Market Report.
🏦 Central bank movements and inflation fears continue to make headlines this week.
💼 U.S. Treasury Secretary Scott Bessent expressed disappointment that Federal Reserve Chair Jerome Powell has not clearly signaled an agenda for cutting interest rates. Bessent stated that “Rates are too restrictive, they need to come down” and that he is “a bit surprised that the chair hasn’t signaled that we have a destination before the end of the year of at least 100 to 150 basis points.”
⚖️ This indicates there is tension between the Treasury Secretary and the Fed Chair over the appropriate monetary policy stance, with Bessent pushing for more dovish policies. It could be a potential conflict between fiscal and monetary policymakers during this economic period.
📉 Bond traders are reducing their expectations for how much the Federal Reserve will cut interest rates in the coming months, reflecting the mixed messaging from central bank officials. Options linked to the Secured Overnight Financing Rate (SOFR) show traders betting on just one more 25 basis point rate cut in 2025, rather than the 50 basis point cut that was in demand last week. This shift in trader positioning illustrates how the divided nature of the Federal Reserve has clouded expectations for future monetary policy decisions.
🇬🇧 BoE policymaker Megan Greene said the risks of inflation in the UK proving stronger than the Bank of England has forecast have grown, warranting a cautious approach to further interest rate cuts. Greene voted last week to keep the BoE’s benchmark Bank Rate at 4%, opposing the previous quarter-point cut in a narrow 5-4 decision. The BoE suggested it could slow the pace of rate reductions in the face of Britain’s stubborn inflation, with investors pricing in the next rate cut only in February or March 2026.
📊 Britain has the highest inflation rate among G7 economies at 3.8% in August, which the BoE expects to peak at 4% in September before falling back to the 2% target only in spring 2027.
🇯🇵 Japan’s corporate service prices, a leading indicator of consumer inflation, rose 2.4% in August from a year earlier, accelerating from a 2.2% increase in July. The rise in corporate service prices reflects higher costs for businesses, which could eventually feed through to consumer inflation. The data suggests inflationary pressures in Japan are building, with Japan resisting the next rise in rates, so as not to upset the delicate balance of its economy.
📰 Some Bank of Japan (BOJ) board members called for resuming interest rate hikes in the future, even as the board unanimously decided to keep borrowing costs steady at the July policy meeting. Some members argued the BOJ’s policy rate is lower than the neutral level, with prices remaining relatively high and the output gap around zero, suggesting it’s appropriate to return the policy rate to its neutral level.
📈 While some members saw underlying inflation still short of the BOJ’s 2% target, others believed inflation expectations were approaching or had already hit 2%, indicating growing awareness of mounting inflationary pressure. At the subsequent September meeting, two board members dissented from the decision to keep rates steady at 0.5%, instead calling unsuccessfully for a hike to 0.75%.
🌏 The World Trade Organization (WTO) welcomed China’s decision to forgo trade benefits from its status as a developing country, saying it would help make the global trading system fairer and more balanced.
🇨🇳 China’s Premier Li Qiang announced that Beijing will no longer request “Special and Differential Treatment” (SDT) benefits, which allow developing countries more leeway on tariffs and subsidies, in future WTO negotiations.
🛠️ However, China stated it will continue to call itself a developing country within the WTO, despite not seeking the SDT benefits. This move addresses a longstanding complaint from the United States, which has argued that China’s developing country status is unfair given its position as the world’s second-largest economy.
⚡ The immense AI project that we discussed yesterday, will not only be a challenge in energy resources, but also in the corresponding infrastructures given the dependence of the USA on foreign production.
🇺🇸 The U.S. is heavily reliant on foreign suppliers for critical components needed to build the infrastructure for this massive AI project, including gas turbines, nuclear components, large transformers, and steel. The global market for heavy-duty utility-scale turbines is dominated by just three OEMs – GE, Siemens, and Mitsubishi – with nearly 50% of the supply being foreign-sourced.
🔌 The U.S. no longer manufactures the massive, one-piece reactor pressure vessels and associated hardware required for nuclear plants, relying on suppliers like South Korea’s Doosan. Over 80% of the large transformers essential for distributing power from the new generating plants are made by overseas suppliers.
