Markets Eye Policy, Positioning, and PerformanceCME_MINI:NQ1! CME_MINI:ES1! CME_MINI:MNQ1! COMEX:GC1! FRED:FEDFUNDS
Happy 4th of August, Traders!
As we head into the new week, here’s a look at what’s on the calendar:
Key Economic Data Releases
Monday:
• Factory Orders (MoM) – June
• Supply: 3-Month Bill Auction, 6-Month Bill Auction
Tuesday:
• Trade Balance (June), Exports (June), Imports (June)
• S&P Services PMI (July), ISM Non-Manufacturing PMI (July)
• Atlanta Fed GDPNow (Q3) – Prelim
• Supply: 52-Week Bill Auction, 3-Year Note Auction
Wednesday:
• German Factory Orders (MoM) – June
• Crude Oil Inventories
• FOMC Member Daly speaks at 11:45 CT
• Fed Governor Cook speaks at 1:00 CT
• Supply: 17-Week Bill Auction, 10-Year Note Auction
Thursday:
• Bank of England Interest Rate Decision
• BoE MPC Meeting Minutes, Inflation Letter, MPC Vote
• BoE Governor Bailey speaks at 8:15 CT
• FOMC Member Bostic at 9:00 CT
• Supply: 30-Year Bond Auction
Crude Oil Update
OPEC+ V8 members have announced an additional 547K bpd unwinding of voluntary cuts. Notably, crude prices have not reacted significantly to the expected OPEC+ figures. As we’ve previously highlighted, the market's focus remains firmly on demand-side factors. Despite geopolitical shocks, trade tensions, and recession concerns, crude oil prices have remained relatively stable—trading within a consistent range for over two and a half years since August 2022. According to Amena Bakr at Kpler, the V8 will meet again on September 7th to potentially reassess the reinstatement of 1.65 million bpd of cuts, currently scheduled to remain in place until the end of 2026.
Earnings Recap
With over half of S&P 500 companies having reported Q2 earnings, YoY earnings growth is now projected at 9.8%, compared to the 5.8% estimate as of July 1, per LSEG data cited by Reuters. More than 80% of reporting companies have surpassed analyst profit expectations—well above the 76% average from the past four quarters.
Macro Outlook
Fed Vice Chair Williams provided further insight into the central bank’s posture ahead of the September FOMC meeting, stating he remains open-minded but continues to believe that modestly restrictive policy is warranted. Williams also emphasized that the notable downward revisions to May and June payrolls were the key takeaway from Friday’s jobs report, reinforcing the theme of softening labor market momentum.
In addition, the Fed announced on Friday that Governor Lisa Cook will resign from the Board effective August 8. A replacement is expected to be named in the coming days, though it is not anticipated to materially alter the policy outlook in the near term.
Looking ahead, if both inflation and unemployment tick higher between now and the September FOMC meeting, it would represent a worst-case scenario for the Fed. The August NFP report due on the first Friday of September and July and August 2025 inflation reports are key data points to monitor before the next FOMC Meeting on September 17th, 2025.
Although equity futures sold off on Friday following a disappointing jobs report, market pricing has adjusted notably. Participants now expect the Fed to deliver three rate cuts in 2025 and two cuts of 25bps each in 2026. This marks a shift from pre-NFP expectations of two cuts in 2025 and three cuts in 2026, per CME FedWatch Tool.
Market Implications:
On the back of rate cut expectations, in our analysis, this may help sustain upside in the equities complex. Although, it may be prudent to adjust portfolio and re-balance strategically according to sectors that may continue to outperform namely tech, AI, defense stocks, commodities and USD per our analysis.
Long
FED: An unlikely rate cut in September, unless…The United States Federal Reserve (FED) unveiled this week a new monetary policy decision, maintaining the status quo on interest rates—hence no change in the federal funds rate since December 2024. This did not prevent the S&P 500 from hitting new all-time highs, driven by GAFAM financial results and even the top ten companies by market capitalization, which now represent 40% of the S&P 500 composition. Jerome Powell’s FED has not indicated any timing for the resumption of rate cuts due to high uncertainty over the impact of tariffs on core PCE inflation (the FED’s preferred inflation measure).
1) The probability of a rate cut on Wednesday, September 17 has dropped below 50%
This week was extremely rich in fundamentals: Powell’s FED spoke, GAFAM released their earnings, PCE inflation was updated, trade agreements were signed, and the NFP report will be published this Friday.
After Powell’s FED reaffirmed there is no urgency to resume rate cuts, the implied probability of a rate cut on September 17 fell below 50%.
The consensus scenario—a September cut—is now questioned by new expectations from high finance and the 12 voting FOMC members.
2) Core PCE inflation, the FED’s favorite index, is no longer falling. The FED’s target is near but disinflation is paused just above it
Is Powell justified in maintaining the status quo? Yes, in absolute terms: disinflation has paused due to tariffs. The chart shows the core PCE inflation curve has flattened. The FED’s target is near, but a further decline would be needed to justify rate cuts. Only concern over labor market health could raise the probability above 50%.
