US equities surged, with the S&P 500 posting a 1.06% gain—its best day in nearly a month and bringing it within 1% of its record high—following dovish remarks from Federal Reserve Governor Christopher Waller, which offset stronger-than-expected US economic data [1][2]. The rally was led by the 'Magnificent 7' stocks, which climbed 2.38% to a three-month high, and was broad-based, as more than two-thirds of S&P 500 constituents advanced [1]. The Dow Jones rose 1.18% and the Nasdaq Composite gained 1.4%, marking a second consecutive day of gains for all three major indices [2]. European markets also stabilized, with the STOXX 600 up 0.49%, DAX up 0.63%, CAC 40 up 0.07%, and FTSE 100 up 0.70% [1]. Asian markets followed suit, with the Hang Seng up 2.12%, KOSPI up 1.88%, and Nikkei up 1.30%, while Australia's S&P/ASX 200 bucked the trend, falling 0.21% [1].
The positive sentiment was attributed to Waller's indication that he would support keeping rates unchanged at the September FOMC meeting if August inflation data shows continued moderation, but he left the door open for a hike should inflation surprise to the upside [3][4]. Following his comments, market-implied probabilities for a September rate hike dropped to about 50.2%, down from 63.2% the previous day [3][4]. The US Dollar Index (DXY) held steady near 99.00, with the dollar weakening slightly after Waller's remarks [3][4]. US Treasury yields initially declined but ended the day unchanged, as the bond market reaction was more muted compared to equities [2][3][4].
Market participants are now focused on the upcoming US Nonfarm Payrolls (NFP) report, with consensus expectations for a 56,000 job increase and an unchanged unemployment rate at 4.1% [2][3][4]. Danske Bank expects a slightly higher payroll gain of 65,000 and average hourly earnings to rise 0.3% month-over-month [4]. The ISM services index for August came in stronger than expected at 55.4 (consensus: 54.2), indicating solid momentum in the services sector, though the employment sub-index remained in contractionary territory [4].
Analysts at Deutsche Bank and Danske Bank emphasize that the Fed's outlook remains highly data-dependent, with the upcoming inflation and jobs data likely to be decisive for the September policy decision [1][2][4]. The FXS Fed Sentiment Index fell by 2.06 points to 125.38, reflecting a pullback in perceived hawkishness, though the overall stance remains above neutral [3].
CONCLUSION
US equities rallied strongly as dovish signals from Fed Governor Waller boosted risk appetite, even as markets await critical jobs and inflation data. The Fed's next move remains data-dependent, with the probability of a September rate hike now seen as a coin toss. Investors are closely watching upcoming economic releases, which could further sway both equity and currency markets.