Stagflation Fears Dampen Rate Cut Bets, But Safe-Haven Demand Provides Support

Market Overview

The latest U.S. ISM Services data sparked renewed concerns over stagflation, weighing on expectations for Fed rate cuts and leading to a sell-off in major tech stocks. However, the Russell 2000 index of small-cap stocks bucked the trend and ended higher. Risk-off sentiment pushed U.S. Treasury yields broadly higher, with the 2-year yield rising nearly 5 basis points. The U.S. dollar held steady around the 98.5 level. Gold staged a V-shaped rebound, climbing as much as 1.2% from its intraday low. Crude oil dropped 1.6% following reports that Russia is considering an aerial ceasefire agreement with Ukraine.

Hot Topics to Watch

● U.S. July ISM Services Index Disappoints

New orders nearly stagnated, while the employment index contracted for the fourth time in five months, reaching one of the lowest levels since the pandemic. The prices paid index surged to 69.9, reflecting growing cost pressures. Following the release, U.S. equities turned negative while Treasuries pared losses. Notably, the two major U.S. PMI indicators have diverged sharply: Julys final S&P Global Services PMI came in at 55.7, the highest since December 2024.

● Trump Floats Tariff ‘Dividend’ Again

Former President Trump reiterated that the U.S. has collected “hundreds of billions of dollars” in tariff revenue, well above historical levels, and hinted at a possible “dividend” payment to lower-income households. According to Treasury data, the U.S. has collected over $150 billion from tariff policies, potentially funding a rebate program. Analysts noted that this form of fiscal stimulus could boost consumer spending and economic growth, potentially driving further gains in equity markets.

Key Events to Watch

• 22:00 GMT+8 – U.S. Global Supply Chain Pressure Index (July)

• 22:30 GMT+8 – EIA Weekly Crude Oil Inventories (Week Ending Aug 1)

• 02:00 GMT+8 (Overnight) – FOMC Voter & Boston Fed President Collins speaks on the U.S. and global economy; Fed Governor Lisa Cook also delivers remarks on the economic outlook.