Futures Trade At All-Time advanced As Global marketplace Euphoria Goes To 11

US equity futures are higher led by small caps (again) as the CPI print induces further short covering ahead of a now certain September rate cut, and a beta chase. As of 8:15am, S&P 500 and Nasdaq 100 futures were 0.2% higher after both indexes closed at fresh record highs on Tuesday, but were comfortably outpaced by the Russell 2000 index, as smaller companies were lifted by a largely benign inflation reading. Pre-mkt, Mag7 and semis are higher with Cyclicals outperforming Defensives, ex-Energy. Bond yields are lower as the curve bull flattens and USD weakens; the market strengthens its view on rate cuts in Sep, Oct, and Dec. Bessent calls for a 50bp cut in Sep. Today’s macro data focus is on mtge apps ahead of tmrw’s PPI which should help solidify PCE views.

In premarket trading, Mag 7 stocks were mostly higher (Tesla +0.4%, Meta +0.2%, Alphabet +0.2%, Microsoft +0.09%, Amazon +0.1%, Apple +0.1%, Nvidia -0.2%).

• 180 Life Sciences Corp. (ATNF) is extending share price gains on Wednesday, rising 51%. The company rose 207% on Tuesday after announcing that it holds 82,186 ETH tokens.
• Brinker International Inc. (EAT) rises 9% after fourth-quarter earnings beat expectations with the Chili’s owner expecting that momentum to carry through in the next fiscal year, issuing an outlook eclipsing analyst predictions.
• Cava Group (CAVA) sinks 24% after the fast casual chain cut its restaurant comp sales forecast for the full year.
• CoreWeave (CRWV) is down 9% after posting steeper losses as it continued to build to meet demand from AI developers.
• Hanesbrands Inc. (HBI) falls 8% after Gildan Activewear agreed to buy the US underwear maker for about $2.2 billion in cash and stock, in its largest ever acquisition.
• Intapp Inc. (INTA) rises 22% after the software services company reported fourth-quarter results that beat expectations and gave an outlook that is seen as strong. Annual recurring revenue is seen as a highlight of the report. It also announced a stock repurchase program of up to $150 million.
• KinderCare (KLC) tumbles 18% after the childhood-education company posted disappointing results for the second quarter, citing a softer-than-anticipated enrollment and lowering its outlook for the full year. The results prompted a downgrade at Barclays who says the 2Q miss was “the final straw for us.”
• Lumentum (LITE) climbs 3% after the maker of optical and photonic products reported fourth-quarter results that beat expectations, prompting an upgrade.
• SimilarWeb (SMWB) rises 18% after the web services company reported second-quarter revenue that beat expectations and raised its full-year forecast for adjusted operating profit.
• Venture Global Inc. (VG) jumps 10% after it prevailed over oil giant Shell Plc in an arbitration case over the sale of cargo from its first export plant.
• Webtoon (WBTN) gains 30% after the online comics company announced a deal with Walt Disney to bring about 100 series to its English-language app.

Stocks were set for another day of record highs, as money markets suggest a September Fed interest rate cut is all but nailed on after a goldilocks CPI report that showed less tariff price pressures. The data has bolstered bets that the Fed will resume rate cuts next month and act more aggressively to shield a labor market showing signs of strain. At the same time, the VIX gauge hits its lowest level this year as optimism over a softening rate stance is further buoyed by easing global trade tensions and a significantly stronger-than-expected US earnings season. Swaps are pricing in about a 95% chance of a quarter-point cut in September, up from about 80% before Tuesday’s inflation data, with at least three more similar moves expected by June.

“The bull case remains a convincing one, with earnings growth solid, and a cooler tone on trade continuing to prevail, all the while dovish policy expectations help to provide a cushion against any worries that the economy may be softening,” said Michael Brown, senior research strategist at Pepperstone.

US Treasury Secretary Scott Bessent told Bloomberg TV that rates should likely be 150-175 basis points lower. “We could go into a series of rate cuts here, starting with a 50 basis-point rate cut in September,” he said.

US equities have staged an astonishing rebound from their April lows, when US President Donald Trump’s tariffs upended markets. The S&P 500 is closing in on a 10% advance for the year, with most of the fresh gains coming in the past two months.

The volatility that has defined much of this year’s trading has eased, with the VIX falling to its lowest level since December. Treasury market swings have also subsided, as the ICE BofA MOVE Index, a measure of expected yield fluctuations, dropped to its lowest since January 2022.

