Core Viewpoint - The debate regarding whether the Federal Reserve will cut interest rates in September is intensifying, with differing perspectives on the conditions for such a decision [1] Group 1: Conditions for Rate Cuts - The conditions for the Federal Reserve to take action are maturing, as the market misunderstands that the Fed must wait for clear inflation data before cutting rates. Instead, as long as the impact of tariffs on inflation is predictable, the Fed can act sooner [2][4] - Current U.S. real interest rates at 1.63% are significantly above the natural rate of about 1%, indicating a restrictive monetary policy. Economic growth and the job market are showing signs of moderate weakening, with average GDP growth over the past two quarters at approximately 1.5% when excluding tariff-related fluctuations [2][4] Group 2: Tariff Impact on Inflation - The impact of tariffs on inflation is becoming clearer, with recent agreements with multiple trade partners leading to a likely effective tax rate of 15%-16% post-August 1. This suggests a predictable transmission path for tariffs to inflation [4] - The anticipated one-time impact of tariffs is expected to manifest primarily in Q3 and Q4, with year-end CPI projected at 3.3% and core CPI at 3.4% [4] Group 3: Fed's Independence and Decision-Making - The Federal Reserve is unlikely to cut rates due to political pressure from President Trump, as it maintains a commitment to its independence and policy objectives of full employment and stable inflation [7][8] - Recent statements from Fed Chair Powell and other officials indicate a preference for a tightening stance, citing unresolved inflation risks from tariffs and a stable labor market as reasons not to lower rates [7][8]

Market Overview - The three major U.S. stock indices experienced a collective decline, indicating a subtle shift in market sentiment as investors express concerns over earnings quality and policy outlook [1][3] - The earnings season, which was expected to stabilize the market, has instead triggered increased volatility [1] Company Performance - Dow Jones Industrial Average fell by 0.46%, S&P 500 decreased by 0.30%, and Nasdaq dropped by 0.38% [3] - UnitedHealth Group's earnings forecast fell short of market expectations, leading to a 7.5% drop in its stock price, significantly impacting the Dow [3] - Boeing reported a narrower loss but failed to gain investor confidence, resulting in a 4.4% decline [3] - Merck's stock fell by 1.7% due to the extended pause on HPV vaccine exports to China [3] - UPS shares plummeted by 10.6% after the company refrained from providing full-year guidance, raising concerns about the impact of escalating trade tensions on its business [3] Sector Impact - The consumer goods sector was also affected, with Procter & Gamble's stock down by 0.3% as the market reacted unfavorably to its plans to raise some product prices [4] - The transportation index dropped by 2.3%, marking its largest single-day decline in two months, reflecting a rapid decline in confidence within the transportation and logistics sectors [3] Upcoming Focus - The market's attention will shift to upcoming earnings reports from major tech companies such as Meta, Microsoft, Amazon, and Apple, which have the potential to influence overall market direction [4] - Despite the potential for strong earnings from these tech giants, broader market caution may persist due to uncertainties surrounding Federal Reserve policy, trade dynamics, and global demand recovery [4] Market Sentiment - Short-term adjustments may signal a preliminary change in market direction, as investors reassess whether previous bullish trends may have masked underlying overheating concerns [4]

Group 1 - The foreign exchange market is experiencing a dichotomy, with the Australian dollar unexpectedly rising amid expectations of an interest rate cut by the Reserve Bank of Australia, while the Japanese yen continues to weaken under the shadow of US-Japan trade tensions [1][3] - The Australian dollar's strength is attributed to the Reserve Bank of Australia's "dovish yet hawkish" stance, maintaining the cash rate at 3.85% and indicating that inflation risks are balanced, which led to a more than 1% increase against the US dollar [3] - In contrast, the Japanese yen is under pressure due to the announcement of a 25% tariff on Japan and South Korea by President Trump, which has negatively impacted market expectations for Japanese exports and diminished the yen's traditional safe-haven appeal [3][4] Group 2 - The euro has reached a one-year high against the yen, reflecting global investors' preference for currencies from regions with clear economic policies and growth momentum, shifting away from traditional safe havens like the yen [4] - Trump's fluctuating policy stance complicates market expectations, with potential for renewed yen safe-haven attributes if trade tensions escalate or if the Federal Reserve's monetary policy is more dovish than anticipated [4] - The rebound of the Australian dollar and the decline of the yen are seen as structural changes in the currency market, influenced by complex policy signals and global macroeconomic expectations, indicating a prevailing trend of "stronger currencies remaining strong, while weaker currencies struggle" [4]

Core Viewpoint - The Polish central bank committee member Kotecki predicts that the benchmark interest rate may decrease to 4.75% by the end of 2025, with a potential drop to 4.5% if the inflation forecast in November indicates a lower trajectory [1] Summary by Relevant Categories - **Interest Rate Forecast** - The benchmark interest rate is expected to decline to 4.75% by the end of 2025 [1] - If the November inflation forecast shows a lower path, the rate could further decrease to 4.5% [1]