Equities bid, shadow Fed chair incoming

BLS chief fired following Friday’s job report

Versus a basket of six major currencies, the US Dollar (USD) Index has remained little changed since Friday’s sizeable 1.4% fall following the dismal US July payrolls report. The chunky downward revisions showed an average hiring pace of 35,000, prompting US President Donald Trump to instruct his team to fire the Bureau of Labor Statistics (BLS) chief Erika McEntarffer amid claims of rigged data. Ironically, the disappointing jobs report saw investors price in the possibility of a September rate cut, which is what Trump has been calling for! Firing the BLS chief is not a good look, and, in my opinion, undermines the credibility of the BLS, not to mention making the job of trading news data a little concerning.

Elsewhere in the markets, the equity space looks a little different from Friday, with dip-buyers in full swing yesterday. The Dow gained 1.3%, the S&P 500 rallied 1.5%, while the Nasdaq ended the session higher by nearly 2.0%. Markets appear to have seen the sunnier side of Friday’s jobs data, and are now back to ‘bad news is good news’. With investors all but fully pricing in a 25-basis-point (bp) rate cut in September, and 60 bps of easing by the year-end, this, alongside the AI (Artificial Intelligence) trade, is fuelling equity gains. This was also bolstered by San Francisco Fed Bank President Mary Daly hitting the wires yesterday, saying that the time for rate cuts is approaching, following softer jobs data and tariff-driven inflation not yet materialising.

European equity futures are pointing to a ‘green’ open this morning, with US equity index futures in a similar position.

Shadow Fed chair?

Governor Adriana Krugler announced that she will resign earlier than expected on 8 August – her term was originally due to end on 31 January 2026. This opens the door for Trump to appoint her replacement, possibly a prospective Fed Chair, which raises the potential for a ‘Shadow Fed Chair’ entering the fray, and has renewed concerns about the Fed’s independence. Names in the hat for the Fed Chair spot are the ‘Two Kevins’ – Kevin Hassett and Kevin Warsh – as well as the currently serving Fed Governor, Christopher Waller, and Treasury Secretary Scott Bessent. Of note, Fed Chair Jerome Powell’s term does not end until May next year.

A Shadow Fed Chair could be challenging, as we would then essentially have two ‘influential’ Fed officials voicing their opinions on monetary policy, which could contradict one another.

On the tariff front

The EU anticipates that Trump will unveil administrative measures to solidify reduced import duties on automobiles and provide waivers from certain taxes on industrial products like aircraft components. Switzerland, meanwhile, has expressed its commitment to rebuilding relations with the US following last week's unexpected 39% duties on Swiss goods.

In a separate development, Trump declared his intention to increase trade penalties on goods from India, citing the country's continued dealings with Russia. Indian officials have strongly criticised this decision as unwarranted, marking an intensification of economic tensions between these two global powers.

Day ahead

Macro highlights ahead include the July ISM (Institute for Supply Management) services PMI (Purchasing Managers’ Index) at 2:00 pm GMT, and Q2 2025 jobs data from New Zealand at 10:45 pm.

The ISM report’s headline number is expected to have increased for a second consecutive month to 51.5, up from 50.8; this follows a contraction to 49.9 in May. You will recall that the US ISM manufacturing came in lower-than-expected last week, indicating deeper contraction within the sector. Should we see a disappointing number from services today, this could reinforce the market’s dovish pivot and weigh on the USD.