“Quite simply there is a momentum drive higher here,” said Guy Miller, chief market strategist at Zurich Insurance Co. “The US economy is in stronger shape than many had expected and the risk of recession is continuing to diminish. Markets can go even higher.”

Investors will be watching US PPI on Thursday and retail sales the following day for fresh clues on how the US economy is holding up. Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee are scheduled to speak later Wednesday.

Europe’s Stoxx 600 rose 0.4%, tracking gains in Asia after a record close on Wall Street. Technology, personal care and health care lead in Europe, while energy and travel lag. US equity futures also edge higher. Glanbia jumps on lifted guidance, with Nordic Semiconductor also advancing, while Demant, Sixt and Persimmon all lost ground. Here are the biggest movers Wednesday:

• Glanbia shares climb as much as 13%, the most since 2009, after the food and nutrition company beat expectations in the first half and lifted its guidance for the full year
• RENK Group’s shares rise as much as 6.1%, the most since May, after the German defense company reported its second quarter revenue beat the average analyst estimate
• TUI shares gain after issuing third-quarter results in which the travel and tourism operator reported a strong beat on underlying Ebit. However, analysts note a slowdown in the group’s core package holiday unit
• Nordic Semiconductor shares rally as much as 13% to the highest since July 2024, after the chipmaker gave stronger-than-expected sales guidance for 3Q
• Evoke shares rise as much as 5.9% after the gambling company’s earnings surpassed expectations in the first half and leverage was pushed significantly lower, which analysts at Peel Hunt say could widen the appeal of the stock
• Safilo gains as much as 9.3%, hitting the highest since April 2023, as Berenberg starts coverage of the Italian eyewear company with a buy rating
• Hill & Smith shares rise as much as 12%, hitting their highest level since November, after the maker of infrastructure products reported a good set of results and a new £100m buyback
• E.ON shares rise as much as 2% after the company delivered broadly in-line results in the first half, with Ebitda coming in about 2% ahead of expectations, according to analysts
• Evolution falls as much as 10% after Bloomberg reported executives at the online gambling company were secretly filmed describing how its casino games made their way illegally to countries such as Iran, Sudan and China
• Beazley shares fall as much as 8.6%, the most in more than a year, after the British specialist insurer reported first-half results. Analysts at JPMorgan noted that Beazley reduced its FY premium-growth guidance
• Straumann shares drop as much as 4.5%, the worst performance in the Stoxx 600 Health Care Index early Wednesday, after the Swiss dental equipment company reported in-line revenue for the first half-year
• Sixt shares dipped as much as 6.4% after the German vehicle rental company reported second quarter results. Baader analysts say results are neutral or slightly negative for short-term performance of the share price
• Demant drops as much as 5%, to the lowest in more than three months, after once again lowering its guidance. Analysts at JPMorgan see the cut to outlook as “unhelpful” even if not a major shock after recent comments from peers
• Persimmon shares fall as much as 3.1% as first-half results from the UK housebuilder included comments on the margin outlook that Citi analysts said may weigh on estimates for 2026
• Deutsche PBB shares drop as much as 10% to the lowest since June after the bank reported that its withdrawal from the US had a one-off negative impact of €314 million ($368 million)

Earlier in the session, Asian equities advanced, with Hong Kong and Japan helping to lead the charge, as bets on Federal Reserve rate cuts fueled investor appetite for risk assets. The MSCI Asia Pacific Index rose as much as 1.5%, poised for a third day of gains and touching its highest since February 2021. Tencent was among the biggest boosts before its earnings report, along with TSMC and Alibaba. Gains were also notable in Thailand and South Korea, while benchmarks in Taiwan and Indonesia flirted with record highs. The Hang Seng Tech Index jumped more than 3%, with regional tech stocks also getting a lift from the Nasdaq 100’s climb to a fresh record overnight. Meanwhile, Chinese shares extended their recent strength even amid a lack of major catalysts, with ample domestic liquidity cited as a tailwind for the market. The upbeat mood came after a modest rise in US prices eased concerns that trade-related costs could spill over into broader price pressures. That drove expectations for easier Fed policy, with money markets nearly pricing in a full 25 basis point reduction next month. Here Are the Most Notable Asian Movers

