Sell or hold?

Yesterday’s FOMC minutes further dampened investor mood and accelerated the equity selloff – again led by a significant drop across Big Tech. The minutes stated that Fed officials were worried about both weakening jobs data and inflation risks, but that “a majority of participants judged the upside risks to inflation as the greater of these two risks.” That means officials remain inclined to prioritize inflation control by keeping monetary policy tight rather than cutting rates.

Yet, one caveat makes the minutes look less hawkish than they first appeared: this meeting was held before the release of the problematic July jobs report – with big downside revisions – that spooked investors and fueled expectations for a September cut. Jerome Powell’s speech tomorrow could therefore strike a middle ground: acknowledging rising concern about the labour market, while underscoring that inflation remains a key risk to be addressed carefully.

As such, the Federal Reserve (Fed) will probably announce a 25bp cut next month but stop short of signaling more. The US 2-year yield was under pressure ahead of the minutes but rebounded on the committee’s broadly hawkish stance. The US 2-30 year spread is widening on fears that today’s rate cuts could fuel tomorrow’s inflation, while the ballooning US debt will be more expensive to finance. One bright spot: Trump’s tariffs are bringing in revenue that S&P Global Ratings says could soften the fiscal burden. But they also warn that the trade war risks ushering in a new world order dominated by China.

The pressure on the long end of the yield curve doesn’t calm investor nerves either, as less risky bonds are now offering higher returns and attracting flows. The Japanese 30-year JGB yield is also testing its highest levels in more than two decades. That raises the risk of Japanese reverse carry trades – investors closing yen-funded positions abroad and returning to higher-yielding domestic assets. If that accelerates, global risk assets could face further pressure on top of Fed and trade worries.

The S&P 500 remained under pressure from Big Tech selling, though a small rebound appeared late in the session, and futures hint at a steadier open this morning. Futures on the Taiwan Stock Exchange are better bid, with TSMC up 1.3%, suggesting US tech selling could cool. Nvidia slipped below $160 before dip buyers stepped in, and the SPDR tech ETF bounced off its 50-DMA. Whether the tech-led selloff – and thus the broader indices – deepens into sector rotation remains to be seen. Earnings have been solid, and Nvidia hasn’t said its last word yet, but AI enthusiasm looks largely priced in, and Fed expectations have run far enough that markets could shift back toward the hawkish side, especially as long-term bond yields look increasingly attractive.

Today, investors will watch global PMI releases to recalibrate policy expectations. Japan’s manufacturing PMI beat forecasts but remained in contraction due to weaker foreign demand from tariffs. That suggests the BoJ won’t rush into further hikes until the recovery looks steadier. In India, manufacturing PMI showed its strongest growth since 2008, with robust domestic demand offsetting flat export orders. The Nifty 50 extended gains above the 50-DMA, bucking global risk aversion. Europe’s numbers will likely show continued contraction in manufacturing, with slight services expansion. European Central Bank (ECB) President Lagarde warned yesterday that euro-area growth could slow this quarter under tariff pressure, noting the announced tariffs were “a little higher” than assumed in June but still below worst-case scenarios. The EURUSD is treading water around the 50-DMA, awaiting Powell’s Jackson Hole speech for direction.

In the UK, sterling extended losses despite a hotter-than-expected CPI print, pointing to sticky services inflation. While the data initially lifted hawkish Bank of England (BoE) expectations and weighed on November cut bets, many concluded it won’t stop a November cut: April’s tax and minimum-wage hikes are seen weighing enough on growth for the BoE to keep easing.

Meanwhile, Ukraine talks continue in the background, with Russia expressing willingness to join security talks with Western allies. Any lack of progress toward durable peace could revive oil bulls. US crude found support near $62pb and is pushing higher this morning. The summer decline leaves room for a medium-term rebound: fading peace hopes could send prices back above $65pb. A space to watch.