Tariff Threats Remain
Chart of the Week:
Fed Holds Rates; Hawkish Powell Flags Sticky Inflation, Dampens Sep Cut Hopes
The Fed held rates steady at 4.25%–4.5% for a fifth consecutive meeting. At the press conference, Chair Powell emphasized a still-strong labor market and warned that tariff-driven goods inflation may just be starting, signaling potentially more persistent inflation. He made no mention of a possible September rate cut, with his tone notably more hawkish than the meeting statement.
Market Recap 1:
Rally Fades Midweek; MFN Pricing Pressures Healthcare Sector
U.S. equities hit new highs early last week, buoyed by a U.S.–EU trade deal that halved tariffs from 30% to 15%, granted exemptions for some tech products, and included a €600 billion investment pledge from Europe. However, gains faded midweek after Fed Chair Powell’s press conference offered no signal of a September rate cut, denting market sentiment. The S&P and Dow ended the week lower, while the Nasdaq posted modest gains.
Market Recap 2:
Hawkish Powell Lifts USD; Refined Copper Exempt from Tariffs, Prices Plunge
Fed Chair Powell avoided mention of a possible September rate cut during his press conference, a stance the market interpreted as hawkish. Rate-cut expectations were sharply reduced, pushing 2-year yields higher and pressuring bond prices. The U.S. Dollar Index continued climbing, nearing the 100 level—a two-month high—dragging down non-dollar currencies.
What’s Trending:
World AI Conference Ends on Positive Note for China Tech
The 2025 World Artificial Intelligence Conference (WAIC) wrapped up in Shanghai, where major Chinese tech firms unveiled a range of AI technologies and products. The event reported over RMB 16 billion in intended procurement deals. Concurrently, Shanghai rolled out new support measures—including full first-year subsidies for small firms renting computing power—to boost the AI ecosystem across infrastructure, model applications, and training data.
In Focus 1:
U.S. Yet to Reach Deals with Key Partners; Avg Effective Tariff Rises to 18%
Last week, the U.S. continued signing trade agreements with more regions, imposing 15% and 25% tariffs on South Korea and India, respectively. President Trump signed an executive order enforcing the new tariffs starting August 7.
In Focus 2:
Fading Tailwinds May Add Volatility; Equity Strategies Focus on Downside Protection
Economic and equity market performance held up well in 1H25, supported by front-loaded imports and tariff deferrals. However, that honeymoon phase may be ending. Elevated U.S. tariffs risk disrupting supply chains and dampening real consumption through rising prices. The Fed maintained a neutral stance in its July meeting, despite signs of a potential slowdown. With U.S. equities near record highs, fading tailwinds could increase volatility ahead.