• City Developments shares rise as much as 8.5% after the Singapore developer told analysts that planned divestments will allow the company to deliver “nice surprise” dividends by the end of the year.
• Hindalco’s shares rose as much as 5.7%, the most since April 11, after analysts raised their price targets on the stock following first-quarter net income that beat the average estimate.
• Asics Corp. shares jumped as much as 18% after raising its full-year forecast, predicting record earnings and bringing forward mid-term targets by a year.
• Shares of One 97 Communications Ltd. surged to the highest level in over three years after its unit received approval from India’s central bank to operate as an online payment aggregator.
• Wilmar International shares slipped as much 1.4% in Singapore after the food processing company’s first-half profit was dented by weak refining margins and a higher tax rate.
• LG Display soars by a daily record of 22% in Seoul trading on expectations that the South Korean tech company will benefit from a potential US ban on OLED products made by Chinese rival BOE.

In FX, the Bloomberg Dollar Spot Index falls 0.4%, extending its post-CPI fall as traders boost bets on an interest-rate cut by the Fed in September. The pound, kiwi and Swedish krona gain 0.6% each against the greenback.

In rates, Treasuries climb, pushing US 10-year yields down 3 bps to 4.25% with short-end tenors extending their post-CPI rally and long-end outperforming, pulling 2s10s and 5s30s spreads from Tuesday’s highs US yields richer by 2.5bp to 4bp across tenors with the curve flatter, tightening 2s10s and 5s30s spreads by 1.3bp and 0.5bp; 10-year, down nearly 4bp at 4.25% near session low, trails Germany’s by about 1bp. European government bonds also advance. As dust settles from Tuesday’s July CPI data, Fed-dated OIS contracts price in around 23bp of easing for the September policy meeting and a combined 61bp over this year’s three remaining meetings. In SOFR options, recent activity has included demand to hedge risk of a 50bp cut in September

In commodities, WTI crude futures fall 0.4% and below $63 a barrel and Brent dropped to $66 a barrel after the International Energy Agency said oil markets are on track for a record surplus next year as demand growth slows and supplies swell. Spot gold climbs $15 as the metal, which pays no interest, typically benefits from a lower rate environment.

Looking to the day ahead now, and it’s a quiet one on the calendar, but central bank speakers include Barkin (8am), Goolsbee (1pm) and Bostic (1:30pm) and earnings releases include Cisco.

Market Snapshot

• S&P 500 mini +0.2%
• Nasdaq 100 mini +0.2%
• Russell 2000 mini +0.6%
• Stoxx Europe 600 +0.4%
• DAX +0.7%
• CAC 40 +0.4%
• 10-year Treasury yield -3 basis points at 4.25%
• VIX -0.2 points at 14.53
• Bloomberg Dollar Index -0.4% at 1198.69
• euro +0.4% at $1.1727
• WTI crude -0.3% at $62.97/barrel

Top overnight news

• The U.S. government’s budget deficit grew nearly 20% in July to $291 billion despite a nearly $21 billion jump in customs duty collections from President Donald Trump’s tariffs, with outlays growing faster than receipts, the Treasury Department said on Tuesday. ZH
• Treasury Secretary Bessent expects Fed Board Nominee Stephen Miran’s Senate confirmation by September. Bessent also suggested that the Fed should consider a 50bps rate cut in September after it held rates steady in July, citing revised data showing weaker job growth in May and June as a key factor for a larger easing move. BBG
• China is offering to cover part of the interest payments on some consumer loans, in policymakers’ latest move to boost tepid household spending and counter prolonged deflationary pressures in the world’s second largest economy. FT
• China’s ambition to turn its open-source artificial-intelligence models into a global standard has jolted American companies and policymakers, who fear U.S. models could be eclipsed and are mobilizing their responses to the threat. WSJ
• US Authorities said to have embedded location trackers in AI chip shipments to catch illegal diversions to China. Trackers found in Dell (DELL), Super Micro (SMCI), NVIDIA (NVDA) & AMD (AMD) shipments: Reuters
• Pressure is mounting within the Bank of Japan to ditch a vaguely defined gauge of inflation as worries about second-round price effects prompt some board members to call for a more hawkish communication of policy and a clearer path to future rate hikes. BBG
• Japan’s five-year bond auction drew the weakest demand since 2020 amid the prospect of tighter monetary policy and liquidity concerns. BBG
• The Trump admin has played down expectations of a peace deal at Friday’s summit between the US and Russian presidents, saying Ukraine would have to be party to any agreement. Press secretary Leavitt said Trump’s meeting with Putin would be a “listening exercise” and that there was no particular outcome Washington could predict. FT
• Global oil markets are on track for a record surplus in 2026. Inventories are projected to rise by a massive 2.96 million barrels a day, surpassing even the average buildup during 2020, the IEA said. BBG
• The Trump administration is considering changes to how the federal government collects and reports jobs data, according to White House officials, following President Trump’s decision to fire the Bureau of Labor Statistics commissioner earlier this month in the aftermath of weak employment numbers. WSJ

