And it’s a dove

Investors lapped up Jerome Powell’s words like honey on Friday, as the man has apparently been troubled enough by the latest weakness in jobs numbers to say that this situation “suggests that downside risks to employment are rising” and that “if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.” And no one wants that to happen – especially after heavy criticism from the White House pointing at Powell as Mr. Too Late.

So, Powell basically delivered the 25bp before the September meeting. Unless we see a major positive surprise in the next jobs data, or a major quickening in inflation numbers, September will bring the first rate cut since last September’s 50bp cut. Then, the data – especially the inflation data – will tell if there could be further rate relief into the year-end. But let’s eat one lion at a time. For now, markets are happy, and risk investors got the best of what they wished for from this Jackson Hole speech.

Thursday’s US GDP update and Friday’s PCE data – the Federal Reserve’s (Fed) favourite gauge of inflation – will be the first test of the new Fed outlook. The Q2 GDP is expected to print a 3% rebound in US growth following a dip the month before due to tariff-led disruption – when imports exploded before tariffs became effective, dampening the growth figure. We will probably see that readjust. But whether strong GDP or inflation data will derail the dovish Fed expectations is yet to be seen. Powell’s message was too clear to be questioned regarding a September action.

With a dovish policy shift in hand, the door is open to fresh positive pressure across the equity markets. The S&P 500 jumped 1.5% and closed the week a touch below an ATH, while small-cap stocks – which need lower rates more than anyone else – soared nearly 4%. Mood across Asian markets is positive.

Gains across Chinese equities accelerated with the CSI 300 hitting an almost one-year high. The story there is not only about the Fed but also expectations that the Chinese authorities will announce more stimulus measures, topped by rising appetite for Chinese chip stocks on news that DeepSeek will replace its Nvidia chips with local players (as the government doesn’t want Chinese companies buying American chips). Related reports said Nvidia asked several suppliers to stop working on H20 chips – designed specifically for China. As such, SMIC – often seen as the equivalent of Nvidia for China – jumped more than 10% on Friday and hit a fresh record high this morning before pulling back. Cambricon Technologies rocketed 20% – hit the daily trade limit – and pushed to a fresh record today before pulling back. The stock price is up by around 150% since mid-July.

As for Nvidia, the company will close the earnings dance by releasing its Q2 earnings this Wednesday. Every tech investor is watching how Nvidia performed last quarter with Chinese business in limbo and competition rising. The company had pointed at $45 billion in revenue for Q2 – plus or minus 2% – with margins above 70%. That’s pretty much the average consensus among investors. If achieved, that would mean 50% year-over-year growth – very strong – but probably already priced in. Last week alone, bank analysts raised their price targets for Nvidia by more than 3%. It gets me thinking, maybe Nvidia needs a breather at the current levels, and the rising competition could eventually eat into optimism.

But frankly, if risk appetite remains strong – and it looks like it will – unless we see very disappointing news from Nvidia (which seems unlikely right now), investors will probably rush to buy any dips.

US futures are near flat – digesting Friday’s gains – while European futures are slightly bearish, as we’re still waiting to hear more about Ukraine with peace optimism losing momentum due to slow progress. The UK is closed for a bank holiday. Note that European markets also reacted positively to the Fed news on Friday – as the dovish shift comes just as the European Central Bank (ECB) is considering pausing its own rate cuts. Chic, thought investors – the Fed couldn’t come to spice things up at a better moment. But two things are keeping European investors from fully enjoying the positive echoes from the Fed: the lack of progress on the Ukrainian front, and the likelihood that the rotation out of tech stocks will stall, as lower borrowing costs support growth stock valuations – and tech stocks will benefit from that.

So, the next few days could see European indices underperform their US peers on fading peace optimism and a possible U-turn on tech rotation. Major euro area nations will start revealing their preliminary inflation figures on Friday; soft figures could help lift sentiment.

In metals and energy, gold traded above its 50-DMA despite Friday’s risk-on rally, while US crude is stabilizing following three straight sessions of recovery. Resistance is seen in the $64.75–65pb range – including the 100-DMA and a major Fibonacci retracement. Short-term risks are two-sided, while the medium-to-long-term outlook remains cautiously bearish.

In FX & bonds: the US 2-year yield tanked after Powell’s dovish speech on Friday. The US dollar slipped below the 50-DMA, reversing weekly losses in majors like EURUSD. The convergence of a more dovish Fed outlook versus a stable ECB view should give further support to the single currency, bringing a rise toward 1.20 back on the table.