Slippery handoffs, tariff shadows and a Putin–Trump sit-down in Alaska

Treasuries are tiptoeing higher this morning, trying to claw back some dignity after yesterday’s inflation gut punch. The U.S. producer price index didn’t just run a bit hot — it tore up some lottery tickets for the Fed’s neatly staged September cut narrative and set the doves flapping for cover. That kind of upside shock doesn’t just move the needle; it rips the page out of the rate-cut playbook and dares policymakers to scribble a new one on the fly. The dollar found fresh legs, and bond desks that had been humming lullabies about a gentle pivot suddenly heard the distant drumbeat of “higher for longer.”

This is no smooth Friday baton pass into Asia — the grip’s slick, the stride’s off, and both runners are staring at the tape like it’s about to tumble to the track. Just beyond the first exchange lurks a geopolitical wildcard: a Putin–Trump sit-down in Alaska. The street may be dismissing it as a hollow photo op, but seasoned traders know that even a nothing burger can come with a side of headline indigestion. One stray remark in thin Friday liquidity, and you’ve got the makings of an outsized move.

The market mood? Not exactly panic, not exactly comfort. More like warm beer at a summer carnival — enough to sour the vibe without shutting down the rides. September’s cut odds are still heavily in the money, but the ticket size has been trimmed, and the street is quietly shaving the odds of aggressive cuts into year-end.

Still, without a Lazarus-level revival in the U.S. labour market — and with those zombie payroll revisions still staggering through the tape — the Fed’s “insurance” cut looks all but locked. Anything bolder has been boxed up, labelled “ 3 cuts wishful thinking,” and shoved under the bleachers until further notice.

And then there’s the elephant in the corner: tariffs. The full hit hasn’t even reached the loading dock, yet the ripple is already showing in producer prices. Once it stomps into view, expect it to rattle supply chains, pump input costs, and make the second half of the year feel less like a smooth regatta and more like a tacking duel in shifting winds.

Globally, the summer rally’s still afloat, but the tailwind’s fading. U.S. earnings and easy-money bets kept the sails fat through July and early August, but sticky inflation and tariff chatter are bleeding off some of that rate-cut “boost juice.” From Tokyo to Frankfurt, positioning boards are starting to get redrawn before the next round of macro angst hits the table.

On the scoreboard: the two-year yield eased one basis point to 3.72%, the 10-year matched that move at 4.27%, and the dollar index slipped 0.1% after yesterday’s 0.4% climb. Gold ticked higher, as did the broader Asia equity gauge.

Equities in Hong Kong stayed on the back foot — the Hang Seng slipped 1.2%, giving back most of the week’s earlier grind higher — as mainland shares lost altitude after fresh July data confirmed China’s growth engine is sputtering. Factory output slowed, retail sales undershot, and the narrative of a self-sustaining rebound took another dent. It’s not just the domestic drag; traders are starting to price in the slow bleed from Trump’s tariff offensive, which is no longer just a headline risk but a creeping weight on supply chains, export orders, and business sentiment.

Japan bucked the trend, with the Nikkei climbing after GDP surprised to the upside, a rare piece of macro outperformance that gave local bulls something to lean on. Still, even Tokyo’s strength sits in a global context which could grow more tentative without the Fed liquidity cannon on full blast.

September’s Fed cut is still a done deal — north of 80% in the odds trackers — but the swagger has come off the rates markets. Wholesale inflation’s sharpest rise in three years has taken some shine off the trade, not just trimming the probability but, more tellingly, tightening the runway for any aggressive easing post-September. The first cut still looks nailed on; it’s the follow-through that’s starting to make the market sweat.