Trade/Tariffs

• US Treasury Secretary Bessent said he will meet again with Chinese officials in the next two or three months and that they are solving several variables with China, while he added they will need to see months, if not a year, of progress on fentanyl flows before Chinese tariffs come down. Furthermore, he said India has been a bit recalcitrant in trade negotiations.
• White House said perhaps the chip deal could expand to other companies.
• Brazil’s President Lula said he will sign an executive order on Wednesday creating a BRL 30bln credit line for firms affected by tariffs and plans to help Brazilian exporters will include support through Brazilian government purchases, while he noted that they initiated a WTO dispute over US tariffs and will see what they can do in terms of reciprocity. Lula said they cannot be dependent on the dollar and Brazil does not want to interfere with the dollar but noted they can have a currency for trade within BRICS which is an idea that should be tested. Furthermore, he said they are open to discuss ethanol with the US.
• Canada’s government said Canada is deeply disappointed with China’s preliminary anti-dumping duties on Canadian canola imports and it remains ready to engage in constructive dialogue with Chinese officials to address their respective trade concerns.
• Chinese Commerce Ministry announces countermeasures against two EU financial institutions, UAB Urbo Bankas and AB Mano Bankas, measures come into effect on August 13th. In response to the EU targeting Chinese firms as part of Russia-related sanctions. Urges the EU to stop damaging Chinese interests.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly higher as the region took impetus from the gains stateside where CPI data was not as hot as feared and kept a September Fed rate cut on the table. ASX 200 bucked the trend and was dragged lower by underperformance in Utilities and the top-weighted Financial sector, with the latter suffering amid losses in CBA post-earnings. Nikkei 225 continued its advances and rallied to fresh record highs above the USD 43,000 level, while the somewhat varied PPI data from Japan had little influence on price action. Hang Seng and Shanghai Comp were underpinned alongside the mostly upbeat mood across the Asia-Pac region and with a briefing by Chinese officials on supporting consumption, while China had announced on Tuesday to provide interest subsidies for qualifying personal consumption loans in the country’s latest effort to boost consumption.

Top Asian News

• China’s Vice Finance Minister said they will support domestic consumption to become a major driving force for the economy, while a Mofcom official said service consumption has big growth potential and supporting service consumption will help expand domestic demand and employment. Furthermore, a PBoC official said they will guide financial institutions to increase credit issuance to the service consumption sector and to streamline the approval process of consumer loans.
• Tencent (700 HK) Q2 2025 (CNY): Revenue 184.50bln (exp. 178.94bln); Adj. Net 63.1bln (exp. 62bln). Operating Profit 60.1bln (exp. 58.5bln). Co. does not declare dividend.

European bourses (STOXX 600 +0.4%) opened modestly firmer across the board and have continued to gradually march higher as the morning progressed; currently just off session highs. European sectors hold a strong positive bias, with only a handful of sectors residing in the red. Tech takes the top spot, joined closely by Healthcare and Utilities; the latter boosted by post-earning upside in E.ON (+1%), where the Co. reported strong H1 metrics and affirmed its guidance. For Healthcare, Novo Nordisk (+1%) benefits from a broker upgrade at BNP Paribas. Travel & Leisure is found right at the foot, dragged down by Swedish-listed Evolution (-8%). Interestingly, Bloomberg reported that the Co. is under investigation for running black-market activities in banned countries, some of which were/are sanctioned by the US (Iran/Syria).

