What matters in U.S. and global markets today |
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While markets cheered Federal Reserve Chair Jerome Powell's apparent dovish tilt on interest rates last week, everything's gone flat today, and President Donald Trump's claim to have fired Fed board member Lisa Cook isn't helping. Trump's attempt to fire Cook is based on allegations of improper mortgage borrowing. The legality of this move is unclear, but it has still sparked fresh concerns about the central bank's independence, as her removal would potentially give the president a majority on the Fed board next year. Cook's refusal to accept Trump's announcement sets up a major battle between the White House and the Fed. In response, the 2-to-30-year Treasury yield curve moved to its steepest since January 2022, the dollar dropped lower and U.S. stock futures fell into the red. |
- Despite Powell's Jackson Hole nod to labor market softness on Friday, forcing many Wall Street banks to change their forecasts to see a quarter point rate cut next month, Fed futures are still not fully priced for that outcome - with only an 80% chance of a cut seen. That's partly because August U.S. payrolls and consumer price reports could yet be a game changer in that decision. This week's big economic release is the July PCE inflation report on Friday, with Nvidia's quarterly results tomorrow dominating the corporate diary and holding tech stocks back in advance. The S&P 500 closed in the red on Monday.
- Part of the reason why the dollar's initial losses on the Cook announcement weren't larger was that the euro has tensions of its own. France's main stock index fell 2% and 10-year French bond yields hit their highest since March as three main opposition parties said they would not back a confidence vote, which Prime Minister Francois Bayrou announced for September 8 over his plans for sweeping budget cuts. Shares of French banks BNP Paribas and Societe Generale slumped 6.2% and 5.2%, respectively, with talk of another snap election in the mix.
- With last week's tech angst still in the air and Nvidia's report due, Trump on Monday threatened countries that have digital taxes with "subsequent additional tariffs" on their goods. The anxiety ratcheted up on news Trump is considering sanctions on European Union or state officials responsible for implementing the bloc's Digital Services Act on complaints the law censors Americans and imposes costs on U.S. tech firms. Elsewhere, Intel said the U.S. government's 9.9% stake in the chipmaker could pose risks to its business, from potentially harming international sales to limiting its ability to secure future government grants.
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- U.S. President Donald Trump on Monday said he was firing Federal Reserve over alleged improprieties in obtaining mortgage loans, an unprecedented step that could test the boundaries of
- Indian exporters are bracing for disruptions after a U.S. Homeland Security notification confirmed Washington would impose an additional 25% on all Indian-origin goods from Wednesday,
- U.S. and Russian government officials discussed several energy deals on the sidelines of negotiations this month that sought to achieve peace in Ukraine,
- Federal Reserve Chair Jerome Powell is coming under fire for appearing to cave to political pressure in his Jackson Hole speech on Friday, which opened the door to an interest rate cut next month, a shift from his more hawkish stance only a few weeks ago. But the charge is unfair argues
- China's imports of liquefied natural gas (LNG) are poised to rise for a fourth straight month in August, but, this may not be quite as bullish as it first appears.
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Dollar turn emboldens dogged wariness of Wall Street |
So-called value investors have had a brutal decade avoiding what they see as overvalued but outperforming U.S. stocks - and missing the boat. But aside from the handful of high-flying Wall Street megacaps, some insist dollar strength did much of the heavy lifting and the performance of other U.S. firms was not that "exceptional". We have been here many times in recent years of course - fretting about "over-concentration" of Wall Street's overall performance in a narrow group of stock leaders, only to have underweight funds endure relentless index gains regardless. Many of them are convinced stellar relative U.S. index gains and valuations are unjustified and unsustainable at historic extremes. But passive index investors care little that the performance is flattered by a few monster tech firms - now almost a third of the S&P 500's entire market cap. And, despite last week's brief tech wobble, U.S. benchmarks are again chomping at new records as AI-infused tech giants clock nosebleed valuations more than 30 times forward earnings. | Graphics are produced by Reuters. |
For "value" investors who felt a moment in the sun had come during April's turbulence, the pain just won't go away. And yet questions about otherwise ordinary business returns from the other 490 odd companies return again and again. Even though Wall Street indexes are back at record highs they have, unusually, lagged overseas peers all year. The S&P 500's 10% gain to date is less half that of MSCI's all-country index, a third of euro zone stocks in dollar terms and almost a quarter of the dollar-based gains in Germany's DAX index. The dollar's retreat in 2025 is a key culprit for that underperformance after years of relentless gains. But there's a feeling that if dollar weakness is now one of the unstated goals of President Donald Trump's trade rebalancing and industrial policies, it could end up challenging long-standing assumptions about the "less-than-magnificent" U.S. stocks going forward. 'TREACHEROUS' Boston-based GMO is one of those leading lights in the value investing world. To its credit, it has long acknowledged publicly how its approach has come up short for far too long. But instead of throwing in the towel, its asset allocation team's quarterly letter last week reckons the case still stacks up if you exclude the "Magnificent Six" megacaps - their reworking of the red hot tech "Mag7" grouping that's dominated thinking over the past two years with downbeaten Tesla removed. "Simply flipping one's decision because of a past mistake is a treacherous way to make decisions," wrote GMO's Ben Inker and John Pease. "Investments made on the back of regret turn out poorly more often than not." The dollar's turnaround forms a key part of their argument. |
Inker and Pease acknowledge the fundamental strength behind the "Mag6". However, like many, they question how long the artificial intelligence theme can deliver the same sort of returns for these companies, given changes to their balance sheets that see enormous investment in infrastructure investment, such as data centers. But the focus of their analysis is on the sources of the broader S&P 500's outperformance versus the rest of the world's stocks over the past 15 years. Their conclusion was that about 80% of those excess gains against the MSCI World index that excludes U.S. stocks came from returns unlikely to repeat. |
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Graphics are produced by Reuters. |
Now the world's most valuable company with a market cap of $4.39 trillion, Nvidia's stock has climbed more than 30% so far in 2025, pushing its gain to over 1,400% since October 2022. The California-based company has epitomized the broader AI excitement that has driven up shares of a raft of tech companies and others involved in AI infrastructure, such as power generation and cooling systems. But its explosive growth is inevitably set to slow and Wednesday's results will be forensically examined for bumps in the road ahead. Nvidia options implied a roughly 6% swing for the shares in either direction following the results, which will be reported after markets close. |
- U.S. July durable goods orders (8:30 AM EDT), June house prices (9:00 AM EDT), Richmond Fed August business surveys (10:00 AM EDT), Dallas Fed's August services (10:30 AM EDT)
- Richmond Federal Reserve President Thomas Barkin speaks; Bank of Canada Governor Tiff Macklem speaks; Bank of England policymaker Catherine Mann speaks
- U.S. Treasury sells $69 billion of 2-year notes
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