Markets Digest A Deluge Of Catalysts

WHERE WE STAND – Right, where the hell to begin this morning!?

Let’s get the simple stuff out the way first.

The FOMC stood pat on policy yesterday, as expected, despite two Governors (Bowman & Waller) dissenting against that decision, the first time in three decades such a dual dissent has occurred. Besides that, the whole thing was a nothingburger, really, with the statement a ‘carbon copy’ of that seen last time out, and Chair Powell sticking resolutely to his ‘wait and see’ approach at the post-meeting presser. Powell did, though, very, very slightly crack open the door to making the September meeting a ‘live’ one, flagging on numerous occasions the significant amount of data that will become known by the time of that decision.

My base case, however, remains that we get just one 25bp cut this year, probably in December, as the resilient nature of the labour market allows the Fed to remain prudent amid plentiful upside inflation risks.

Sticking with policy, the Bank of Canada also held rates steady yesterday, at 2.75%, though left the door open to further easing, in the event that the economic backdrop sours further. This is a pretty logical thing to do, especially given the threat of 35% tariffs on non-USMCA goods which could come into effect on Friday. Overnight, the Bank of Japan also kept all policy settings unchanged, though further tightening remains on the cards later in the year, probably once the present bout of political uncertainty has resolved itself to some degree.

Yesterday’s data was also pretty straightforward. Both the eurozone and US economies grew at a faster than expected pace in the second quarter, of 0.1% QoQ, and 3.0% annualised QoQ respectively. Those figures, while not only stale, are also incredibly noisy, as the effects of Q1’s tariff front-running unwind, artificially boosting growth in the US, and dragging it lower in the rest of the world. Still, in President Trump’s mind, that “way better than expected!” GDP print is a reason to deliver rate cuts…who wants to volunteer to tell him that’s not how it works!?

Now, the slightly more complex stuff. Of course, that complex stuff centres around Mr Trump, and the issue of tariffs. Again.

Firstly, it looks like Friday might not be ‘TACO time’ after all, with Trump doubling down on that tariff deadline yesterday, noting that ‘it stands strong, and will not be extended’. Despite that, we’re still waiting for those ‘confirmation’ tariff letters that were due to be sent this week to actually go out, and any escalation in tariffs – either threatened or implemented – still has to be viewed through the lens of encouraging speedier, and more serious, negotiations from the other party involved. That’s the ‘escalate to de-escalate’ strategy that seems to be being followed here.

I’d argue that’s exactly what we’re seeing with the tariffs slapped on India yesterday, a 25% levy from Friday, “plus a penalty” (we don’t know what) for purchasing Russian crude. For what it’s worth, the Indian negotiating team still see a deal being achieved by the autumn, so even if tariffs ramp up, they probably won’t do so for long.

Intriguingly, despite having been guided to expect such a decision, we learned nothing about a potential extension to the current US-China trade truce yesterday, though the base case remains that the can is indeed kicked down the road on that front. Still, overnight a US-South Korea deal has been announced, again reiterating that the direction of travel remains towards deals being done, and calmer heads prevailing.

Amid all that, markets did, largely what they’ve done for most of the week. Stocks traded in the green for the bulk of the day, before gains fizzled out late on; the dollar extended on recent gains, advancing against all G10 peers; and, Treasuries continued to meander within what are now very, very familiar trading ranges.

Frankly, I don’t have much to say about any of this. My equity bull case remains intact amid solid earnings, strong underlying economic growth, and continued progress on the trade front. Yesterday, both Meta and Microsoft shot the lights out, as the AI arms race shows no sign of slowing, seeing futures pop after hours, and momentum remain firmly with equity bulls.

Elsewhere, I continue to play the 4.20% - 4.50% range in the benchmark 10-year, and the 4.70% - 5.00% range in the benchmark 30-year.  In FX, though, I wonder if the dollar’s recent rebound might soon run out of steam.

Not only have we charged about 2.5% higher in the last week (a huge move in FX land!), but the DXY is also starting to run into resistance at the 100-day moving average, and the 100 figure. As a longer-run dollar bear, this is the sort of region where fading the move starts to feel attractive from a risk-reward perspective.

LOOK AHEAD – Plenty more for participants to get their teeth into today.

On the data front, the latest US PCE data highlights proceedings, with core PCE seen rising 2.7% YoY in June, unchanged from the pace in May, though the headline deflator is set to rise 0.2pp to 2.5% YoY. Elsewhere, we also receive the latest US jobless claims figures, even if neither print pertains to the July NFP survey week, as well as the latest MNI Chicago PMI data.

Besides that, and potential incoming trade headlines, focus will fall largely on another round of megacap tech earnings. Amazon (AMZN) are set to report on the bell, with options implying a move of +/-6.1% post-release, while Apple (AAPL) report half hour after the close, with options pointing to a +/-3.8% range after hours.