Top European News

• German Economy Ministry says despite the basic agreement on US tariffs, there are no signs of noticeable economic recovery.
• German CPI Final MM (Jul) 0.3% vs. Exp. 0.3% (Prev. 0.3%); German CPI Final YY (Jul) 2.0% vs. Exp. 2.0% (Prev. 2.0%)
• Spanish HICP Final MM (Jul) -0.3% vs. Exp. -0.4% (Prev. -0.4%); YY (Jul) 2.7% vs. Exp. 2.7% (Prev. 2.7%)

FX

• After a steady start to the session, the DXY has taken another leg lower as markets digest Tuesday’s CPI report. Overall, it was broadly in-line and judged not to show an alarming increase in goods inflation related to the US tariff policies. As we mentioned in our commentary on Tuesday, the US is very much not out of the woods when it comes to a potential inflation scare. Today’s docket is light on data but is expected to see remarks from Treasury Secretary Bessent, Fed’s Barkin (2027 voter), Goolsbee (voter) & Bostic (2027 voter). DXY has delved as low as 97.63 and is now eyeing the 28th July low at 97.49.
• With a soft outturn for ZEW data overlooked on Tuesday, it remains the case that incremental macro drivers for the Eurozone remain light. As such, the USD is very much in the driving seat for EUR/USD with the pair having now advanced onto a 1.17 handle to hit a new high for the month at 1.1729.
• The broad softness in the USD has acted as a drag on USD/JPY, albeit gains for the JPY against the USD have been more limited than some G10 peers. Some of this may be a by-product of the steepening of the US curve on Tuesday with back-end US yields closing higher on the session. USD/JPY has delved as low as 147.19 with the next support level coming via the 147 mark.
• GBP is on the front foot vs. the USD and towards the top end of the G10 leaderboard. Cable is building on Tuesday’s gains, which were triggered by the not-as-bad-as-feared UK labour market report and the US CPI release. Cable has ventured as high as 1.3563 and is now eyeing the July 28th peak at 1.3588.
• Antipodeans are both are benefiting from the pick-up in risk sentiment, which has been seen since Tuesday’s US CPI release.

Fixed Income

• USTs are firmer, but thus far comfortably within Tuesday’s 111-19+ to 112-06 parameters which also mark the WTD high and low, thus far at least. Today’s docket is headlined by geopolitics as European leaders and Ukraine’s Zelensky meet virtually and speak with US President Trump and VP Vance ahead of the one-on-one between Trump and Russian President Putin on Friday; a leaders-only event that has already been downplayed as a listening exercise for POTUS. Docket includes Fed’s Barkin and comments from Treasury Secretary Bessent.
• Bunds are bid, outperforming USTs but also shy of Tuesday’s 129.70 peak with a session best thus far of 129.65. If the strength continues and that peak is breached, we look to 130.00 from Monday before 130.26 from last Friday. Strength comes after the ultimately softer session on Tuesday, given the significant turnaround seen after the CPI report. No move to final German CPI/HICP (unrevised) or the July Wholesale Price Index which came in cooler than previous. Bunds were gaining into the German 2035 outing, which garnered fairly weak demand, leading to Bunds dipping off best levels by around 10 ticks.
• Gilts are firmer, broadly in-fitting with the above. Also awaiting the leaders meeting, UK PM Starmer is part of the virtual event and US VP Vance will also be dialling in from the UK. Opened higher by a handful of ticks and has, in-fitting with EGBs/USTs, been extending since to a 92.00 peak but shy of 92.12 from Tuesday. If breached, we look to 92.37 from Monday before 92.66, 92.77 and 92.84 from last week.
• Germany sells EUR 3.885bln vs exp. EUR 5bln 2.60% 2035 Bund: b/c 1.4x (prev. 1.5x), average yield 2.69% (prev. 2.62%), retention 22.3% (prev. 23.36%).

Commodities

• Softer trade across the crude complex after declining on Tuesday as participants await the upcoming Trump/Putin meeting in Alaska on Friday. At the same time, demand is not helped by bearish private sector crude inventory data, and it was also reported that the first vessel to load crude bound for the US after the new license had docked at Venezuela’s José port. WTI currently resides in a 62.77-63.3.4/bbl range while Brent sits in a USD 65.80-66.32/bbl range.
• Mostly firmer trade across precious metals as the Dollar eases further following Tuesday’s US CPI and Trump’s threat to sue Fed Chair Powell. Spot gold resides in a USD 3,342.63-3,360.98/oz range, compared to Tuesday’s USD 3,331.17-3,359.34/oz parameter, with the 50 DMA at USD 3,349.02/oz.
• US Private Inventory Data (bbls): Crude +1.5mln (exp. -0.3mln), Distillates +0.3mln (exp. +0.7mln), Cushing -0.6mln.
• CPC says oil exports +3% to 6.55mln T in July, according to Reuters sources.
• IEA OMR: Lowers 2025 and 2026 demand growth forecasts; trims 2025 oil demand growth forecast to 680k BPD (prev. 700k BPD); trims 2026 forecast at 700k BPD (prev. 720k BPD); IEA says oil market to face a record supply glut next year

