Markets kick off the week in pretty buoyant fashion, as the round trip from a huge one-day volatility event a few weeks ago seems to be firmly stuck in the history books. Recent US data, from retail sales to initial jobless claims, was firmer last week while CPI was in line, which helped push global stocks to their strongest weekly run in nine months, as the VIX continued to slide. Accordingly, jumbo-sized Fed rate cuts have been priced out with the base case now being a 25bps rate cut in September.

The certainty of the FOMC starting their policy easing next month will likely be rubber-stamped by Fed Chair Powell at the Jackson Hole symposium. This is an annual gathering of global central bankers and offers the chance to give an updated assessment of the US economic trajectory and outlook for monetary policy. Last month, Powell said if inflation and the labour market continue to cool, a rate cut would be on the table at the Fed’s next meeting.

The US economy certainly isn’t falling off a cliff as some intimated a few weeks ago, so restrictive policy can be reined in with inflation behaving and now much closer to the FOMC’s 2% target. The Fed doesn’t want to cause a recession, with a soft landing seemingly close at hand. Powell will likely stress the importance of the payrolls report in early September as a guide to determining the size of the rate cut.

Money markets now price in less than 100bps of rate cuts for this year, across just three meetings in September November and December. Less than two weeks ago, recession fears had investors betting on over 125bps. There is currently a 25% chance of a 50bp cut next month. The dollar looks weak as it fell for a fourth straight week and is near to the spike low from earlier in August at 102.16. This has helped gold hit fresh record highs above $2500 and the break north looks good for more upside as bullion closed on its weekly highs.