3) Tariffs emerging from recent trade agreements with key U.S. partners are likely to keep PCE inflation above the FED’s target (temporarily)
As trade deals are finalized (China remains pending, deadline later in August), we can assess tariff impacts on core PCE. At this stage—with most deals involving tariffs of 15–20%—the impact on core PCE is estimated at 0.3%. This should keep PCE above the FED’s target early in the fall, but only temporarily, with no second inflation wave expected.
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Short 
Latest on Fed rate cut debateThe Fed isn’t expected to cut rates this week, but this FOMC meeting should still be very interesting.
Powell will need to address growing pressure from board members Waller and Bowman, who’ve both called for cuts, citing limited inflation impact from tariffs.
Still, Powell is just one of 12 votes on the FOMC, and there’s little sign of broader support for a cut.
With the labour market steady and early signs of tariff-driven inflation, the Fed has reason to hold. The rate decision is due Wednesday at 2 p.m. ET, followed by Powell’s press conference at 2:30 p.m. ET.
This decision will further widen the rift between the Fed and President Trump, whose frustration has grown in recent weeks, with renewed attacks on Powell’s leadership.
The tension has drawn international attention. On Monday, the IMF issued a warning about political interference in central banks, which can pose a threat to global financial stability. Long 
Inflation vs. Growth : Is the Fed Behind or Ahead of the Curve?CME_MINI:NQ1! CME_MINI:ES1! CME_MINI:MNQ1! CME_MINI:MES1! CBOT:ZN1!
Fed Policy recap:
There is an interesting and unusual theme to keep an eye on this week. The Fed is in a ‘blackout period’ until the FOMC meeting- this is a customary quiet period ahead of an FOMC policy meeting. Fed Chair Powell is scheduled to give a public talk on Tuesday. Although his address will be focused on the capital framework of the large banks, this appearance will be closely watched for any subtle signals on the FOMC policy stance.
Especially given that last week, Federal Reserve Governor Chris Waller made a speech, “The Case for Cutting Now” with a purpose as he stated to explain why the FOMC should reduce rate by 25 bps at the July 30th, 2025 meeting.
His stated reasons were:
1. Tariffs create one-off price level increases with transitory inflation effects, not sustained inflation momentum.
2. He argued that much of economic data points towards interest rates should be lowered to FOMC’s participants' median neutral rate, i.e, 3%.
3. His third stated reason notes that while the state of the labor market looks resilient on the surface, accounting for expected data revisions, private-sector payroll growth has peaked, with more data suggesting increased downside risks.
His speech further explains:
• Growth has decelerated sharply: Real GDP rose only ~1% annualized in 1H25, a significant slowdown from 2.8% in 2H24, and well below long-run potential.
• Consumer spending is weakening, with real PCE growth falling to ~1%, and June retail sales showing soft underlying momentum.
• Broader labor market indicators, including the Beige Book and JOLTS data, show declining labor demand and hiring caution, suggesting increasing downside risks to employment.
• Inflation is slightly above target (PCE ~2.5%) but driven primarily by temporary, one-off tariff effects. Core inflation ex-tariffs is likely near 2%, and expectations remain anchored.
• Current fed funds range (4.25%–4.50%) is well above neutral (3%), implying excessive restraint.
• With inflation risks subdued and macro conditions deteriorating, a preemptive rate cut now provides optionality and avoids falling behind the curve if the slowdown deepens. Further cuts may be warranted if trends persist.
• The tax bill contains pro-growth provisions, but its economic impact is expected to be minimal in 2025.
Source: Federal Reserve Speech, The Case for Cutting Now Governor Waller
Inflation Analysis:
Let’s compare this with what we have previously mentioned regarding inflation. CPI index stood at 257.971 points in January 2020. Projecting this at a 2% Fed target, June 2025 inflation should be around 287.655 points. However, June 2025 inflation is currently at 322.56 index points, 12.2% higher above 2% the inflation trend. Effectively, this means annualized inflation since January 2020 is roughly 4.15%.
The Fed is in a real dilemma whether cutting rates given the inflation trend in the last 5 years and risks to inflation outlook justify cutting rates.
Key Questions to ask
Markets are forward looking. Investors and participants want to know:
• How will the rates impact the cost of debt service? Currently the third largest government expenditure, over $1.03 trillion.
• Will the tariff rate offset the tax revenue losses by extending tax cuts?
• Is the fiscal path sustainable?
• What happens to the long end of the yield-curve?
• Will the Fed monetize the debt issuance imbalance?
• Is this simply Governor Waller positioning himself for the next appointment of Fed Chair when Fed Chair Powell’s term expires in May 2026?
It seems there is a huge conflict between longer term implications vs quick short term fixes that align with US administration objectives.
The Week ahead:
It is a relatively light economic calendar in the US. Flash PMI readings and housing data on the docket. The primary focus as it has been for most weeks since President Trump took office, will be on the developments in trade policy and any further comments on Fed and Chair Powell. The threat of renewed tariffs starting August 1st, is also key to monitor and whether these protectionist measures will force US’s trading partners to make further concessions to negotiate trade deals.
The earnings season is off to a good start with major US banks reporting higher EPS and revenue than expectations. This week investors will be looking at Q2 earnings reports from Alphabet, Meta, Microsoft from the Mag 7 and Tesla.
