From the studio

Podcast: Investors Club: Views on USD and gold ahead of US labor data
Video: CIO's Wayne Gordon on the gold rally (2 min)
Video: Equity opportunities in a rate-cut environment (8 min)

Thought of the day

US equities reached a new record high on Thursday, buoyed by positive fundamental news and growing confidence that the Federal Reserve will resume its rate-cutting cycle at the conclusion of its policy meeting on 17 September. Today, the market’s focus turns to the US employment report, one of the last major data hurdles before the Fed’s decision. Consensus expectations are for a modest 78,000 job gain on the nonfarm payrolls for August and a slight increase in the unemployment rate to 4.3%.

This follows a robust summer stock rally, with value and cyclical stocks catching up with tech shares, partially in anticipation of lower rates. At the same time, markets remain sensitive to the potential for sharp labor data revisions, with the annual benchmark adjustment in particular due next week.

But while the Fed has made clear it remains data dependent, we see several factors supporting a series of rate cuts beginning this month:

Ahead of the nonfarm payroll release, labor market data continues to soften. Recent releases show jobless claims at a 10-week high and August private payroll growth well below expectations, reinforcing the trend of weakening labor demand seen in July’s JOLTS release and the Fed’s Beige Book. While unemployment remains low, rising layoffs and subdued hiring are mounting risks, with seven of 12 Fed districts reporting firms’ hesitancy to hire amid weaker demand and uncertainty. ADP reported just 54,000 private-sector payroll gains in August, while wage growth for job-stayers eased and planned hiring hit a record low, underscoring persistent labor market uncertainty.

The US inflation backdrop appears manageable. US inflation data show that while some price pressures persist, especially in services, cooling energy prices and steady goods inflation are helping contain broader price growth. We expect next week’s inflation report to show only a modest rise from the prior 2.7% pace, below the 3% threshold we think would draw more real concern. We expect core inflation to trend gradually higher as businesses adjust to increased costs, but slowing shelter inflation and consumer resistance to higher prices should help offset upward pressure.

Fed commentary continues to show momentum for rate cuts. Following Chair Powell's dovish pivot at Jackson Hole, Fed officials have become more vocal in recent weeks in supporting rate cuts. New York Fed President Williams this week noted scope for gradual easing if unemployment rises and inflation moderates, while Governor Waller explicitly called for a cut at the next meeting, warning that labor market deterioration can accelerate quickly. Atlanta Fed’s Bostic and Minneapolis Fed’s Kashkari have also indicated room for further policy easing.

So we think that if the labor market weakens as expected, there is little to prevent the Fed from cutting rates at this month’s meeting, likely kick-starting a run of 100bps in reductions over the next four meetings, from September to January 2026. While we think a stronger-than-expected payrolls print would raise some uncertainty around a September reduction, a downside surprise on jobs would likely prompt the market to price in even more easing over the next 6-12 months. Against this backdrop, we continue to recommend high-quality fixed income, where investors can lock in yields above those available on cash and benefit from potential capital gains if policy becomes more accommodative. Diversifying with select medium-tenor corporate bonds can help buffer portfolios against volatility in riskier assets.

We anticipate gold will also benefit from lower real rates and ongoing geopolitical risks, and we continue to target USD 3,700/oz by end-June 2026. For equity investors, Fed rate cuts should further support cyclical sectors and earnings expansion, helping the S&P 500 reach our year-end target of 6,600.