Geopolitics: Middle East

• Hamas said a delegation of the Hamas leadership headed by Khalil al-Haya arrived in Cairo for talks with Egyptian officials, while talks in Cairo will focus on ways to stop the war and bring aid to Gaza, according to Sky News Arabia and Al Hadath.
• France, Germany and the UK are willing to reimpose sanctions on Iran with the E3 telling the UN it is ready to trigger snapback mechanisms if Tehran doesn’t resume nuclear talks, according to FT.
• Israeli Military Chief of Staff approved a „main concept” for an attack plan in the Gaza Strip.
• Russian Foreign Minister Lavrov will hold talks with the Indian Foreign Minister on August 21st.

Geopolitics: Ukraine

• Russia says US President Trump and Russian President Putin are to discuss all of the accumulated issues in bilateral relations.
• US Secretary of Interior Burgum said President Trump targets Russia’s oil customers and will shut down Russian oil earnings, according to Fox Business.
• Russian President Putin held a phone call with North Korean leader Kim and updated him on talks with US President Trump, while it was also reported that Kim and Putin pledged deeper cooperation and Putin expressed appreciation for North Korea’s help in liberating the Russian Kursk region.

US Event Calendar

• 7:00 am: Aug 8 MBA Mortgage Applications +10.9%, prior 3.1%

Central Bank speakers

• 8:00 am: Fed’s Barkin Repeats Remarks on Economy
• 1:00 pm: Fed’s Goolsbee Speaks at Monetary Policy Luncheon
• 1:30 pm: Fed’s Bostic Speaks on the Economic Outlook

DB’s Jim Reid concludes the overnight wrap

Markets posted a fresh risk-on move yesterday, with the S&P 500 (+1.13%) at an all-time high after the US CPI print raised expectations for a Fed rate cut next month. Ironically given the market rally, there were some concerning signs in the release, including the fastest core CPI reading in six months. But for investors, the fear was that an even hotter number would remove the prospect of a September rate cut altogether, particularly if the tariff impact became more obvious. So the fact that CPI was broadly as expected was met with relief, leading to equity gains and tighter credit spreads as investors became increasingly confident about another rate cut.

In terms of the details of that inflation report, headline CPI was at a monthly +0.20% pace for July, which kept the year-on-year rate at +2.7% (vs. +2.8% expected). But although the headline number looked fine, the headline measure was being dragged down by gasoline prices, which fell by a monthly -2.17%. So the core CPI measure (which excludes food and energy) was up by a stronger +0.32%, which pushed the year-on-year rate up to +3.1% (vs. +3.0% expected). So that was a bit more concerning, and the stickier category of core services was running at +0.36%.

But even as core CPI was accelerating, markets were reassured because the tariff impact on inflation didn’t look so obvious this time. For instance, back in June the household appliances category had its biggest monthly price jump on record (+1.9% on the month), but it then fell back -0.9% in July. Similarly, toys had surged by +1.3% in May and +1.8% in June, before only rising by +0.2% in July. So for now at least, it doesn’t look like 2021, when supply-chain kinks after the pandemic led to a huge surge in core goods prices.

When it comes to analysing the tariff impact, it’s also worth noting that the effective tariff rate has fluctuated significantly in recent months, and hasn’t moved up in a straight line, so that’s also making it trickier to gauge the full impact. After all, we had the 10% baseline imposed after Liberation Day, but we then had a big tariff reduction in May after the levies on China came down by 115%, and in the last couple of weeks we’ve then had fresh tariffs imposed like 15% on the EU, 35% on Canada, and 50% on copper. So when it comes to the impact on inflation, it may be some time before we get a clear signal, as several tariffs were imposed as recently as August 7, whilst there are potentially more in the pipeline like pharmaceuticals and semiconductors.

