Starting with the good, Anthropic’s S-1 filing on Monday showed $16.3bn of revenue in the first half and lifted the semiconductor stocks about 3% on Monday and 3.6% on Tuesday, as investors priced in a new, cash-rich buyer of computing power. Yet for tech, Alphabet’s worst day since 2004 ($500bn wiped), Intel’s warning that memory prices are choking PC demand, and Amazon’s trailing 12-month cash outflow of $42.4bn left the market with little to enjoy over the weekend.

403 names rose on Thursday as the S&P 500 index lost 0.3%. The heaviest names, which drove returns for most of the last few years, are now seeing that dynamic play out in the opposite direction. Healthcare (+3.1%), Materials (+2.0%), and Utilities (+2.0%) led, while Communication Services (-8.5%) and Information Technology (-1.8%) lagged.

Tech was not the only takeaway from a macro-heavy week. The Fed offered some support after holding rates at 3.75%-4.00% in a 10-2 vote. Chair Kevin Warsh tied the recent wobble in AI stocks partly to September’s hike, saying the Fed’s “monetary medicine is starting to work some.” Bond traders took the hint, with the 2-year Treasury yield falling 10 basis points on Thursday as rate-hike expectations eased, even as third-quarter GDP beat estimates.

Over in Europe, the ECB held rates, with President Lagarde downplaying the risk of energy-driven inflation broadening into the wider economy. Markets are now pricing a third and final hike for December. And finally, UK Chancellor John Healey delivered a low-key budget, raising £6.6bn in net new revenue by 2030-31 while avoiding the sweeping tax hikes of his predecessor.

The dollar’s strength remains more selective than DXY would suggest. Much like last week, the greenback gained ground against the euro while the yen attracted haven demand whenever the AI trade came under pressure. EUR/USD touched a 17-month low of 1.1105 on Thursday. Given the currency accounts for more than half of DXY, euro weakness has done much of the heavy lifting for the dollar index.

Elsewhere, USD/JPY fell to 157.12 on Friday despite the BoJ holding rates, tracking lower Treasury yields. However, an interesting divergence is developing beneath the surface. One-week EUR/USD risk reversals turned positive for the first time in two months, suggesting options traders are beginning to question how much further the euro can fall. Spot continues to price in weakness, but the options market is paying for a rebound.

That’s enough of what was. The week ahead will deal with tech in the spotlight, US midterm elections, and the Treasury QRA. Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Clearing Event into Midterms”

• “The Treasury QRA”

Clearing Event into Midterms

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The macro backdrop pulled in two directions, with Brent crude climbing to a five-month high above $113 after attacks on Saudi energy sites, yet USTs had their biggest one-day rally in more than a year as the AI scare took priority over the inflation impulse from oil. In our view, the tech selloff was pinned on an AI scare, but the real catalyst is elevated oil and geopolitical tensions. Risk-off across the board.

There was little on the rates front last week as Fed speakers were in a blackout, so the rates story remains a hold this week and a hike in December.

The dollar fell against every major currency as tech weakened, an unusual outcome for a week characterised by deteriorating risk sentiment. A haven bid in bonds reduced the rate differential supporting the greenback. The yen was up 1% against the dollar as renewed foreign demand for JGBs and speculation on domestic allocations from Japan’s Government Pension Investment Fund all point to a potentially more durable source of yen support. Even amid mounting French fiscal stress, the euro strengthened against the dollar.

Gold failed to serve as a haven bid. Our thoughts from the week’s end are that traditional risk-off correlations are becoming unreliable. It is becoming harder to identify a single defensive asset, particularly when the source of market stress ranges from geopolitical supply shocks to financing and the equity narrative.

Five central banks meet in the week ahead, including the Fed, which we discussed in our memo toward the end of last week (here). Whether we see any consistency return in fickle markets remains to be seen. For the next few days, however, oil/ME directs markets.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Self-Fulfilling Scare”

• “Watching From the Sidelines”

• “Everything Else Is Noise”

Self-Fulfilling Scare

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It was a volatile week. A hotter-than-expected inflation report fueled a risk-off move across all things AI, offsetting index gains in healthcare and consumer staples. It was the S&P’s worst day since July, ending a strong run of calm. Financing concerns returned, leading Coreweave to sell off 20% as its bonds soared to a 15% yield.

Memory stocks were also at the centre of last week’s pain after reports from China’s ChangXin Memory Technologies said it plans to introduce a denser server memory chip before the end of the year. That pushed Micron Technology down 3.9% and SanDisk down 6%, while optical-networking names Lumentum and Ciena fell 10% each. Selling spread to Asia on Tuesday, when South Korea’s Kospi sank 5.5%, and SK Hynix fell 10.1%.

Earnings season is well underway, so a few comments are in order. The big banks gave a mixed bag.  Goldman Sachs reported a 72% jump in equities revenue, but surrendered early gains. Citigroup slid 5.6% as management guided to a decline of about 20% in fourth-quarter markets revenue, and JPMorgan Chase slipped after sharply reducing its share buyback. Overall, equities trading remained solid, but most other areas did not meet the high water marks of recent quarters.

