Powell: Green Light for September
Last Friday, in what was very likely Powell’s last speech at Jackson Hole, the Fed Chair pointed to mounting risks to the labor market sparking rally in US Treasury bonds
- Powell openly said that “The shifting balance of risks may warrant adjusting our policy stance” even if he took great care in insisting on the possible inflationary risks that could be created by the upward pressures on prices from tariffs
- Fed officials are due to release new forecasts next month, with the continued division within the board would lower odds that a move in September would lead to a string of interest rate cuts – markets are currently pricing a 86% chance of a cut
- Particular focus will be on the July core PCE deflator (the Fed’s favorite inflation gauge) that is set to be released on Friday afternoon – market is expecting 2.9% on a y-o-y basis
US–India Trade Rift: Tariffs at 50%
U.S.–India relations have entered a tense phase, as Washington escalates trade measures in response to geopolitical frictions and energy policy choices by New Delhi. The move risks significant economic repercussions and a strategic realignment in Asia:
- The U.S. has raised tariffs on Indian goods to 50%, combining a 25% “reciprocal” duty with an additional 25% levy tied to India’s discounted Russian oil
- Textiles, jewelry, carpets and other goods face a potential harsh drop in U.S. sales, threatening job losses and a severe hit (potentially up to 1%) on GDP growth
- Strained ties between Trump and Modi underscore a broader diplomatic rift, pushing India closer to Russia and China and reshaping Indo-Pacific dynamics
The Battle for the Fed
President Trump moved to oust Federal Reserve Governor Lisa Cook in an attempt to seize greater control over the Central Bank
- Trump announced to be in possession of sufficient proof to fire Cook with allegations that she made false statements on one or more mortgage loans
- The move would give Trump an opportunity to name someone on the Fed board allowing him to secure a four person majority – the concept sparked huge concerns over the independence of the Fed and potential future impact on the US economy
- Cook, who’s position is not set to expire until 2038, declared that the president is acting illegally and refused to quit her job
- The news prompted yields on longer dated bonds to rise reflecting the market’s expectations that pressures could sharpen if Trump succeeds
French Political Woes
French assets have been under sustained pressure over the past few days as political concerns have rattled investors
- On Monday French Prime Minister Francois Bayrou announced that he would call a confidence vote on his own government on the 8th of September
- The far-right National Rally party, the leftist France Unbowed and the Greens all said that they would vote against the motion – the Socialists said that they also would not back the government unless certain (unlikely) concessions are made
- If a majority of lawmakers vote against Bayrou he will be forced to submit his government’s resignation – just as it happened with his predecessor Michel Barnier last year
- The Cac40 has shed over 3% over past two sessions with underperformance also visible con French issuers in the fixed income market
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