After economic concerns triggered a sharp decline in US stocks last week, a new wave of buying at low levels stimulated a rebound in the stock market. Wall Street has gradually stabilized after a series of "terrifying" data last Monday. Looking ahead to this week, traders are closely watching the US inflation data to find clues about the scale of Fed interest rate cuts. In addition, the first presidential debate between Harris and Trump on Tuesday evening also attracted the attention of many industry insiders.

According to market data, the US stock market generally rose overnight, with all 11 sectors of the S&P 500 index higher, pushing the large cap index up by 1.2%. Non-essential consumer goods, industry, technology, and finance were the best-performing sectors of the S&P 500 index that day, with gains generally exceeding 1.4%. This rebound is in stark contrast to the previous week.

According to data from Bespoke Investment Group dating back to 1953, last week was the worst September start for US stocks in history. The S&P 500 index fell more than 4% under the impact of a series of weak macroeconomic data, as concerns about an economic recession quickly intensified in the industry. However, after a weekend, people's emotions seemed to stabilize on Monday.

"Investors had some time to think over the weekend. It's clear that there was an overreaction to last week's economic data, which sparked excessive concerns about a potential economic downturn," said Kristina Hooper, Chief Global Market Strategist at Invesco. "Taking a pause can give people a chance to be more rational."

Tom Essaye, the founder of Sevens Report Research, pointed out, "What we saw on Monday was mainly technical buying at low levels. Economic growth is undoubtedly losing momentum, but a soft landing is still more likely than a hard landing. The focus will shift back to inflation data this week."

Overall, while US stocks rebounded sharply on Monday, the trend in US bonds was relatively mild. The yield on 10-year US Treasury bonds, known as the anchor of global asset pricing, remained relatively unchanged throughout the day, hovering around 3.70%, and the volatility of yields on other maturities was within 2 basis points. The overall bond prices did not continue the upward trend from last week.

Tom di Galoma, Head of Fixed Income Trading at Curvature Securities, said, "The reality is that the market's reaction to lower yields last Friday was somewhat exaggerated, so there was a suitable window for profit-taking at higher price levels."

He added that investors were also cautious before this week's three, 10, and 30-year Treasury bond auctions, and as the issuers attempted to take advantage of the lower yield, a large supply of corporate bonds is expected.

The US Federal Reserve Observation Tool at the Chicago Mercantile Exchange shows that as of Monday, interest rate market traders expect a 71% probability of a 25 basis point rate cut by the Federal Reserve next week, with a 29% probability of a 50 basis point cut.

Around the first rate cut, it is expected that there may still be some financial market volatility for the rest of this week. Investors need to closely watch the US August CPI data to further clarify the pace of inflation slowing in the economy when it is released on Wednesday.

According to a survey of economists, the median forecast for the US August CPI is expected to rise by 2.6% year-on-year, a significant drop from the previous month's 2.9%, making it the smallest year-on-year increase in US CPI data since 2021. Federal Reserve officials are currently in a traditional quiet period before the September 17-18 policy meeting, so there will be no new guidance.

"Inflation is very important," said Chris Low, Chief Economist at FHN Financial. "Lower data may encourage the Federal Reserve to cut rates by 50 basis points, while higher data may lock in a 25 basis point rate cut. At present, even if inflation is benign, some participants will push for a larger rate cut. Currently, we expect the Federal Reserve's first step to still be a 25 basis point rate cut, but if the data supports a faster rate reduction, the Federal Reserve may choose a larger rate cut in later meetings."

In addition to CPI data, the US presidential debate between Democratic candidate Harris and Republican candidate Trump on Tuesday is also expected to cause some degree of market price volatility.

Industry insiders expect that Harris' victory will benefit a range of industries, including renewable energy companies, electric car manufacturers, and even utility companies. Oil, natural gas, and traditional energy companies are expected to be seen as potential beneficiaries if Trump wins. In addition, defense stocks and crypto stocks may also perform better in the event of a Trump victory.

For the September risk-events cloud, Konstantinos Venetis, International Macro Research Manager at TS Lombard, says that economic slowdown does not necessarily mean recession, and stock market corrections are not necessarily a harbinger of a bear market. However, the increasing macro (economic growth) and political (US elections) uncertainty is increasingly pushing the responsibility for "proving (the rationality of the rise)" onto the bulls.

According to the large brokerage report by Goldman Sachs Group as of the week of September 6th, global stock markets have seen net selling for the eighth consecutive week, with North American markets leading the way. Overall, this trend began in May, when funds began to offload in order to have more cash on hand to deal with potential volatility before and after the US presidential election.

The Citigroup team led by Chris Montagu pointed out that the substantial unwinding of long positions and increase in short positions in the S&P 500 index indicate a more pronounced bearish bias in market risk appetite. They also mentioned the deleveraging of hedge funds in the index, simultaneously closing long and short positions, reducing the overall risk exposure to half of the mid-July peak. This indicates that market participants are losing confidence in future trends and may become more cautious.

Editor/Somer