Gasoline rose 9.1% in September and accounted for more than half of the monthly increase in headline CPI. Core goods prices rose by the most since January 2025, services excluding shelter and energy climbed 0.42%, and shelter rose 0.39%. Thursday’s PPI report added to the picture of energy costs feeding through the pipeline. The data showed annual PPI accelerated to 6.3% from a revised 5.6%.

Fedspeak offered little insight, largely expected given the new “low/no guidance” regime. Warsh declined to comment on October’s meeting, while the Fed’s Hammock said policy is not yet restrictive enough to return inflation to its 2% target.

US Treasury bonds rallied at the long end even as inflation data ran hot, marking a tough week for those biased to a bull steepener. The 10-year rose to around 5.30% after Wednesday’s CPI print, then closed at 5.19%. It then fell 10bps to 5.09% on Thursday, its lowest close since September 22, as the selloff in AI shares and Asian equities drove demand for havens. Bonds finally acted like bonds. Data showed liquidations in UST futures across tenors, as short covering drove much of the rally in the latter part of the week.

The dollar rallied after Wednesday’s CPI report but couldn’t hold gains as Treasury yields, the core of recent strength, retreated. The dollar index hit its highest level since last April before fading by week’s end. Realised volatility remains relatively subdued, with price action in FX markets driven more by other assets, particularly the long end of the UST curve.

On a final note for last week’s roundup, cars now fly. Love him or hate him, Elon’s roadmap seems decades ahead of everyone else. It’s rather spectacular to watch.

The week ahead will be closely watched after last week’s action. So, let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Rundown of Equity Themes”

• “Markets Are Energy-Pilled”

• “Summary of House Views”

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Rundown of Equity Themes

While attention has recently focused on yields, it most certainly returned to equities last week, which makes this the start of our Monday memo.

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Last week felt slow. Stocks ticked to new highs on Tuesday but lacked the impetus seen in earlier highs this year. As little surprise, the move was driven by AI spending. Thursday saw stocks drop after the FT reported that OpenAI is on track to generate annualised revenue of roughly $50bn based on its current performance. Yet risk-on spirits returned the following day, Friday, with the Spoos and Qs both settling the week at highs. The S&P 500 is in its longest streak of calm since July 2024, with no 1% down day in 49 straight sessions.

Per CFTC data, hedge funds have boosted long positions in Nasdaq 100 futures to their highest levels since 2017. The tech bias is also reflected in Citigroup’s analysis.

Yields remained the centre of attention, though they brought far less drama than in recent weeks. Midweek auctions for 10-year and 30-year Treasuries saw particularly strong demand, suggesting lofty yields are starting to entice some buyers. That helped spark a brief relief rally, with the 10-year falling as low as 5.22% and the 30-year touching as low as 5.59%. To us, US 10s and 30s look set to roll over further. Debt stress remains more pronounced in Europe, with OAT- and BTP-Bund spreads widening again into the week’s end, despite some initial relief from Le Pen’s fiscal plans.

The dollar is in its longest run of strength since January 2025, driven by safe-haven demand amid Middle East conflict and a selloff in European sovereign debt. But the big currency story (and overall market mover) was Brazil. Brazilian markets rallied after the October 4 vote on expectations that right-wing Senator Flavio Bolsonaro will win the October 25 runoff and deliver a much-needed fiscal adjustment to stabilise Brazil’s high and rising public debt. His chances of victory look palpable; his plans for fiscal adjustment, less so. The Brazilian real was up 5% against the yen in Monday’s session.

However, the real test this week is US CPI, which may help or hinder the Fed’s hand, and a big test for stocks arrives, with banks including JPMorgan Chase, Goldman Sachs, and Citigroup kicking off the earnings season. Any signs that higher yields are not severely weakening credit quality and borrower health will be a welcome reprieve for the KBW Bank Index, which has declined for five consecutive weeks and is down 12% from a record.

That wraps up what felt like a quieter week in markets before an important few days ahead. Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “CPI Game-plan”

• “Watch the Dispersion Trade”

• “Summary of House Views”

For newer readers, or those who have yet to explore the full AP Research offering, our about page⁠ is a useful place to start. It outlines what we publish, how we approach markets, and how we translate our research into actionable investment views. If you’re considering full access, we encourage you to take a look. We also offer trial access for those who would prefer to see the research first.

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CPI Game-plan

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What started as a continuation of the most recent trend stretched towards, dare we say, panic (at least in the headlines). Sovereigns with idiosyncratic risks, such as France, fared even worse, as the OAT-Bund spread soared toward 150bps. We had identified this risk in early September (“Qui paie ses dettes s’enrichit”), and we took exposure to the spread widening. After a move from 87bps to 120bps, we took this trade off the books, and in true market fashion, that provided the next leg higher as the spread moved to 150bps just 48 hours later. C’est la vie. One thing is certain: rising yields have found Europe’s weak spot.

