July inflation data in the US, while not giving a clear signal on tariffs, strengthened expectations of a Fed interest rate cut. This optimism pushed Wall Street indices to record highs, while volatility indices fell to their lowest levels of the year. Futures fully priced in the possibility of another quarter-point rate cut in September, while the probability of three cuts by the end of the year also increased.
The S&P 500 and Nasdaq gained more than 1% on Tuesday, while the VIX “fear index” hit its lowest level of the year. Bond market volatility reached its lowest level in 3.5 years; Despite core inflation rising above 3% for the first time in five months, bond yields fell and the dollar index dropped to its weakest level in two weeks.
President Trump once again harshly criticized Fed Chairman Jerome Powell for not cutting interest rates fast enough and threatened a “big lawsuit.” He also targeted the Goldman Sachs CEO and chief economist for their analysis on tariffs. Treasury Secretary Scott Bessent said the Fed could make a 50 basis point cut in September. Technology stocks led the rise. Alphabet shares rose 1.2% after Perplexity’s $34.5 billion offer to acquire Chrome. Intel gained 5% after Trump met with and praised CEO Lip-Bu Tan. European and Asian stock markets also rose; Japan’s Nikkei index hit a record high.
Eyes are now on the US-Russia summit to be held in Alaska on Friday; clues are expected regarding a possible ceasefire in Ukraine.
