First Light News: US Stocks Refresh All-time highs; BoE and BoJ Remain on Hold; Trump-Xi Call in Focus

The Russel 2000 added 2.4% and clocked an all-time high of 2,477 yesterday, as investors bid domestically-focused companies amid reduced borrowing costs. Markets also believe the Fed will continue to ease policy, with two rate cuts on the table this year, and possibly another three next year to a terminal target rate of 2.75% – 3.00%.

In the fixed-income space, US Treasury yields bear steepened yesterday, with the benchmark 10-year yield shaking hands with a high of 4.14%. In my opinion, this indicates bond investors are pricing in ‘worries’ regarding inflation. Alongside this, the USD Index continued to gain, adding 0.4%, and fast closing in on resistance from 97.72 (daily), shadowed closely by the 50-day SMA at 98.08.

Yesterday also welcomed the latest batch of US weekly jobless claims data (week ending 13 September), showing a decrease of 33,000 to 231,000 from the previous week’s revised level of 264,000. Additionally, continuing jobless claims came in at 1.92 million (for the week ending 8 September) from 1.927 million in the prior week.

BoE Stands Pat; UK Deficit Grows

Across the pond, the BoE claimed some of the spotlight yesterday. As widely expected, in a 7-2 MPC vote, the central bank left its bank rate unchanged at 4.00%, and slowed the annual pace of Gilt sales, which was also largely in line with consensus. The GBP sold off versus the USD, albeit I felt the move was a little unjustified, and could not really pin down much of a driver.

The primary catalyst behind the no-change decision is the persistent inflationary pressures – as I had mentioned yesterday, the August headline YY inflation remained at 3.8%, which is nearly double the BoE’s inflation target, while YY core inflation slowed to 3.6% from 3.8%. BoE Governor Andrew Bailey noted that despite expecting inflation to eventually return to their 2.0% target, they are ‘not out of the woods yet’. Bailey added that ‘any future cuts will need to be made gradually and carefully’. Markets have also but ruled out a cut in November, with a potential hold also for December’s meeting, with the next 25-bp reduction not implied until March 2026.

Earlier this morning, however, UK public sector borrowing jumped by a notable £18 billion in August, up from an upwardly revised £2.8 billion in July, and representing a £3.5 billion increase YY. This will not be pleasant reading for UK Chancellor Rachel Reeves, who is gearing up to present her Autumn Budget at the end of November. I just do not see a way out of this for Reeves, and tax rises are well and truly on the table.

BoJ Rate Announcement Sends JPY Northbound

The BoJ rate announcement was also out overnight, and held its policy rate at 0.50%, as forecast. What did catch the markets off guard was both the 7-2 vote and the BoJ announcing plans to start selling US$250 billion of its ETF portfolio, which consists of an accumulation of holdings since 2010. This also followed August core CPI inflation data easing to 2.7% from 3.1% in July. Despite this, inflation has remained north of the BoJ’s 2.0% target since early 2022.

Japanese Stocks took a hit and the JPY strengthened following the BoJ’s rate announcement, with the two dissenting votes on rates signalling potential future increases and leading markets to price in higher chances of an October rate hike. However, the BoJ’s cautious stance on global trade policies suggests Governor Kazuo Ueda remains hesitant about immediate rate increases.

Trump-Xi Call

Finally, US President Donald Trump and Chinese President Xi Jinping are due to speak later today, their first conversation since June. I think the focus of the call will be on the TikTok framework agreement, as well as broader trade tensions, including Nvidia’s (NVDA) access to Chinese markets.

Ultimately, markets face diverging monetary policies, geopolitical tensions, and structural economic shifts. The Fed’s dovish stance underpins risk assets but at the same time raises inflation concerns, while global central banks navigate their own domestic pressures. The Trump-Xi call could also provide some direction for technology and trade-sensitive sectors.

Written by FP Markets Chief Market Analyst Aaron Hill