Equities stayed resilient. After all, this is a growth-led pressure in bonds, which benefits equities. Rate-sensitive sectors, such as financials, bore the brunt of any selling, finishing September with the second-worst return in 15 years. Technology again provided the main support for the broader market. Semiconductor and software stocks helped the S&P 500 regain more than 60 points off its lows on Thursday and snap a three-day losing streak. Retail stayed under pressure as Nike sank to a 13-year low after poor guidance after the bell on Thursday, off 81% from November 2021 highs. Nike’s “Just Do It” mantra is looking less convincing when whatever it did clearly didn’t work.

As for economic data last week, Friday’s payrolls report showed employers added just 29k jobs, and traders have largely priced out a hike in October. Still, long-end UST yields kept climbing even as rate-hike odds fell, leading to a strong steepening in the curve by week’s end.

Regarding US-Iran and oil, a stalemate provided minimal information and mixed signals for markets. While stocks pared steeper declines on a report that President Donald Trump was willing to give Iran sanctions relief, Iranian officials expressed pessimism about reaching a deal to end hostilities. For now, oil remains off recent highs, with no clear sign that tensions are easing. Yields’ minimal reaction to last week’s drop is a fair indication that oil is by no means the driver of pressure right now.

The dollar remains well supported as rate differential remained favourable. This was evident in EUR/USD, as French budget issues kept downward pressure on the pair and ECB rate hikes were priced out. As our APFX team noted on Friday, “we believe the second-order move [of French fiscal risk] will be felt in lower ECB pricing expectations for 2027.”

That wraps up our takeaways from what was a pronounced week in markets. Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Contagion Aware”

• “Getting Bulled Up”

• “Summary of House Views”

Just a quick note before we move into the rest of this memo: we joined last Wednesday to talk all things FX and macro. We thoroughly enjoyed the discussion and wanted to share a link to the audio for anyone interested.

Prometheus Research

Prometheus: In Conversation With AP Research

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a month ago · 12 likes · Prometheus Research and AP Research

Contagion Aware

The biggest driver of markets this week will be a continuation of the yield story. Maybe the biggest worry on markets’ minds will be contagion risk, with memories of Europe’s debt crisis 15 years ago still fresh.

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A confluence of factors soured appetite for bonds on Wednesday, as Flash PMIs showed business activity was running at its fastest pace since July 2021, and a 5-year auction drew weak demand, alongside a further move higher in global yields.

In equities, semiconductors and hyperscalers did the heavy lifting. Meta Platforms (META US) soared 11% after its Muse AI agent became the most-downloaded product on the US Apple App Store. As a result, the broader Nasdaq 100 Index closed at a record on Tuesday for the first time since June. Yields eased, and oil fell anew on Friday amid hopes the Strait of Hormuz would reopen, allowing the S&P 500 to extend its weekly advance.

The dollar approached a YTD high as yields pushed higher, with carry-sensitive FX especially volatile through the week, hinting that the market may see the USD higher for the longer term. One-week risk reversals widened to 54bps, the most since April, to capture this week’s payrolls data.

One small FYI for Substack app users, we’ll be joining a live podcast with on Wednesday, September 30, at 12:00pm EDT. We’ll be talking through FX, bonds, and some recent market events. You can set a reminder for the conversation here.

Below the paywall, we focus on one important question many clients have asked over the last week: can equities withstand yield pressure?

To read this full note and see our full research library, consider becoming a premium subscriber for a month.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Hurdling a High Bar”

• “One Eye On Midterms”

• “Summary of House Views”

Hurdling a High Bar

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Importantly, the 10-year Treasury yield moved above 5% for (say the line) “the first time since 2007.” Long-volatility demand remains elevated as a result, with large October and November Treasury straddles showing traders expect rates to remain the main source of cross-asset instability.

Reports of additional Saudi crude shipments initially eased concerns around a prolonged supply squeeze, although Aramco later told some European customers they would receive no crude next month. The resulting volatility in energy prices remains an important input for both inflation and equities, but the pullback was enough to give risk assets some breathing room into Thursday and Friday.

The dollar’s muted reaction to the Fed hike was notable. Ordinarily, the first rate increase in three years alongside a hawkish dot plot would be expected to generate a much larger move. Instead, the USD largely wavered, suggesting the September decision had already been absorbed after Jackson Hole and the recent inflation data. The bigger FX move came from Japan, where a split BOJ hike failed to support the yen as much as traders had positioned for.

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Two drivers will be moving markets this week: follow-through from rates and a Trump-Xi meeting. So, let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Hawkeyed”

• “Two Strongmen in the Playground”

• “Summary of House Views”

Hawkeyed

We’ll take each meeting as it happened, as last week was all about rates. On outcomes, each decision aligned with market expectations, but what follows next differs.

