Wall Street Between Market Fatigue and Rate Cut Expectations: U.S. markets are experiencing sharp fluctuations
amid increasing signs of fatigue in Wall Street’s rally and growing bets on an imminent interest rate cut,
Driven by economic, political, and geopolitical factors.

Contents

The Dollar and Bond Yields

Trump’s Policies

Global Markets

U.S. Equities

The Federal Reserve

Geopolitical Tensions

An Optimistic Outlook

Hong Kong

The Dollar and Bond Yields Under Pressure

The U.S. dollar dropped to its lowest level since April 2022, with the Bloomberg Dollar Index falling by 0.3%.
The currency also declined against the Japanese yen and the Taiwan dollar.
Meanwhile, U.S. Treasury yields fell across all maturities,
with the 10-year yield dropping two basis points to 4.27%.

A Wall Street Journal report intensified pressure, indicating that President Donald Trump may announce
his nominee for the Federal Reserve chair as early as September or October,
an unusually early move that could effectively create a “shadow chair.”
influencing market sentiment and boosting expectations of an earlier rate cut.

Trump’s Policies and Potential Monetary Easing

Khoon Goh, Head of FX Research at ANZ Banking Group, commented:
“Trump has consistently spoken about rate cuts,
So he’ll likely choose someone inclined toward monetary easing, which would further weigh the dollar.”

This political direction adds more uncertainty when economic challenges are mounting
Speculation rises that the Fed may be forced to shift its monetary policy strategy due to an unstable economic backdrop.

Global Markets React with Caution

A broad equity index rose 0.4% in Asia,
though gains were mixed as Chinese and South Korean stocks declined following recent rallies.

In energy markets, oil prices climbed for the second consecutive day as investors continued monitoring a fragile Middle East ceasefire.
Market volatility remains heightened, with Russia signaling potential output increases
at the next OPEC+ meeting, and ongoing concerns over Trump’s remarks about sanctions on Iran.

U.S. Stocks Show Technical Resilience

Despite this uncertainty, U.S. stock indices remain strong.
The S&P 500 hovered near record highs,
while the Nasdaq 100 posted fresh gains, driven by Nvidia’s performance.
On the other hand, the Russell 2000 fell 1.2%.

According to Craig Johnson of Piper Sandler,
market technicals remain resilient despite challenges like credit downgrades, rising national debt,
and trade tensions. He noted the “golden cross” in the Nasdaq 100
where the 50-day moving average crosses above the 200-day—typically a bullish signal.

Matt Maley of Miller Tabak emphasized that while often overlooked,
these technical signals reflect upward momentum, even if a short-term pause might be due.

These indicators underscore the market’s cautious yet resilient posture,
aligning with the broader narrative of Wall Street between market fatigue and rate cut expectations,
where technical momentum coexists with macroeconomic hesitation.

The Fed Caught Between Politics and Economics

Trump’s confrontational tone toward the Fed has sparked debate over its independence.
Investors closely followed Fed Chair Jerome Powell’s congressional testimony,
where he noted the difficulty in predicting the impact of tariffs on inflation,
reiterating that the Fed is “in no rush” to cut rates.

In contrast, Fed members Christopher Waller and Michelle Bowman expressed openness
to cutting rates starting in July, provided inflation continues to ease.

Carol Schleif of BMO Private Wealth stressed that policy uncertainty has prevented a rate cut this summer, saying:
“Without trade policy ambiguity, the Fed could have already eased rates.”
She expects one to two rate cuts in 2025, possibly starting in September.

Geopolitical Tensions Increase Uncertainty

On the geopolitical front, Trump announced a planned meeting with Iran,
but downplayed the prospects of a new nuclear deal, citing U.S. airstrikes on Iranian nuclear facilities.

This came as a ceasefire between Iran and Israel entered its second day,
easing fears of a broader regional war that could destabilize energy markets.

Schleif believes markets now price in that the worst of the Iran-Israel conflict is behind,
but notes that tariffs, inflation, labor markets, and taxation drive market moves more significantly.

Wall Street’s Cautious Optimism

Despite the headwinds, JPMorgan Chase strategists maintain a bullish outlook for U.S. stocks hitting new highs this year,
supported by strong fundamentals in technology and AI, algorithmic strategies, and buy-the-dip flows.

However, Goldman Sachs urged caution, especially in lower-quality stocks driven by short-covering rallies.
Louis Miller noted this dynamic might soon offer opportunities to bet on renewed pullbacks.

Hong Kong Intervenes to Support Its Currency

Separately, the Hong Kong Monetary Authority spent over $1 billion to defend its currency peg
to the U.S. dollar, amid mounting pressure from dollar volatility.

Wall Street Between Market Fatigue and Rate Cut Expectations

Wall Street Between Market Fatigue and Rate Cut Expectations

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