🏗️ The U.S. and its allies remain significant steel producers, but project developers frequently rely on imports to meet cost and capacity needs. Higher tariffs on imported goods will add significant costs, potentially increasing project budgets by hundreds of millions of dollars.
📈 By the way, the CEO of OpenAi, Altman, is considering the possibility of going public, but he fears not being able to meet with the quarterly publication of data. The agreements announced with Oracle, Nvidia or Microsoft are encouraging the company. Some fear that this may lead to a bubble, too many hands, too much money, too much euphoria.
🌐 Geopolitics:
📈 Global defense stocks moved higher after U.S. President Donald Trump said Ukraine could retake territory currently occupied by Russia, marking a significant shift in his tone. Trump said Kyiv, with EU and NATO support, “is in a position to fight and WIN all of Ukraine back in its original form”, a departure from his previous suggestions that Ukraine may need to cede territory.
📊 The comments boosted defense stocks across Europe and Asia, with German firms like Renk, Leonardo, Saab, and Hensoldt seeing gains of over 3.5%. South Korean defense stocks like Hanwha Aerospace, Korea Aerospace, and Hyundai Rotem also gained between 2-5% on the news. U.S. defense stocks including Lockheed Martin, Raytheon, Northrop Grumman, and Boeing also traded higher.
📉 Russia’s finance ministry proposed raising the value-added tax (VAT) rate from 20% to 22% in 2026 to fund military spending and help curb a swelling budget deficit amid the ongoing war in Ukraine. The proposal comes as U.S. President Donald Trump called Russia a “paper tiger” for “fighting aimlessly for three-and-a-half years” and said Russia was in “big economic trouble”.
💰 President Vladimir Putin signaled he was open to raising certain taxes during the war, noting the U.S. had raised taxes on the wealthy during the Vietnam and Korean wars. The government approved a new “wartime budget” for 2026, with economic growth expected to plummet to 1% from 4.3% last year, and the budget deficit seen at 2.6% of GDP, the highest since the start of the war.
🎙️ Tucker Carlson, who joined Glenn Greenwald on the System Update podcast, criticized Israel’s influence over the United States, calling it “humiliating” and accusing Israeli Prime Minister Benjamin Netanyahu of “controlling” U.S. leaders like President Donald Trump. Carlson claimed Netanyahu has been openly boasting about his control over U.S. leaders, saying “I control the United States. I control Donald Trump.”
🚢 Spain and Italy announce the mobilization of their naval armies for possible rescues if the fleet of activists heading to Gaza is attacked by the Israeli army.
📰 Iran’s Ministry of Intelligence publishes documents and photos that reveal the official influence of Israel & US senators in the IAEA especially on chief Rafael Grossi. Iran released the images that were hacked by Israel.
📉 Market View.
📉 For the second consecutive day, futures in the United States are retracing, forming potential bearish patterns. Mini S&P 500 futures are currently falling below 6,700 points. Nasdaq 100 futures are following identical patterns, dropping below 24,800 points and currently trading at 24,725 points.
💵 The dollar continues to strengthen, and in recent hours, the DXY index approached 98 points but has since retraced to the current 97.80 points. This has further cooled the EUR/USD pair, which has lost the 1.1750 level. Additionally, it has pushed USD/JPY to resistance zones seen in recent weeks around 148.90.
🇪🇺 In Europe, DAX 40 futures are still attempting to conquer 23,900 points but have slightly retraced to 23,800 points at present. Eurostoxx 50 futures are also struggling to secure 5,500 points, currently retreating to 5,465 points while continuing their attempts.
🛢️ Crude oil remains strong, with Brent crude approaching $68.50 and currently trading at $68.35.
💰 Gold futures retraced during yesterday’s session but remain solidly above $3,750, very close to the historical highs reached on Tuesday.
💻 Bitcoin attempted to recover the $114,000 mark yesterday but has not succeeded. In recent hours, it has fallen sharply to the current $111,540.
