Gold held a weekly decline on signs that President Trump’s tariff agenda is starting to create inflationary pressures in the US, and could threaten rate cuts https://t.co/nmcGEzKqMp ...

Retail Sales and Consumer Spending - U.S. retail sales increased by 0.5% in July, marking the second consecutive monthly gain after declines in April and May, with auto sales rising by 1.6% [2][3] - Excluding auto and gas sales, spending was up only 0.2%, indicating cautious consumer behavior, as some categories like electronics and restaurants saw declines [3][4] - The report suggests that while consumers are still spending, they are doing so more cautiously, which complicates the Federal Reserve's decision-making regarding interest rate cuts [4][5] Tariffs and Semiconductor Industry - President Trump announced plans to impose tariffs on semiconductor imports, potentially as high as 200% to 300%, aiming to encourage domestic manufacturing [6][7][8] - This strategy could lead to significant expenses and uncertainties for businesses, potentially disrupting global supply chains [8][9] - Investors may face challenges due to steep tariffs unless substantial exemptions are provided [9] Ethereum and Cryptocurrency Market - Ethereum (ETH) saw a 25% increase between July 17 and the following Tuesday, with a notable 275% gain reported by options traders [10][19] - Ethereum's unique properties, such as its built-in scarcity and utility in decentralized applications, make it increasingly competitive with traditional financial instruments [11][14][15] - The current market conditions show a spike in implied volatility, which has shifted from being a tailwind to a headwind for buyers, prompting a strategic exit for some traders [24][25]

Interest Rate Outlook - The market initially anticipated three Federal Reserve rate cuts at the beginning of the year, but expectations have been adjusted downwards to potentially just one cut [3] - The CME FedWatch Tool indicates a 96% probability of a 25 basis point rate cut and a 4% probability of a 50 basis point cut [2] - Inflation data, including CPI and PPI, suggests persistent inflationary pressures, potentially hindering the Federal Reserve's ability to implement rate cuts [4] - The Federal Reserve's data-driven approach implies that unfavorable data could further delay anticipated rate cuts [6] Market Sentiment and Risk - The market exhibits signs of frothiness, evidenced by bullish IPOs, record highs in Bitcoin, and upside movements in Ether [7][8] - Market broadening could be a positive sign, as returns have been concentrated in a small segment of the market, making it fragile [9] - Market momentum and sentiment are vulnerable to sudden shifts, and a catalyst could trigger a downturn [10] - Confidence in data, policy, and the functioning of markets is crucial for sustaining market sentiment [12][13] Geopolitical Considerations - While the Russian economy may not directly impact the US economy, a meeting between the US President and the Russian President could influence market sentiment [10][11]

Market Performance - Small-cap stocks, represented by the Russell 2000 Index, have underperformed compared to larger peers, with the iShares Russell 2000 ETF (IWM) up about 3.7% this year, while the S&P 500 gained approximately 10%, Nasdaq-100 ETF (QQQ) increased by 13%, and the Dow Jones rose by 5% [1] Economic Indicators - The Consumer Price Index (CPI) rose by 0.2% month-over-month and 2.7% year-over-year, slightly below the Dow Jones forecast of 2.8% annual growth [4] - Core CPI, excluding food and energy, increased by 0.3% in July and 3.1% annually, aligning with monthly expectations but slightly exceeding the yearly forecast of 3% [5] Interest Rates and Small-Cap Stocks - Small-cap companies are more reliant on debt than larger firms, meaning that lower interest rates can significantly reduce their borrowing costs and stimulate domestic growth, which is crucial for their revenue [6] - The probability of a 25 basis points Fed rate cut on September 17 is now at 81%, following the positive inflation data [5] Valuation and Investment Potential - The S&P 500 is trading at five times book value, while the Russell 2000 is at only two times book value, indicating that small-cap stocks are currently undervalued [8] - There is potential for a rotation from mega-cap tech stocks to small caps, as high valuations in tech may lead to a rally in small-cap stocks [7] Business Optimism - The Small Business Optimism Index rose by 1.7 points in July to 100.3, slightly above the long-term average of 98, driven by improved business conditions and optimism about expansion [9] - Despite the positive outlook, there is notable uncertainty, as indicated by an 8-point increase in the uncertainty index, now at 97 [9] Earnings Growth Projections - For the S&P 600 index, Q2 earnings increased by 6.6% year-over-year, with 76% of companies beating EPS estimates and 73.4% exceeding revenue estimates [10] - Q3 earnings for S&P 600 companies are projected to grow by 23.2% on a 3.7% increase in revenues, with overall earnings growth expected to be 10.8% in 2025, 17.5% in 2026, and 11.2% in 2027 [11]

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Market Expectations & Potential Impacts - The market anticipates a US CPI data release at 8:30 am ET [1] - The expected CPI is 2.8% [1] - A CPI of 2.8% or less is perceived to indicate a near 100% chance of Federal Reserve rate cuts [1] - Lower CPI (less than 2.8%) is expected to lead to increased market liquidity and a market pump [1] - A CPI of 2.9% or higher is anticipated to cause a sharp short-term market dump [1] Risk Management - High volatility is expected in Bitcoin ($BTC) and the broader cryptocurrency market [1] - The report advises caution against using high leverage [1]

