Closing Recap

U.S. stocks finished broadly lower in a quiet session, pulling back from record highs as investors digested a slew of mixed economic data and cautious commentary from Federal Reserve officials; the dollar firmed, gold plunged on overbought conditions and profit-taking, while Treasury yields were little changed. In the currency markets, the U.S. dollar firmed as Fed officials struck a cautious tone, pushing the EUR/USD pair down near 1.1730, while the British Pound remained vulnerable on UK fiscal concerns and the Japanese Yen drifted amid domestic political uncertainty.

Key Takeaways 

• Stocks Drift Lower for Second Day: U.S. equities saw a second consecutive day of modest declines, with small caps underperforming as the market consolidates after its recent record run. 
• Dollar Rallies on Strong Housing Data: The U.S. Dollar erased early week losses and rallied strongly after a stunning report showed New Home Sales surged over 20% in August, crushing expectations. 
• All Eyes on U.S. Jobless Claims: With the Fed’s recent rate cut explicitly tied to labor market weakness, today’s weekly Jobless Claims report is the most critical economic data point of the week. 
• Gold Pulls Back Sharply from Highs: Gold experienced its first significant pullback after a spectacular run, dropping over 1.2% as the resurgent U.S. dollar and overbought conditions prompted profit-taking. 
• Major Currencies Pressured by Dollar: The Greenback’s strength sent EUR/USD tumbling below 1.1750 and pushed GBP/USD toward 1.3450. USD/JPY surged to its highest level in three weeks. 
• Crude Oil Surges on Inventory Draw: Oil prices bucked the trend, rallying nearly 2.5% after a surprise drawdown in U.S. crude inventories and renewed concerns over Russian supply. 
• Bitcoin Remains Weak, Drops Below $112k: The cryptocurrency continued its slide, falling below $112,000 as investors remain cautious ahead of key U.S. economic data.

Market Review

U.S. equity markets saw a second day of listless trading and modest declines on Wednesday. After a brief attempt to rally at the open, stocks trended sideways for most of the session before succumbing to selling pressure in the afternoon. There were no specific catalysts driving the action; rather, it appeared to be a day of consolidation and light profit-taking after a powerful rally that has seen the S&P 500 go 107 sessions without a 2% drop. 

Index	Last	Change	% Change
S&P 500	6637	-18.95	-0.0028
Nasdaq	22497	-75.62	-0.0033
Dow Jones	46121	-171.5	-0.0037
Russell 2000	2434	-22.53	-0.0092

The market’s “Fear & Greed” index remains firmly in “Greed” territory, and data shows that both retail and institutional investors have historically low cash allocations, suggesting many are fully invested and waiting for the next move. Small caps, as measured by the Russell 2000, were the notable underperformers on the day, falling nearly 1%. With the market having already priced in significant Fed easing, investors appear to be in a consolidation phase, awaiting the next major catalyst. That catalyst will likely be key inflation and jobs data in the coming weeks. Gold prices saw a sharp pullback on profit-taking, while oil prices were little changed. The U.S. dollar firmed, and Treasury yields were steady.

The Asian session saw the U.S. Dollar Index ease slightly from its highs as traders positioned themselves ahead of a busy U.S. data slate. Consumer confidence reports from Europe were stable, with Germany’s GfK reading showing a slight bounce and France’s remaining unchanged. These releases had little market impact, with all eyes firmly on the upcoming U.S. session for direction.

Economic Calendar

The economic calendar yesterday was dominated by a single, stunning data point from the U.S. housing market. 

• U.S. New Home Sales (Aug): Soared by an incredible +20.5% month-over-month, reaching an 800K annualized pace. This was far above the 650K estimate and suggests the housing sector is responding strongly to lower mortgage rates.

The economic calendar is packed today, with the focus squarely on the U.S. labor market. 

• 07:30 GMT – SNB Policy Rate Decision (Expected: Hold, non-event). 
• 12:30 GMT – US Weekly Jobless Claims (Initial Claims exp: 235K, prior: 231K). 
• 12:30 GMT – US Final Q2 GDP & Durable Goods Orders. Fed Speakers: A heavy slate of speakers today, with Fed’s Williams (13:00 GMT) being the most influential.

Commodities, Treasuries and Currencies

In the currency markets, the U.S. dollar firmed, with the DXY dollar index rising as Powell’s cautious remarks tempered aggressive rate cut bets. The U.S. Dollar was the main story, staging an incredible rally that erased all its early-week losses. The move was fueled by the blowout U.S. housing data. This strength sent GBP/USD tumbling towards the 1.3450 handle and pushed EUR/USD down through 1.1750. The USD/JPY pair was a major beneficiary, surging to a three-week high near 148.80 as the wide interest rate differential between the U.S. and Japan came back into focus. The pair is probing a key resistance level around 148.80 after breaking out of a two-month range. Today’s U.S. data will be critical in determining if this is a valid breakout or another fakeout.

Asset	Change	Unit	Last
WTI Crude	1.58	USD/bbl	64.99
Brent	1.68	USD/bbl	69.31
Gold	-47.6	USD/oz	3768.1
EUR/USD	-0.0081	USD	1.1733
USD/JPY	1.23	JPY	148.85
US 10-Yr Yield	+3.0 bps	%	0.04148

After its record-setting run, Gold finally succumbed to profit-taking, falling $47.60, or 1.25%, as the stronger dollar and overbought conditions weighed on the precious metal. In stark contrast, WTI Crude Oil rallied sharply, gaining nearly 2.5% to settle at $64.99 per barrel. The move was supported by a surprise weekly inventory report showing a drawdown in crude stocks, versus an anticipated build. 

U.S. Treasury yields were little changed, with the 10-year yield hovering around 4.148%, as the bond market remained in a holding pattern ahead of key U.S. data tomorrow. The digital asset space continued to show weakness. Bitcoin fell below $112,000 as investors remain wary following this week’s large-scale liquidations, with attention now turning to the upcoming U.S. economic reports.

Looking Ahead 

The market’s main focus will now shift to Friday’s release of the pivotal Personal Consumption Expenditures (PCE) Price Index for August. This is the Fed’s preferred inflation gauge and will be the final major input for the market before the September 30th government funding deadline, which is also emerging as a potential source of volatility. Earnings season is largely complete, but any remaining reports will be watched for corporate guidance. Large EUR/USD options expiries are layered between 1.1700 and 1.1800, with the biggest cluster at the top end ($3.4B). This could act as a powerful magnet, potentially keeping the pair range-bound until the U.S. data provides a catalyst for a breakout.