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The S&P 500 fell in each of last week’s first three trading sessions, before a Friday rally pared the decline. The percentage of S&P 500 members above the 50-day moving average has declined rapidly over recent weeks. Just 39% of the 500-member gauge now trades above its average.

Brent crude and West Texas Intermediate gained 5.9% and 6.7% on Thursday, the highest closes since May 19. Energy was the only sector reliably in the green, while industrials and consumer discretionary bore the brunt of selling. But most of last week’s attention was on the Treasury market. US Treasury securities sold off across the curve, with the long end leading. The 30-year reached 5.373% on Thursday; the “highest since 2007” crowd was back as levels rose above those that prompted Bessent’s August intervention. The bear steepening reverses the Jackson Hole flattening and suggests markets are pricing in an inflation shock over a credibility restoration.

The rally did not change the rates picture, with a Federal Reserve hike very much fully expected. Goldman Sachs Prime Services sees net and gross hedge-fund leverage remaining well below this year’s highs.

The US dollar strengthened to a one-week high on Thursday, as oil-driven repricing at the front end did the work August data could not. Higher crude lifted US rate expectations faster than G-10 peers, making the dollar a passive beneficiary. That dynamic reverses quickly if the Fed hikes and signals it is done. Wednesday’s FOMC statement becomes more important for the currency than the decision itself. Precious metals took the other side, with gold selling off sharply as real yields pushed higher.

Behind the paywall, we highlight over views on global debt and state the case for our convictions in the short-term, as well as the implications for equity markets and a new rates trade following the ECB meeting.

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Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Insufficient Funds”

• “Elsewhere… One Hike, One Pause”

• “Summary of House Views”

Insufficient Funds

“I am the house now.” — Sec. Bessent, September 9, 2026.

Of course, Bessent was talking to bears looking to short the yen against his interests, but it also symbolises his goals in the bond market. There’s a confidence, a swagger. Bessent believes he cannot lose.

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Technology led most of the week, but AI-related weakness persisted, and Broadcom shares fell despite a ninth consecutive beat and sharply higher AI semiconductor revenue; the pattern also appeared in Cisco, Samsung, and Nvidia, as fourth-quarter guidance missed expectations and weighed on shares. Energy stood out as crude oil was on course for a strong weekly gain, helped by the US and Iran resuming military exchanges in a conflict now in its seventh month.

The hawkish reaction, which saw rates rise broadly across the curve, reflected the labour market being behind part of the Fed’s mandate, with the full picture dependent on next week’s CPI figures. Fed’s Waller was framed as a proxy for the committee centre, noting a preference for holding steady if the path of disinflation resumes, and that a hike vote is likely to depend on this week’s CPI. USD edged higher on the payrolls data after retreating through Thursday when falling yields reopened a downtrend through most of August, with the move seen more about positioning than a lack of willingness to price in higher rates.

Into next week, the balance of risk leans towards further USD strength unless CPI is soft. The rates move wasn’t sustained, with 5s30s up only 3 bps over the week, suggesting the market continues to seek more concrete signals on the Fed’s policy path, and most attention shifted to next week’s inflation figures.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “September Showdown”

• “Europe Politics”

• “Summary of House Views”

Below the paywall, we look into last Friday’s US labour data and how that plays into the September FOMC decision, alongside our call on a hike or hold. We also share some insights on Europe and the political forces at play in local markets, where the stage is set for a bearish impulse on euro-area bonds to emerge ahead of this week’s ECB meeting.

A France thematic article on the 2027 elections will be sent to all paid subscribers later this week. If you are not yet a paid subscriber, you can upgrade below to receive all published research.

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Markets got some good news from Nvidia and some not-so-welcome news from Warsh. Nvidia did its job in validating the AI complex. Semiconductors were higher, and it gave the S&P 500 its best session since early August. Warsh then stepped up to the podium and made his inflation concerns clear, adding to the hawkish pricing in rates markets.

We’ll touch on Nvidia specifically later on, but elsewhere, software was strong and delivered some much-needed evidence that the AI opportunity is broadening, now a positive for software. Salesforce surged after stronger guidance and an expanded Anthropic partnership, while CrowdStrike rallied to a record as AI-related cybersecurity demand accelerated. It’s a continued case that “SaaSpocalypse” is company-specific. There will be winners and losers in the sector.

Breadth was weaker. Most S&P 500 sectors still finished lower. The relative attraction of equities is also becoming harder to ignore with the 10-year Treasury yield above 4.7%, leaving investors able to earn more income from government bonds than from almost every stock in the index.

Other markets responded largely to the Jackson Hole symposium speech, but we look more into this later on.

Below the paywall, we outline in detail the guide to trades moving markets, where they may be heading, and the actionable trades to consider.

• “Warsh’s Judgment Day” — cross asset implications from Jackson Hole

• “Investment Case for NVDA and META” — why Nvidia can outperform and the overhang that is now gone from Meta’s outlook

• “Summary of House Views” — recapping all macro trades on the book

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Warsh’s Judgment Day

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The move had been building since early July as structural concerns such as the deficit rising, inflation staying above 3%, and a wave of AI-related corporate issuance competing for the same duration buyers compounded. The pain point was hit, and Bessent showed his hand, which we’ll speak more on later.

