan further, China International Capital Corp said in a note.

In corporate news, AI has refused to be left out of the spotlight. Apple (NASDAQ:) and Nvidia are in talks to invest in OpenAI as part of a new fundraising round that could value the ChatGPT maker at more than $100 billion, according to media reports on Thursday.

Key developments that should provide more direction to US markets later Friday:

* July US PCE inflation, personal income and consumption, August Chicago business survey, August final reading for University of Michigan sentiment; Canadian Q2 GDP Review

* Kerstin af Jochnick, member of the board of the European Central Bank, speaks in Frankfurt

* US Corporate Earnings: Marvell Technology (NASDAQ: ).