ORLANDO, Florida, Sept 9 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Stocks, the dollar, commodities and bond yields mostly rose

on Tuesday, but the moves lacked momentum and conviction as

investors digested record downward revisions to U.S. job growth

figures and looked ahead to U.S. inflation data later in the

week.

In my column today I look at next week's Fed meeting. If the

Fed cuts rates, as expected, it will be doing so with inflation

around 3%, notably above its 2% target. Lowering rates and

indicating there's more to come could be a signal 3% is the new

2%.

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. U.S. employment growth through March revised

sharply

lower

2. Anglo American, Teck Resources to merge in

second-largest mining deal ever

3. Europe could escape the bond 'doom loop'. The

U.S., not

so much: Klement

4. Will ECB be left holding central bank

'independence'

baton?: Dolan

5. Ishiba's departure gives BOJ pause for thought on

rate

hikes

Today's Key Market Moves

* STOCKS: Japan's Nikkei hits record high but closes

lower, MSCI Asia and MSCI EM hit 4-year highs, Europe flat, S&P

500 and Nasdaq notch record closing highs.

* SHARES/SECTORS: UK miners rise 2.7% on Anglo/Teck

deal,

shares in both surge; Fox Corp -6% on Murdoch secondary

offering; UnitedHealth +8.6% on Medicare enrollments. Oracle

surges 22% in after-hours trade on cloud revenue forecasts.

* FX: China's yuan hits 2025 high in spot market,

PBOC

fix. Indonesian rupiah -1%. U.S. dollar up broadly, gains most

vs Swissie in G10 space.

* BONDS: French/Italian 10y spread down to 2 bps,

narrowest since 1999. U.S. curve flattens for fifth day, bear

flattening this time.

* COMMODITIES: Gold hits new high of $3,674/oz. Now

up

more than $1,000 this year, almost 40%.

Today's Talking Points:

* Revisions or revisionism?

The number of new U.S. jobs created in the year through

March was almost a million lower than originally estimated,

Bureau of Labor Statistics annual benchmark revision showed on

Tuesday. That was the largest downward revision on record.

But what, if anything, does that mean for Fed policy? One

might have thought it would strengthen bets for a 50 basis point

rate cut next week. But that probability actually shrank a bit,

around 5 bps of easing was taken out of the 2026 curve, and the

dollar strengthened. Buy the rumor, sell the fact?

* I Me Miners

Anglo American and Teck Resources are to merge in a $53

billion deal, marking the second-biggest mining M&A deal ever

and creating the world's fifth-biggest copper company. Investors

in both firms liked it - Anglo shares rose 9% and Teck shares

leaped 11%.

Dealmaking activity has increased a lot this year. Global

M&A hit $2.6 trillion in the first seven months of the year, the

highest since 2021, and Morgan Stanley analysts reckon tight

spreads, easy financial conditions, and a Fed willing to let the

economy "run hot" will keep that going.

* Inflation

Inflation is always a talking point, but the next few

days will give a good snapshot of what the global landscape

looks like - consumer price data from Brazil, India and China,

and producer prices from Mexico, China and the U.S. are all due

out by Friday.

Then there's the big one on Thursday, the U.S. CPI inflation

report for August. Consensus forecasts of 2.9% headline and 3.1%

core annual rates, respectively, aren't expected to stop the Fed

from cutting interest rates next week. But upside surprises

could make that decision a lot less straightforward.

Fed rate cut now signals 3% inflation is the new 2%

The Federal Reserve is widely expected to cut interest rates

next week even though inflation is still around 3%, a full

percentage point above the official goal. This raises an

uncomfortable question: is the central bank's 2% inflation

target still viable?

Data on Thursday is expected to show that annual core CPI

inflation held steady in August at 3.1%. Annual core PCE

inflation, the Fed's preferred measure, was 2.9% in July.

Easing policy with inflation at this level would be a rare

step.

Of course, the Fed cut rates late last year when core CPI

was even higher at around 3.3%, though that move drew fire

because unemployment didn't rise as Fed officials had warned and

long-dated yields rose.

If you want to find the last time before this cycle that the

central bank eased policy with core PCE inflation at 3%, you

have to go all the way back to the early 1990s, before the Fed

unofficially adopted its 2% target.

That's a long time ago, when the economy was in a very

different place. The internet as we know it barely existed,

there were no smartphones, and 'apps' was the abbreviation for

'appearances' in soccer players' stats.

So the prospect of the Fed easing policy for the second time

in a year with core inflation at 3% is a big deal - and may be

yet another sign that the economic orthodoxy of recent decades

is being tested or trashed. Take your pick.

UNORTHODOX

Inflation hawks fear it's the latter. The federal

government's debt and deficit are at record levels for

non-crisis, peacetime, and there are fears that long bond yields

could start climbing again.

But markets don't seem too worried.

To be sure, inflation fears are reflected in some asset

prices, not least gold, which is up nearly 40% this year,

printing record highs on a near daily basis.

But look around, and it's difficult to argue that financial

markets are overly worried about the potential loosening of the

Fed's 2% target.

Indeed, the 2s/30s yield curve may have steepened around 70

basis points this year to a four-year high of 134 bps last week,

but the 30-year yield is actually down slightly this year.

Meanwhile, U.S. corporate bond spreads are at historic

tights, and Wall Street continues to hit record highs.

Of course, equity markets have historically tended to sizzle

as inflation has heated up, though usually not for long and

certainly not once consumer inflation expectations become

unanchored. We're not there yet, but we are at an interesting

juncture.

HIGH EXPECTATIONS

Academic research suggests consumers are among the least

accurate forecasters when it comes to inflation, but

policymakers have long been loath to dismiss them. And right

now, 2% is not on consumers' inflation horizon.

A New York Fed survey on Monday showed consumers' one-year

outlook rose to 3.2% in August from 3.1% in July, while the

three- and five-year forecasts were unchanged at 3% and 2.9%,

respectively. The University of Michigan's latest one- and

five-year forecasts are 4.8% and 3.5%.

So perhaps 3% is starting to become the new 2%.

U.S. President Donald Trump would certainly seem to support

this, given his apparent desire to run the economy hot. And the

Fed looks set to shrug off inflation risks - and ease in a 3%

environment - for the second time in a year.

Is this a misstep by the Fed, or even policy error? Not

necessarily.

'HYSTERIA AND DELIRIUM'

Retired strategist Jim Paulsen questions the "constant

hysteria" around inflation exceeding the Fed's target. To get

some perspective on this "2% target delirium," Paulsen notes

that annual headline CPI has averaged 2.9% over the last two

years and is currently only 2.7%. Price stability, anyone?

He also points out that from 1992 to 1999, a period often

viewed as "economic nirvana," headline CPI averaged 2.6%.

"It's time to retire the 2% inflation target. We have always

put smart, street-savvy, driven, and economically war-tested

individuals on the FOMC. Let's let them use their venerable

judgments to do their job without tying their hands to some

random target which has never been well tested," Paulsen wrote

on Monday.

A 3% inflation print on Thursday followed by a rate cut next

week might suggest we are heading in that direction.

What could move markets tomorrow?

* Australia consumer sentiment (September)

* Japan tankan index, manufacturing (September)

* China CPI and PPI inflation (August)

* European Central Bank board member Claudia Buch speaks

* Brazil inflation (August)

* U.S. producer price inflation (August)

* U.S. Treasury auctions $39 billion of 10-year notes

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