Across equity sectors, traditional defensive areas like healthcare and materials benefited, while energy continued to get support from elevated oil prices. Healthcare was especially lifted after Moderna’s extraordinary rally following positive melanoma vaccine data.

Tech stocks bore the brunt of the weakness on the sector breakdown (as well as the most $ net sold last week, per Goldman). Walmart delivered its slowest US comparable-sales growth in more than six years and guided below expectations, sending the stock down more than 9%. That view is largely comparable with the macro data, as households increasingly make trade-offs. Target had a better quarter and raised its outlook, but the broader picture remains one of uneven consumer spending.

The dollar was used as Bessent’s sacrifice, with the dollar index (DXY) falling about 1%. Bitcoin had an unlikely winning week, benefitting from the buyback announcement, lower yields, renewed liquidity expectations, and optimism following Trump’s meeting with crypto industry leaders. Gold also continued higher, with the “debasement” thesis getting a fresh tailwind.

Instead of doing several short memos on different assets, as is our usual style on a Monday, we’re combining all our thoughts into one continuous analysis this week, all focused on the knock-on effects of Bessent’s buybacks. Yields, dollar, gold.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Not QE, Not YCC”

• “Summary of House Views”

Not QE, Not YCC

This title felt apt to correct any misinformation out there. This was not quantitative easing or yield curve control. The Treasury is altering the maturity and liquidity composition of the debt held by the market. More Operation Twist than QE.

Bessent’s actions in the Treasury market are likely to drive most themes in the coming days, so this week we focus on this core area while exploring knock-on effects across multiple assets. We’ll start first and foremost with Treasuries themselves.

The initial reaction saw the US Treasury’s expanded long-end buybacks deliver a bull flattener on a one-day lookback, but the more consequential market signal is that Washington has now shown its hand. On a 10-day lookback, the 2s10s curve remains in a bear steepener.

Doubling long-end liquidity support is small relative to supply, but the 10- and 30-year still had sizable reactions. Coupled with the administration’s willingness to intervene elsewhere, the message from Wednesday’s move was difficult to miss, and the size of the intervention may be beside the point. Washington is increasingly uncomfortable with the signal coming from the long end, and markets now know that discomfort exists. Importantly, pain points in markets have a habit of being revisited.

It’s an effort to lean against price discovery and compress long-term borrowing costs. That can matter tactically, particularly when positioning is stretched, but it does little to alter the forces that pushed term premium higher in the first place.

It’s all very poetic when you consider the side of a currency trade that Bessent was on in 1992. He should be fully aware of the consequences of intervention signal failure.

Running growth hot, welcoming easier financial conditions, and resisting higher policy rates is difficult to reconcile with structurally lower long yields. A higher long end is an accurate reflection of Washington’s long-term neglect to run a balanced budget. National debt now tops $40tn. As our friend likes to say, “nothing stops this train.”

We still view steepener trades as attractive, and are in our 2s30s trade from a good entry point, but of course there are increasing risks here, that being th Treasury eliciting coordination from the Fed to provide sustained relief at the long end of the yield curve. That raises more concerns about Fed independance, but would offer enough of a showing to the market to maybe not test pain points… So far, the consequences of Bessent’s actions have been short-lived.

The other market that felt this shockwave is the dollar: Bessent’s sacrificial lamb in all of this. Rather than tackle the country’s structural fiscal imbalances, Bessent has clearly shown he’ll take the easier path and manage yields, shifting pressure from bonds to the currency.

The knee-jerk reaction from the news was to add dollar bearish positions, and the sterling and euro attracted the strongest demand. We’ll have to wait for Tuesday to see the positioning change in CFTC data, but prior to the announcement, positioning was still largely positive.

Bessent would welcome these FX movements, as the Trump administration has been praising the benefits of a weaker dollar as a way to increase US competitiveness and reduce trade imbalances.

As for under-the-hood measures, markets are paying for protection against, or exposure to, a higher EURUSD/weaker-dollar outcome. Implied volatility on the pair is still low, but 1m 25-delta risk reversals have moved meaningfully higher and are now positive (orange line below). That means risks have become increasingly one-sided toward USD weakness.

With higher risk reversals but still low implied volatility, we’re in a managed depreciation regime. If, however, implied volatility follows skew higher, that would indicate that the market is starting to view policymakers as having lost control of the move rather than a more orderly dollar sacrifice.

Gold is closely linked to the dollar, and much has been said about fresh tailwinds for the “gold higher” camp and the debasement traders.

It’s been a good couple of weeks for bullion. The precious metal was already on course to log its best month since February before shooting higher on Wednesday. The rebound from a year-to-date low in June has coincided with a pullback in US two-year yields from their recent peak as traders pared bets on Federal Reserve interest-rate hikes.

