The US 2-year yield – which reflects Fed rate expectations – remained under pressure from dovish expectations. Activity on Fed funds futures, meanwhile, implies nearly a full 25bp cut today, around an 80% chance for another cut in October and nearly a 75% chance for a third 25bp cut by December.

From there, many expect one more rate cut in January, while some foresee as many as six rate cuts in the next six meetings. Meanwhile, bets for a half-point rate cut this year – not today but perhaps in December – are gaining momentum among option traders. The latest data suggests that December options, which expire two days after the Fed’s December announcement, hint that we could see a 50bp cut before the year ends.

In summary, market expectations are softening by the day, and the data backs dovish bets: inflation remains under control, jobs are weakening, while consumer spending is holding up well. Yesterday’s data showed retail sales grew more than analysts expected in August – and around 5% year-on-year. But, as in the stock markets, the strong figures mask underlying dynamics.

For example, wealthy Americans – who are heavily invested in financial markets that are doing incredibly well – now account for almost half of US consumer spending. Meanwhile, JP Morgan-backed fintech company Slope said its credit lines surged 730% “because of the tariffs,” as companies tried to cover costs and avoid a cash crunch. Yet none of this is visible in the top-line economic data – except in the jobs figures, which justify at least part of the recent dovishness.

There is a chance that the Fed doves have gotten ahead of themselves – which could lead to disappointment today if Powell emphasizes inflation risks and if the dot plot signals fewer cuts than investors expect. All eyes will be on the latest dot plot for clarity on how big and how fast Fed officials want to soften monetary policy.

Lower yields would support the economy and stock valuations. But a too-dovish stance could revive concerns that the Fed is under political pressure to ease more than warranted, and/or that the economy is weaker than it looks – possibly masked by the record-breaking stock rally driven mostly by Big Tech.

Meanwhile, news continues to fuel appetite for US tech stocks, and Oracle is having a standout month. After announcing a massive deal with OpenAI, the company is also part of the much-anticipated TikTok deal – it will apparently host US users’ data. The share price spiked, then gave back some gains, closing the session about 1.5% higher.

In FX, the US dollar index has fully erased its summer rebound and is back to its lowest levels of the year. Sterling advanced to its highest since July, despite political turmoil and budget concerns that weigh on UK growth prospects and political stability. Yesterday’s jobs data confirmed a weakening labour market; wage growth slowed but remains well above levels that would ease inflationary pressures.

Speaking of inflation, fresh CPI data this morning confirmed that price pressures remain strong enough to justify no action from the Bank of England (BoE) at this week’s meeting. The contrast – a cautious BoE stance versus a dovish Fed – should keep Cable supported, but sterling may ease further against the euro, where inflation seems under control and demand for euro and euro-denominated assets remains strong.

Yesterday’s selloff helped the EURUSD clear offers around 1.18, with waning attention on French political drama. The final eurozone CPI figures for August are due today and should confirm inflation steady near 2% – with stable oil prices and a stronger euro helping. A print in line with expectations would reinforce the idea that the European Central Bank (ECB) is done cutting rates this year, widening the policy gap with the Fed and paving the way toward 1.20.

Gold is consolidating gains on the softer dollar, while silver is under pressure this morning with a 1.24% drop at the time of writing. US crude oil jumped to $64/bbl on a larger-than-expected decline in weekly inventories. Rising tensions in Ukraine are also helping keep bulls cautiously in charge, but solid resistance is seen into the $65pb level that includes a key Fibonacci level, 50 and 100-DMAs.

In Asia, equities are led higher by tech demand. The tech-heavy HSI hit a fresh 4-year high, with Baidu up more than 15% in Hong Kong this morning on news of an AI deal with China Merchants Group, a major state-owned enterprise focused on transport, finance, and property. Alibaba and SMIC were both up around 5%. These stocks remain relatively cheap compared to US peers: Nasdaq’s Golden Dragon China Index trades at a P/E ratio of around 15, nearly half that of the Magnificent 7.