No payrolls, no problem as Wall Street extends run of highs

Global equity markets are rallying to record highs, led by tech shares and expectations of imminent U.S. interest rate cuts, with investors largely shrugging off the U.S. government shutdown despite missing payroll data. Markets are pricing in a 25-basis-point Fed rate cut this month, while strong Eurozone services PMIs also support sentiment. Concurrently, the dollar is experiencing its largest weekly drop since August, gold has surged to a new record of $3,896 per ounce, up 47% year-to-date on safe-haven demand, and oil prices are set for their steepest weekly decline in over three months.

Analysis

Global equity markets are exhibiting significant strength, with the MSCI world index achieving record highs on a 2.7% weekly gain, driven by sustained enthusiasm for AI-related technology stocks and broad expectations of a U.S. Federal Reserve interest rate cut. Markets are almost fully pricing in a 25-basis-point reduction this month, a sentiment solidified by the absence of U.S. payrolls data due to a government shutdown, which investors are largely disregarding. This risk-on mood in equities is contrasted by significant divergence in other asset classes. The U.S. dollar is poised for its largest weekly drop since August, fueling a surge in gold to a new record of $3,896 per ounce, representing a 47% year-to-date gain and its seventh consecutive week of increases. This highlights gold's role as a primary safe-haven asset amid concerns over the dollar's status. Concurrently, oil prices are set for their steepest weekly decline in over three months, with Brent at $64.39, potentially signaling underlying concerns about global economic demand not yet priced into equities.

Key Decisions for Investors

• Given the strong momentum driven by AI enthusiasm and rate-cut expectations, investors may consider maintaining exposure to global equities, particularly in the technology sector, while recognizing the rally's dependence on the Fed's anticipated policy easing.
• The simultaneous rally in equities and gold, coupled with a weakening dollar, signals a complex environment; utilizing gold as a portfolio hedge against potential equity volatility and further dollar depreciation appears prudent.
• Investors should closely monitor upcoming U.S. economic data, such as the non-manufacturing PMI, as any unexpected economic strength could challenge the dominant rate-cut narrative and pose a significant risk to the current market rally.