Anyway, one thing that stood out in that report was the group’s projections for the UK. The OECD said that the UK economy will grow more this year and next year than previously forecasted and print the best performance among the group of G7 economies, after the US, and that despite a sticky inflation. And the UK’s sticky inflation is one more reason to believe that the Bank of England (BoE) will keep the pace of its rate cuts slower than its major peers.

Both improved prospects and cautious BoE stance are supportive of the pound sterling. Cable traded past the 1.34 yesterday, at the highest levels since spring 2022, and the EURGBP trends understandably lower with the diverging fortunes and outlook for the UK and the European economies – especially with Germany that’s under pressure and that ‘must carry out reforms’ according to the OECD.

The only thing that could get on the way of the sterling bulls is the upcoming Autumn Budget which could pour some cold water on enthusiasm that the new Labour leadership will strengthen the back of the UK’s shattered economy post-Brexit, pandemic and energy crisis. The government needs money to boost spending and growth, but the finances are not in a good shape.

Oil bulls nowhere to be found

The upbeat outlook from the OECD, the rising tensions in the Middle East, the 4.5-mio barrel dive in US oil inventories last week (that pushed the US oil inventories to the lowest levels in 2.5 years) and the big stimulus measures from China did little to cheer oil investors up. US crude slipped below the $70pb again, and remains under a visible selling pressure this morning. Investors continue to trim their net speculative long positions in crude despite price supportive factors. Inability to pull out the $70/72pb offers this week increases the chances of a fresh attempt on the $65pb level in the coming weeks.

US GDP in focus

Stock markets weren’t in a particularly bullish mood yesterday. Investors preferred moving to the sidelines and leave the S&P500 and Nasdaq hang near their ATH levels before today’s GDP print from the US and tomorrow’s core PCE read. The US economy is expected to have grown by 3% in Q2 – and Atlanta Fed’s GDPNow Forecast now suggests that growth may have remained robust near that level in Q3.

A robust growth data is good for those who bet that the Federal Reserve (Fed) will achieve the soft-landing that it dreams of. But it will also make investors think twice about their expectation for the next Fed meetings. Activity on Fed funds futures currently assesses more than a 60% chance for a second 50bp cut from the Fed in November… and there is nothing – in the economic data – that would justify such move besides greed.

Therefore, a sufficiently strong GDP read has the potential to bring the bulls back to the market and send the US stock markets to fresh highs, but too much strength in the economic data should – at some point – encourage a scaling back of the Fed expectations and lead to consolidation and maybe – but just maybe – a minor downside correction in the stock markets.

But for now, the bulls have undeniably a stronger grip on the market. Nasdaq futures are up this morning on the back of surprisingly strong sales and profit forecasts from Micron Technology thanks to AI demand. Shares surged  nearly 15% in the afterhours trading, and the post-earnings rally should help Micron return above its 200-DMA and eventually secure a floor near the $100 per share.

Zooming out, the AI fatigue gives signs of dissipating, as the Fed boost gives AI stocks fresh room to breathe, as part of a broader boost to risk appetite. Nvidia extends gains with joy above the 50-DMA, while Vaneck’s Semiconductor ETF held ground near its 200-DMA and is drilling above its 100-DMA this week.

Dollar’s misfortune

The US dollar rebounded yesterday against most majors, but the outlook remains negative for the greenback as the Fed’s major peers keep a cautious dovish bias as inflation eases, without however feeling the urge to boost their economies before making sure that inflation goes into a deeper sleep. The EURUSD retreated after testing levels above the 1.12 resistance. The USDJPY is flirting with the 145 level, and the USDCHF consolidates a touch below the 0.85 level before the Swiss National Bank (SNB) decision this morning.

The SNB will probably cut its rates by 25bp. But the latter will hardly encourage the franc bulls to reverse course. The USDCHF is expected to consolidate and see a minor rebound in the short run with the expectation that the market and the Fed will come back to their senses regarding their overly dovish policy outlook, but in fine, the broadly negative dollar outlook – which is also due to the exploding US debt – is expected to keep the franc, other majors and gold well supported against the greenback.