That inverse relationship will continue to favour gold. US economic data keeps disappointing, leaving the door open to further dovish shifts in policy expectations. Options traders are already hedging the risk that the Fed pivots to cutting rates in 2027.

Meanwhile, long-end US yields remain elevated even after Wednesday’s pullback, but their relationship with gold is more nuanced. The negative correlation strengthened during the Iran war but reversed in June, around the same time the US term premium began to rise. That suggests higher yields pose less of a headwind to gold when investors demand greater compensation for long-duration risks such as inflation and fiscal uncertainty.

As for our call butterfly spread, we remain holding this position, which is up about 7x, with a maximum payout of 1x at $4750. It’s been a great trade so far.

Elsewhere In the Week

The week ahead includes the July US PCE index and the Kansas City Fed’s annual economic symposium in Jackson Hole. Nvidia earnings will also be released, with investors focused on whether AI demand can sustain its valuation.

We spoke about these two topics in more detail last week. In short, Warsh has an opportunity to become better understood by markets, and markets will focus on Nvidia’s continued role as the Bank of AI, looking for fresh details on AI financing and circularity risks.

Top Trade Ideas and Views

Curves

• US 2s10s steepener

• UK 10s30s flattener (here)

• JP 2s10s steepener

Rates

• Fed and BOE on hold for the remainder of the year

• BOJ hike in September, and two hikes in 2027

• ECB October hike

FX

• Bearish USD

• EURGBP six-month put spread, 0.855-0.845

Equities

• SPX call condor (here)

Commodities

• XAU 3-month call butterfly spread (here)

That’s all to start this week. See you soon,

AP

The AI trade also chugged along. CoreWeave rallied after quarterly results showing revenue more than doubling and backlogged demand growing. Intel upsized its equity offering to $20bn. It marks two weeks of Nasdaq outperformance relative to the S&P 500, its first notable stretch since the tides changed in late June. Energy sectors led as the Iran conflict remains unresolved, while consumer-facing areas lagged after the retail sales miss.

Rates followed the inflation data lower. September hike odds fell, while the opposite was true for the BOJ after reports from Japan.

That’s the short recap of the week. No need for much more to be said.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Right Tail Risks”

• “Largely On Hold”

• “Summary of House Views”

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Macro Monitor
Chartbooks

Right Tail Risks

Despite the lingering question among investors of “what could go wrong?”, equities continue higher. As we look at the equity backdrop, the remainder of August looks constructive, and the risks may instead be on the right tail. We see few macro hurdles until the end of the month, while several supporting fundamentals have returned to the market, so we look towards a new index trade for the coming weeks.

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An interesting note from UBS this week highlighted that global semiconductor stock valuations imply abnormally strong profits will persist, which is at odds with historical patterns. Less than 20% of companies with cash flow return on investment levels running as high as the chip segment continue to deliver elevated returns. Still, semiconductors are up 20% from recent lows, and the buses feel empty.

Friday’s payroll report showed an unexpected fall by 23,000, while participation again dropped and JOLTS openings softened. Hiring demand is weakening, and workers are becoming less willing to leave existing jobs. The U3 rate fell to 4.1%. For a Fed that has spent much of the post-Iran war focusing on inflation concerns, this data print complicates the dual mandate.

The curve bull-steepened, and the dollar weakened as the next move from the Fed got pushed out from October to December, a strong shift considering markets had a 40% chance of a hike at the July meeting just weeks ago. There is also no longer a second hike priced in 2027.

The dollar faces some pressure, as the recent rally was partly driven by higher rate expectations, but the geopolitical backdrop and higher relative US yields still offer a floor for the dollar long trades. As for the USD/JPY intervention move, the jobs reports likely give the yen rebound more staying power, but we still look towards renewing carry trades.

Falling oil prices and more constructive tones between Iran and the US helped ease geopolitical risk last week.

Overall, the rates higher crowd felt pain, oil bears were rewarded, equity markets moved higher despite the disbelief of stock sceptics, and gold bugs got their groove back.

For access to our newly released Chartbooks, see the link here.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Equity Insights”

• “Back Buying Bullion”

• “The Risk on FX Rotation”

• “Summary of House Views”

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Equity Insights

We’re going under the equity hood this week… Total assets in US-listed leveraged ETFs have retreated from the highs and are now back to near start-of-year levels, reducing the short-gamma exposure and market impact from daily rebalancing.

Leveraged ETF short-gamma exposure has fallen from more than $9 billion per 1% move at the peak to about $6.5 billion. Strategist estimates say that leveraged US ETFs’ daily rebalances net sold ~$150 billion of equity exposure from early June through July 29 as funds deleveraged, with total assets shrinking about $70 billion from a June peak.

Near-term leverage demand in the US and Korea has eased, which has helped relieve pressure on short-dated equity financing costs, but volatility for the momentum trade in the US could persist in August due to sustained tech/AI mania. As we stated in our note Autopsy on the AI Selloff: “We therefore expect volatility to remain structural rather than temporary.”

