How soon? Probably in September? By how much? Probably a reasonable 25bp? Would the markets be upset with the idea of a 25bp cut instead of a 50bp? Probably not, because a 50bp cut would require a severe economic slowdown, a crisis or a panic mode, which is not good for risk appetite. Therefore, the best of both worlds would be the hint of a 25bp cut that would keep the market mood in the sweet soft-landing spot. And this is what investors hope to hear.

And that hope has pushed the S&P500 up for the 8th straight session on Monday. The index added another 1% yesterday and is now just 1% below its ATH level. Nasdaq 100 jumped 1.30% and above its 50-DMA for the first time in almost more than a month. Roundhill’s Magnificent 7 ETF advanced more than 1.60% while the Russell 2000 gained 1.20%.

In summary, both the Big Tech and small companies in the US gained with the thought of an approaching rate cut in the US. Even the energy stocks had a good session despite a heavy selloff in crude oil, which was triggered by the news that Israel accepted a ceasefire proposal in Gaza if Gaza says yes. US crude fell more than 2.5% to below $75pb yesterday and remains under pressure this morning but could – once the geopolitical factors are priced in – see the support of the Fed optimism and rebound back to $78/80pb range.

Zooming out, what I want to say is that both the big and small stocks gained yesterday, and the S&P500’s equal-weighted index neared an ATH level as the market rally of today isn’t boosted by AI – but by the Fed expectations – and the latter benefit to other sectors than only the ones that see the direct benefits of AI investments.

AMD steps up efforts to offer something more than just... chips

AMD announced to buy ZT Systems to increase ‘its capabilities and expertise to optimise solutions at the systems, rack and the data center levels’ because customers no longer want only chips, but it want ready-to-use AI solutions - a thing that Nvidia does better than the rivals with its ecosystem and the others should improve at. AMD plans to sell ZT System’s data center infrastructure manufacturing unit and keep its system-design business and hope to compete with Nvidia in offering fast and at-scale AI solutions. AMD jumped 4.5%.

The news didn’t tame appetite for Nvidia, which also rallied  more than 4% and closed the session at $130 per share. Even Intel gained yesterday.

Overall, the chipmakers are doing better now than a month ago, but the Fed optimism should enhance rotation toward the non-tech pockets of the market that were left behind over the past year-and-a-half and provide only a limited upside potential to the Big Tech.

Elsewhere

The European Stoxx 600 also opened the ween on a positive note and jumped above the 50 and  100-DMA, and the Japanese Nikkei 225 is better bid today after a moody Monday on a yen rebound. I expect the market mood to remain mainly optimistic into the Jackson Hole meeting with no major data points to hamper optimism. We will have a glance on the European and Canadian inflation numbers today, FOMC minutes tomorrow and flash manufacturing numbers for August on Thursday. I guess that the US weekly jobless claims will also be watched more seriously than usual, but all in all there should be nothing major to change the week’s focus until the Powell speaks.

The US dollar remains weak – too weak – into that speech, the EURUSD consolidates gains near 1.1080 before today’s CPI read and Cable tests the 1.30 offers supported by relatively strong fundamentals. The UK has been the best performing economy among major peers in the first half of the year.

Despite political shenanigans, the Brexit pain and the cost-of-living crisis, the British economy grew more than its major peers in the first two quarters of the year – even better than the US. Germany has ranked at the bottom of the range after France and Italy. And the surprisingly good performance of the British economy keeps the Bank of England (BoE) doves more contained than their Fed peers, and gives support to the pound against the greenback.

But again, I still think that the US dollar’s weakness has gone a bit too far and we shall see some downside correction before an eventual rise above the 1.30 mark. If nothing, the US economy is doing better than most peers and that alone should give the Fed doves less reason to believe that the Fed will cut more than the peers in the coming months.

Still in the UK, while the British economy and Cable outperformed peers over the past months, the British blue-chip index, the FTSE 100 – which is more concerned about the global economic health than the UK’s own matters due to its high exposure to energy – didn’t do better than the others. But the energy-heavy index should continue to see the benefits of reflation flows, if the rate cuts start while we are still in the soft-landing zone.