Odd couple: Surging stocks and gold

Finance and MarketsUsually alternatives, stocks, and gold are rising together as investors seek to ride an inflationary expansion by taking on AI-driven corporate risk while adding gold to portfolios as a hedge against loosening monetary and fiscal policy worldwide. Monday’s brief stumble on Wall Street appears to have been just that, with both U.S. futures and European stocks rallying on Wednesday. The STOXX 600 and FTSE 100 hit new records, while French markets staged a recovery amid signs of progress in the government’s impasse. Gold also surged again after topping \$4,000 per ounce for the first time on Tuesday.If rising stocks and gold seemed like an odd couple, they were joined by the equally peculiar sight of a rising dollar. The dollar index (DXY) hit a near two-month high as Japan’s yen plunged again, falling close to 153 per dollar on this week’s leadership change in Tokyo — its weakest level since February. With no progress on re-opening the U.S. government, investor focus remains on the Federal Reserve’s signals, with minutes from last month’s rate-cut meeting and a long list of Fed speakers on Wednesday’s agenda.On Tuesday, new Fed board member Stephen Miran — who favors aggressive cuts due to his lower estimate of the neutral rate — said that calm bond markets supported his case. Futures still price in a 95% chance of another 25-basis-point cut later this month. The longer the government shutdown lasts, the greater the expected drag on the economy. Adding some trepidation about overheated markets, the Bank of England warned on Wednesday of a potential sharp reversal in equities if investor sentiment turns on doubts about AI or Fed independence.* In keeping with the global easing trend, the Reserve Bank of New Zealand surprised markets with a 50-basis-point rate cut and signaled more easing could follow. The move knocked the New Zealand dollar down nearly 1%, dragging the Australian dollar lower in sympathy. Policymakers framed the decision as getting “ahead of the curve” to arrest a weakening economy.* Despite the rebound in French stocks and bonds, the euro slipped to a one-month low. Caretaker French Prime Minister Sebastien Lecornu struck a cautiously optimistic tone on Wednesday, saying a budget deal could be reached by year-end — potentially averting a snap election.* Spot gold burst above \$4,000 per ounce for the first time, now up more than 50% year-to-date as investors hedge against policy and growth uncertainty. Beyond its role as an inflation and geopolitical hedge, the rally has been fueled by central-bank buying, renewed ETF inflows, and a softer dollar. Some strategists see gold as insurance against an AI-fueled bubble and debt-inflation endgame. In today’s column, I take a look at new projections showing Europe’s ageing bill will rise far less than in the U.S. or China over the coming decades.Today's Market Minute* A race by crypto companies to sell tokens pegged to stocks is raising alarm among traditional financial firms and regulators, who warn that the fast-growing products pose risks to investors and market stability.* U.S. lawmakers are calling for broader bans on chipmaking equipment sales to China after a bipartisan probe found Chinese chipmakers bought \$38 billion worth of advanced gear last year.* In better news for Britain’s embattled finance minister Rachel Reeves, the U.K. statistics office said government borrowing for the past two fiscal years was £3 billion (\$4 billion) lower than previously reported, due to a VAT data error. Hopes are rising that tweaks to fiscal rules will prevent steep tax hikes in next month’s budget.* The Federal Reserve says its rate cuts are intended to cushion a looming labor market slowdown. Unfortunately, writes ROI Markets Columnist Jamie McGeever, cheaper money is unlikely to achieve that goal — but will almost certainly fuel the “everything rally” in financial assets.* Russia’s bombardment of Ukraine’s natural gas infrastructure ahead of winter is set to ripple through Europe’s energy market as Ukraine draws more fuel from its western neighbors. Read the latest from ROI Energy Columnist Ron Bousso.Chart of the DayWith investors racing to gold as an inflation hedge and the Federal Reserve resuming rate cuts, the New York Fed’s monthly household survey found that inflation expectations were rising again last month. Respondents’ one-year inflation outlook rose to 3.4% from August’s 3.2%, while the three-year outlook held at 3%. The five-year-ahead expectation ticked up to 3% from 2.9%. All readings remain well above the Fed’s 2% target — as do actual core inflation rates — raising questions about why the central bank is easing policy again.Today's Events to Watch* Federal Open Market Committee minutes from September meeting* Dallas Fed President Lorie Logan, Chicago Fed President Austan Goolsbee, St. Louis Fed President Alberto Musalem, Minneapolis Fed President Neel Kashkari, and Fed Board Governor Michael Barr speak* European Central Bank President Christine Lagarde and Bank of England Chief Economist Huw Pill speak* IMF Managing Director Kristalina Georgieva previews next week’s IMF–World Bank annual meetings* U.S. Treasury sells \$39 billion of 10-year notes