Historically, weak and volatile momentum performance has often followed periods of extreme underperformance as seen in July, so we expect a more nuanced stock performance over the next month. That divergence has been noticeable among software stocks.

Software’s underperformance has brought it to its cheapest levels on value rankings since the tech bubble implosion in 2022. Meanwhile, the Q2 earnings season continues to argue for little damage from AI companies to their profits and outlook.

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SPX closed July down 0.13%. After all that happened, it feels anything but unchanged.

Much of the recovery last week can be attributed to gains in tech on Thursday and Friday, notably Microsoft and Amazon. The equal-weight index showed no such struggles, as the broader market was less volatile and leadership rotated. The Nasdaq entered correction territory just before the comeback was staged (Wednesday), with the main factors of the unwind being semiconductors and memory.

The FOMC meeting added to what was a crazy week. Rates were held, three officials voted for a hike, and Warsh again made price stability his central focus. Markets took a dovish read of the meeting, particularly as there were no explicit signs that tightening is on the way. However, the removal of forward guidance leaves markets to infer the path from each data print, creating more, not less, sensitivity.

OIS markets price a hike for the December meeting, but long-end yields are at levels that suggest the Fed is behind the curve. Curve steepeners are firmly in play.

The dollar took a soft interpretation of Wednesday, leading to its weakest week since January. Intervention in yen markets added to the USD/JPY move further, but we still see the broader dollar backdrop as balanced, despite last week’s decline.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Warsh’s Word Salad”

• “Co-Ordinated Intervention”

• “Global Equity Strategy”

• “Summary of House Views”

Warsh’s Word Salad

Financial conditions tightened regardless of the lack of move in the policy rate. 30-year yields climbed to their highest level in 19 years, 5.28%. The curve steepened, mortgage rates climbed, equities had their most adverse reaction to a meeting since late 2024.

Warsh offered no better than a word salad in his presser, giving almost no guidance on the conditions that would prompt a hike or the timing of the next move. Three members voted to tighten immediately, and little was done to explain how that disagreement might be resolved.

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- Takeaways from last week in cross-asset markets

- Thoughts and key considerations ahead of the upcoming week

- House views and expressions

US equities finished modestly lower, but the headline move understated another difficult week beneath the surface, particularly for the parts of the market most exposed to the AI investment cycle.

The S&P 500 fell 0.6%, the Nasdaq 100 1.6% as assessments of hyperscaler spending and technology valuations continued ahead of a crucial run of mega-cap earnings. Alphabet provided the first test, and the market didn’t like what it saw. Revenue beat, but management raised its 2026 capex forecast to as much as $205 billion, reigniting the debate over how much capital the AI buildout can absorb before investors begin demanding more evidence of returns.

Alphabet, Amazon, Meta, and Microsoft had already indicated combined spending of around $725 billion this year, and Alphabet’s updated guidance suggests that figure could move higher as the remaining hyperscalers report. More so, Alphabet generated negative quarterly free cash flow for the first time since becoming a public company. The tolerance for spending without an obvious near-term payoff is narrowing.

Goldman Sachs’ PB data showed hedge funds have net sold US tech at a record pace over the past eight weeks. The SOX index is now on course for its worst month since June 2022, and Mag7 lost almost $800 billion of market value on Thursday alone. Markets are also targeting large VIX call spreads in the 45-65 area for August and September. Pay up for protection heading into the thinner summer liquidity period.

The macro backdrop did little to provide relief. There were no major US releases and the Fed remained in blackout, leaving markets to continue repricing the policy path ahead of Wednesday’s FOMC meeting, in a new environment where Warsh’s reaction function to data is still unknown. OIS prices a full 25bp hike by September, with further tightening priced in early 2027.

The repricing supported another strong week for the dollar. Renewed haven demand from Iran and higher short-end US yields took the dollar close to its year-to-date high. USD/JPY drifted to near 164. Higher-beta currencies have begun to show larger moves as US rate volatility increasingly feeds into FX markets, particularly since the Fed stepped away from traditional forward guidance.

Treasuries reflected a similar dynamic, with the curve flattening sharply from the five-year sector onward. Put demand increased as investors hedged against further yield upside, although open-interest data suggests much of the move has still been driven by existing longs being liquidated rather than a large build-up of outright shorts. The FOMC is on Wednesday, and markets are taking the hawkish side.

This week, therefore, has the potential to determine whether the recent tech weakness remains a rotation or becomes broader. Microsoft and Meta report Wednesday, followed by Amazon and Apple on Thursday. After Alphabet, the market will look beyond headline earnings beats and focus on capex and margins as evidence that AI investment is generating acceptable returns.

