• Equities turn positive, but sentiment is fragile

• US presidential debate today could prove market moving

• UK labour market data supports the pound

• Bitcoin gains as risk sentiment improves, gold is range-bound

US equity markets recorded gains in yesterday’s session, with the Nasdaq 100 index leading the rally, and euro/dollar dropped close to 1.1030 despite the fact that most participants remain uncertain about next week’s Fed rate cut size and confused about the medium-term outlook of the global economy. With China’s data releases continuing to disappoint, the overall sentiment remains fragile.

Most participants remain uncertain about next week’s Fed rate cut size and confused about the medium-term outlook of the global economy.

The calendar is rather light today with the markets already thinking about Wednesday’s US CPI report. While the US labour market is the key input in the Fed's decision process, inflation could play a role in determining the size of next week’s rate cut. A significant downside surprise, possibly on the back of the performance of oil prices during August, could somewhat increase the pressure on the Fed to start its easing cycle with a 50bps rate cut.

While most economists appear confident that the 25bps rate move forecast will be confirmed on September 18, a significant miss at tomorrow's CPI report could also affect the rhetoric accompanying the Fed rate cut. Especially in the case of an upside CPI surprise, it would be difficult for Fed Chairman Powell to talk down the US economy.

The focus today is also on the first Trump-Harris presidential debate. The importance of this televised discussion cannot be understated as the abysmal performance of incumbent US president Biden at the late-June debate against Trump essentially forced him out of the race.

Kamala Harris is leading in the polls, and a strong performance at tonight’s debate could constitute a significant step towards solidifying her chances for a November win. However, considering Trump’s aggressive style, it will be a real test of her capabilities, especially when the Republican presidential candidate makes personal attacks.

Economy-wise, both candidates are unlikely to go significantly off script from their known positions with Trump portraying himself as more pro-business than Harris. Barring a major surprise and assuming that none of the candidates makes a serious mistake or loses his/her temper, the markets are unlikely to be greatly affected. However, should the debate produce a clear and undisputed winner, then we could see a reaction in risky assets.

Should the debate produce a clear and undisputed winner, then we could see a reaction in risky assets.

Another set of positive UK employment data has helped the pound gain a few pips against both the euro and the dollar. Specifically, the unemployment rate dropped to 4.1%, the growth in average earnings excluding bonuses continues to hover around 5%, well above the current inflation rate, and the August claimant count showed a small 23.7k increase.

Coupled with the recent positive PMI surveys and good news for the housing sector, the UK economy seems to be performing better than anticipated. Tomorrow’s packed data calendar could confirm the latest trend, partly justifying the market pricing in a 27% probability for another 25bps rate cut at next week’s BoE meeting.

Coupled with the recent positive PMI surveys and good news for the housing sector, the UK economy seems to be performing better than anticipated.

The crypto market continues to exhibit high volatility with Bitcoin rallying around 10% from Friday’s low before settling in the $56,800 area. The correlation with US equities remains high, despite efforts by crypto insiders to present bitcoin as a gold alternative.

In the meantime, gold managed to survive relatively unscathed from the news that China did not buy gold for a fourth consecutive month. There is a lot of speculation about China’s absence, but, nevertheless, gold continues to hover in the $2,500 region, thus maintaining its recent gains.