While US inflation continues to climb, elevated jobless claims are capturing more attention in the markets. Expectations for three rate cuts from the Federal Reserve this year are strengthening. The ECB held rates steady at 2% as anticipated. The Nikkei and KOSPI set new all-time highs, following Wall Street's lead. Oil prices stabilized, gaining more than $1 per barrel.

Global markets hit new records

On Thursday, the MSCI World Equity Index reached a historic peak. Meanwhile, US Treasury yields and the dollar fell on the back of expectations for imminent monetary easing. Weaker-than-expected labor market data outweighed concerns over higher inflation.

Inflation accelerates

August saw a marked uptick in consumer prices, with CPI rising 0.4% after a 0.2% gain in July—the fastest pace in seven months. The main drivers were a 0.4% increase in housing costs and a 0.5% rise in food prices. The cost of food at home jumped even higher, up 0.6%.

Rate cut expectations

Financial markets are now virtually certain the Fed will cut rates at its next meeting. The chance of a 0.25 percentage point reduction is priced at 100%, with only a 5% chance of a more aggressive 0.5-point move. Odds of an additional cut in October have jumped to 86% from 74% the previous day. The probability of another reduction in December has increased to 79% from 68%.

Wall Street sets new records

All three major US equity benchmarks closed at all-time highs:

• Dow Jones Industrial Average: +617.08 points (+1.36%) to 46,108.00
• S&P 500: +55.43 points (+0.85%) to 6,587.47
• Nasdaq Composite: +157.01 points (+0.72%) to 22,043.08

MSCI hits new high

The MSCI World Equity Index climbed 6.92 points, or 0.72%, to 971.72—the second straight day the indicator set a new record.

Europe awaits further direction

The STOXX 600 in Europe finished up 0.6%. The European Central Bank, as expected, left its key rate at 2% and lowered its inflation forecast. However, there was no clear guidance on the regulator's next steps. Investors continue to look for more stimulus. Futures for the Euro Stoxx 50, FTSE, and DAX each rose 0.2%.

Currency market swings

The dollar index slipped 0.28% to 97.51. On the back of this, the euro gained 0.38% to 1.1738. The US dollar also slipped 0.21% against the yen to 147.15. The British pound gained 0.37% to 1.3579. Among emerging currencies, the Mexican peso rose 0.74% to 18.455 per dollar, and the Canadian dollar edged up 0.21% to 1.38 per US dollar.

Asia rides rally

On Friday, Asian equities took their cues from Wall Street. Traders are betting on rapid Fed rate cuts, which would lower global borrowing costs, boost bond markets, and ease the pressure from a strong dollar.

Asian exchange leaders

Stock indexes in Japan, South Korea, and Taiwan came close to all-time highs. China's equity market reached its highest in three and a half years, buoyed by expectations for stronger corporate earnings among AI-related firms.

Nikkei sets new record

Japan's Nikkei rose 1.0% to a new all-time high, with a 4.1% rally over the week. South Korea's KOSPI posted an even larger gain—up 1.3% on the day and nearly 6% for the week.

Chinese shares stabilize

China's CSI300 blue-chip index held steady at its highest level since early 2022. The broader MSCI Asia Pacific Index ex-Japan climbed 1.2%.

Currency movements persist

The dollar eased back to 147.40 yen, after briefly rising to 148.20 in the previous session. U.S. and Japanese financial officials reiterated that neither country will target exchange rates directly in policy decisions. The euro traded near 1.1728, supported by ECB comments confirming rates and a strong commitment to its current policy stance.

ECB policy in focus

Futures suggest only a 20% chance of an ECB rate cut in December, with around 60% of market participants convinced the central bank is nearing the end of its current cycle.

Oil under pressure

Oil prices snapped a three-day winning streak, falling by more than $1. Markets are concerned about weaker US demand and signs of oversupply, which outweigh risks of Middle East disruptions.

WTI crude retreated 2.04%, or $1.30, to $62.37 a barrel. Brent crude dropped 1.66%, or $1.12, closing at $66.37 a barrel.

Gold pulls back from records

After notching all-time highs earlier in the week, spot gold eased 0.13% to $3,635.83 an ounce. US gold futures fell 0.19% to $3,636.50.