Surging Rate Cut Expectations Fuel Risk Asset Rally

Market Overview

Yesterday, optimism over global trade bolstered investor sentiment, while the July U.S. CPI inflation data reinforced market expectations for a Fed rate cut in September. The dual tailwinds drove strong inflows into risk assets. U.S. equities rallied broadly, with both the Nasdaq Composite and S&P 500 climbing over 1% to close at fresh record highs, while the Russell 2000 small-cap index surged 3%. Following the inflation release, U.S. Treasury yields fluctuated but the 2-year note — the most sensitive to rate policy — ended nearly 3 basis points lower. The U.S. Dollar Index fell 0.47%. In crypto, Ethereum stood out with a near-9% jump, reclaiming the $4,500 level for the first time in almost four years. Gold traded in a wide range around $3,350, while crude oil ended lower under pressure.

Hot Topics to Watch

• Tariff Gains vs. Deficit Expansion

• U.S. tariff revenues hit a record monthly high in July, yet this surge failed to prevent a wider fiscal deficit. The Treasury Department reported customs tariff receipts of $28 billion, up 273% from a year earlier. However, after adjusting for calendar effects, the monthly budget deficit reached $291 billion — a 10% increase from the same period last year.

• Trump Slams Powell

• On social media, Donald Trump said he is considering a major lawsuit against Fed Chair Jerome Powell over massive cost overruns in the central bank‘s headquarters renovation — ballooning from the original $50 million estimate to $3 billion. Following Trump’s remarks, Treasury yields narrowed earlier losses, with the 10-year yield turning positive.

Key Events to Watch (GMT+8)

• 10:30 a.m. ET – U.S. EIA Weekly Crude Oil Inventories (week ending Aug. 8)

• 7:00 p.m. ET – 2025 FOMC voter, Chicago Fed President Austan Goolsbee speaks on monetary policy

• 7:30 p.m. ET – 2027 FOMC voter, Atlanta Fed President Raphael Bostic speaks on U.S. economic outlook