Bring on the Fed next week

First, the mundane after the release this week of the monthly US Consumer and Producer Prices index and the monthly initial jobless claims. Annual inflation was up 2.9% year-over-year, compared to 2.7% in July, a modest increase but one that was forecast. Core CPI (excluding food and energy): Increased 0.3% month-over-month and 3.1% year-over-year. If one annualises 0.3% over the year, one gets closer to 3.5%. In contrast, the Monthly change in Producer Prices actually reported an unexpected fall by 0.1%, against forecasts of a 0.3% increase. In a nutshell, neither report did anything but support the view that the Federal Reserve will cut rates by 25 basis points next week, with 50 basis points still a possibility. The Initial Jobless Claims report continues to indicate a weakening labour market as the number of Americans filing for unemployment hit the highest level since October 2021.

The implications of why Russia would fly drones over NATO airspace continue, with some believing it was a test of NATO’s response. The oil price has seen little reaction this week to increasing geopolitical tensions, and stocks certainly have not. Longer dated yields, of which there has been a close following, have been falling. The 30-year US Treasury yield was hovering around 5% a few days ago, and is now closer to 4.6%.  The UK 10-year Gilt yield has fallen from 4.8% to 4.6% in the past week. The USD basket has shown little movement, and the Vix index continues to show confidence that the rally can continue. Gold remains at all-time highs.

Typically, one would expect sentiment with stocks at record highs to enter greed territory, but that does not appear to be the case yet. The weekly AAII investor survey reported yesterday that bullish sentiment among retail investors is below its historic average, and bearish sentiment is significantly above its historic average. The CNN Fear and Greed Index, which takes several sentiment indicators into its index, is neutral. At the start of September, Goldman Sachs’ investor sentiment positioning was negative, apparently. US stocks have gone through 20-plus record highs this year, which is by no means a record.