Summary of Key Points from the Conference Call Industry Overview - The report discusses the performance of the US equities market, particularly focusing on the S&P 500, which gained 2.4% this week, closing near all-time highs (ATH) [4][19] - Key sectors mentioned include Real Estate, Technology, and Industrials, with notable performance variations among them [4][54] Core Insights and Arguments - **Market Performance**: The S&P 500's recent performance is attributed to a constructive earnings season and a changing outlook on the US economy [4][19] - **Sector Performance**: - **Top Performers**: Global Rare Earths (+14.64% WoW, +167.35% YTD), Global Copper (+6.90% WoW, +15.01% YTD), and Megacap Tech (+5.15% WoW, +16.49% YTD) [3][4] - **Bottom Performers**: Obesity Drugs (-5.83% WoW, -12.25% YTD), Nat Gas (-2.22% WoW, +0.77% YTD), and Secular Growth (-1.51% WoW, +9.89% YTD) [3][4] - **Investor Behavior**: Hedge Funds (HFs) net sold US equities at the fastest pace in four months, primarily in Macro Products, while Long Only (LO) investors were net buyers [4][19][10] - **Gold Market**: A surprise report on US import tariffs on gold bars led to gold futures reaching new all-time highs, with a notable increase in open interest and ETF holdings [4][24] Additional Important Insights - **Earnings Season**: 60% of companies exceeded earnings per share (EPS) expectations by more than one standard deviation, indicating stronger-than-expected performance [20] - **Volatility Trends**: The VIX index saw a significant drop, reflecting a more bullish market sentiment [4][37] - **Economic Outlook**: The economics team anticipates inflation data to reflect tariff impacts in the coming months, potentially leading to a slowdown in growth [44][45] - **Sector-Specific Insights**: - **Industrials**: Housing stocks performed well, driven by expectations of a dovish Federal Reserve and better-than-expected earnings [52] - **Consumer Sector**: Price reactions to earnings were weak, indicating a potential rotation into housing and technology sectors [53] - **Financials**: Banks are seen as a source of funds amidst market derisking, with a focus on rate sensitivity profiles as a potential rate-cutting regime approaches [54] Conclusion - The report highlights a complex interplay of sector performances, investor behaviors, and macroeconomic factors influencing the US equities market. The insights provided can guide investment strategies and risk assessments moving forward.

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Core Insights - The upcoming week will feature significant economic indicators including Consumer Price Index (CPI), Producer Price Index (PPI), retail sales data, and consumer sentiment metrics [1][2] Economic Indicators - CPI and PPI are critical measures that will provide insights into inflation trends and pricing pressures within the economy [1][2] - Retail sales figures will be closely monitored as they reflect consumer spending habits, which are vital for economic growth [1][2] - Consumer sentiment data will offer an understanding of consumer confidence, influencing spending and investment decisions [1][2]

Summary of Key Points from the FOMC Meeting and Economic Outlook Industry Overview - **Federal Reserve and Economic Policy**: The July FOMC meeting indicated a hawkish stance regarding interest rates and inflation management, emphasizing the importance of the unemployment rate as a key indicator of economic health. Core Insights and Arguments - **Hawkish Tone of FOMC**: The July FOMC meeting raised the bar for potential rate cuts later in the year, with Chair Powell highlighting persistent inflation risks and the unemployment rate as a more accurate measure of maximum employment [6][8][37]. - **Tariff-Induced Inflation**: Powell acknowledged initial evidence of inflation due to tariffs, but noted uncertainty regarding the pace of tariff pass-through to consumer prices, indicating that the Fed remains data-dependent [6][18][22]. - **Labor Market Dynamics**: Powell stated that the Fed could still meet its maximum employment mandate despite slow payroll growth, as long as the unemployment rate remains low. This suggests a focus on the unemployment rate rather than payroll growth as a key metric [6][24][30][32]. - **Inflation Expectations**: The Fed's inflation target remains above 2%, with core PCE prices rising by 2.7% over the past year. The Fed expects inflation to remain firm in the coming months, with potential upward revisions to inflation forecasts [18][23][37]. - **Economic Growth Assessment**: The FOMC downgraded its growth assessment, indicating that economic activity moderated in the first half of the year, which could imply a dovish tilt in future policy decisions [10][12]. Important but Overlooked Content - **Dissenting Opinions**: The presence of dissenting opinions from Governors Bowman and Waller allowed Powell to adopt a more hawkish tone, focusing on the consensus view rather than reflecting a range of opinions [16][38]. - **Market Reactions and Predictions**: The market-implied probability of rate cuts has been influenced by upcoming employment and inflation data, with expectations that the Fed will remain on hold in 2025 unless significant economic changes occur [39][41][62]. - **Trade Recommendations**: Analysts suggest various trading strategies, including maintaining long positions in specific Treasury securities and monitoring the USD outlook, which is expected to decline unless labor market data surprises positively [66][62]. Conclusion - The FOMC's current stance reflects a cautious approach to monetary policy, with a focus on inflation management and labor market stability. The upcoming economic data will be crucial in determining the Fed's future actions regarding interest rates and overall economic strategy.