For now at least, the main takeaway was for the Federal Reserve, as investors dialled up the likelihood of a 25bps rate cut in September to 96% by the close last night, up from 88% the previous day. It was the same story for the coming months as well, with 105bps of cuts priced in by the June 2026 meeting at the close, up +4.4bps on the previous day. That also came alongside fresh commentary from the administration, as Treasury Secretary Bessent suggested the Fed ought to be open to a larger-than-usual cut, saying “The real thing now to think about is should we get a 50bp rate cut in September”. In their CPI recap, DB’s US economists think that the release isn’t likely to move Fed officials from their priors in either direction, and that the upcoming labour market data will be more important with respect to near-term cuts. See their full reaction here for more details.

That Fed repricing yesterday was accompanied by a decent steepening in the yield curve, with the 2yr yield down -3.7bps to 3.73%, whilst the 10yr yield (+0.4bps) moved up to 4.29%. In fact, the 2s30s curve (+6.4bps) steepened up to 115bps, the steepest it’s been since January 2022. And the prospect of rate cuts proved to be very good news for US equities, particularly in the more cyclical sectors, with new record highs for the S&P 500 (+1.14%), the NASDAQ (+1.39%) and the Magnificent 7 (+1.15%). The advance was a broad one, with all eleven major S&P 500 sector groups higher on the day and the small cap Russell 2000 (+2.99%) having its best day in three months.

With markets pricing more rate cuts over the months ahead, that also caused the dollar index (-0.43%) to weaken yesterday. Moreover, that weakness got further momentum after Fox Business reported that Trump’s nominee to be commissioner of the Bureau of Labor Statistics, EJ Antoni, had recently said that they could suspend the monthly jobs report. In the interview, he said that “Until it is corrected, the BLS should suspend issuing the monthly job reports but keep publishing the more accurate, though less timely, quarterly data”. Antoni still needs to be confirmed by the Senate, although when White House Press Secretary Karoline Leavitt was asked about whether the monthly schedule would continue, she said “I believe that is the plan, and that’s the hope, and that these monthly reports will be data that the American people can trust.”

Meanwhile in Europe yesterday, markets put in a relatively weaker performance, with both bonds and equities underperforming their US counterparts. Weaker-than-expected data didn’t help matters, and the ZEW survey from Germany showed the first decline in expectations since April, back when the Liberation Day tariffs were introduced. That expectations component was down to 34.7 (vs. 39.5 expected), whilst the current situation measure was down to -68.6 (vs. -67.0 expected), which was the biggest monthly fall for the current situation since August 2023.

That dampened sentiment in Europe, and even though the STOXX 600 (+0.21%) managed to advance, the DAX (-0.23%) fell back for a third consecutive session. There were bright spots however, and the overall risk-on tone did see European HY spreads reach their tightest level since 2018 (-3bps to 269bps). Meanwhile, there was a fresh move higher in long-end borrowing costs, with 10yr German bund yields (+4.7bps) rising to 2.74%, their highest since March.

Moreover, the 30yr German yield (+7.3bps) moved up to a post-2011 high of 3.29%, so that adds to the recent theme of global long-end bonds coming under pressure given the fiscal outlook. And this selloff was echoed across Europe, as yields on 10yr OATs (+5.3bps) and BTPs (+4.5bps) also moved higher.

Here in the UK, 10yr gilts (+6.1bps) underperformed and sterling strengthened +0.51% against the US Dollar after the latest employment data was a bit stronger than expected. It still showed payrolled employees were down -8k in July, but that was fewer than the -20k decline expected by the consensus, and the previous month was also revised to show a smaller contraction. So that led investors to dial back the likelihood of rate cuts from the Bank of England, with the pricing for a cut by November down to 44% by the close.

Overnight in Asia, the risk-on sentiment has continued this morning, with the Nikkei (+1.57%) up to another record high, whilst the Shanghai Comp (+0.56%) is currently on track for its highest closing level since September 2021. That’s been echoed across the region, with gains for the Hang Seng (+1.8%), the CSI 300 (+0.92%) and the KOSPI (+0.61%) as well. That said, we have seen some bond market weakness in Japan this morning, as their 5yr auction had its weakest demand ratio since 2020, and the 5yr yield is up +2.9bps this morning. That comes as PPI inflation was also a bit stronger-than-expected overnight, only falling back to +2.6% year-on-year in July (vs. +2.5% expected).

To the day ahead now, and it’s a quiet one on the calendar, but central bank speakers include the Fed’s Barkin, Goolsbee and Bostic, and earnings releases include Cisco.