The bar is high.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Oil Is Again the Macro Variable”

• “Policy Can Do Only So Much (JPY)”

• “Summary of House Views”

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Oil Is Again the Macro Variable

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- Takeaways from last week in cross-asset markets

- Thoughts and key considerations ahead of the upcoming week

- House views and expressions

US equities finished lower as technology stocks dragged the broader tape into the red, with the Nasdaq 100 and semiconductor complex once again absorbing the worst of the damage. Stretched valuations, growing scrutiny of hyperscaler capex, and fresh concern that cheaper Chinese AI models could change the economics of the infrastructure buildout created pressure. Moonshot’s Kimi K3 release revived the same type of questions that followed DeepSeek last year.

The banks offered a cleaner earnings story. Equity trading revenues were exceptionally strong across the major US lenders, with Goldman, JPMorgan, Bank of America and Morgan Stanley all posting major beats. That reflects a market environment that has been ideal for trading desks. The fact that bank shares saw only modest gains speaks more to expectations than to fundamentals.

Energy led as renewed US airstrikes in Iran kept crude risk alive. The market reaction was less severe than during the height of the conflict, but the sector still benefited from the return of the geopolitical premium. United Airlines showed the other side of that same move, with strong travel demand being overshadowed by higher fuel costs. The Iran conflict remains a meaningful margin and inflation variable for companies exposed to energy.

Macro gave equities some temporary support. June CPI and PPI both came in softer than expected, producing a dovish cross-asset reaction and giving the market its best session of the week before the technology headwinds took over again. But Warsh pushed back in congressional testimony, making clear that one soft inflation print does not amount to victory. The market has spent recent weeks fading the most aggressive hike pricing, while the Fed is still trying to preserve credibility amid inflation that remains above target.

Rates reflected that tension. The short end reacted to the softer inflation data, and SOFR options flow suggested investors are becoming less concerned about one or two hikes this year. Even so, OIS markets still price a 25bp hike in December. If oil-price pressure fades quickly from the data, that pricing could come under further pressure. If geopolitical risk keeps energy elevated, the Fed will have less room to look through inflation, even with softer core readings.

The dollar told a similar story. It sold off sharply after the inflation data but ended the week little changed, helped by short-covering into the weekend as traders hedged against another geopolitical flare-up. The broader trend has shifted toward dollar selling as the market fades the most hawkish Fed outcomes, but volatility remains unusually low. EUR/USD spent the week in a narrow range, suggesting traders still want clearer direction from the next Fed meeting before committing to a bigger move.

The market has entered a more discerning phase… Cheap AI has raised the bar for the companies selling expensive infrastructure, while the latest earnings season is showing clear winners and losers from the reallocation of technology budgets. The broader equity market can still hold together if breadth improves and inflation continues to soften, but the AI trade no longer has the same ability to carry everything indiscriminately. From here, Alphabet and Intel matter because they will tell investors whether AI spending is still accelerating or whether the market has begun to price in a capex cycle that is becoming harder to defend.

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Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Earnings Will Underpin Momentum

• “Reviewing a Policy Mistake”

• “Summary of House Views”

Earnings Will Underpin Momentum

For many of the last weeks, equities have been the front and centre of our commentary each week. Although our team covers and trades all markets, we understand that a large majority of portfolios concentrate around equity positions, and less so in institutional markets like rates or credit. The past few weeks have, for equity portfolios, been tumultuous.

Often we can set aside equities as our themes take hold of markets, focusing instead on more intricate themes developing in other areas. As the pre-August storm continues, the attention on equities matters more. No calm summer markets as of yet, although we are not ruling that out.

So where to start? Momentum has once again faced the chopper.

The current drawdown from momentum trades is as steep as during the last bear market and marks a new condition for the AI trade since it began. However, Friday’s rebound from the overnight lows in semiconductors and momentum looked like a squeeze after positioning had become too negative.

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- Takeaways from last week in cross-asset markets

- Thoughts and key considerations ahead of the upcoming week

- House views and expressions

A week of two halves, but the S&P 500 finished higher, as early-week geopolitical stress gave way to another late-week bid in technology.

Fresh attacks around the Strait of Hormuz and retaliatory US strikes in Iran briefly brought inflation concerns back into the conversation, pushing oil higher as a key inflation data print lies ahead this week. But equity markets proved more resilient than they looked at the start of the week, with dip buyers returning to semiconductors and communication services into Thursday and Friday.

Samsung’s disappointing earnings initially hit sentiment across the chip complex, weighing on Micron, Sandisk and the broader memory trade. That mattered because investors have become increasingly sensitive to any sign that expectations are running ahead of delivery. Yet the successful US debut of SK Hynix ADRs helped steady the sector, with the stock surging above its offering price after the largest-ever US listing by a foreign company. If Samsung provided the warning shot, SK Hynix provided the reassurance.

The sector rotation told a cleaner story than the index. Information technology, energy and communication services led, while materials, healthcare and staples lagged, marking a partial reversal of the recent defensive rotation, helped by evidence that the US consumer is not yet rolling over.

Macro was quiet, but not irrelevant. ISM Services was in line with expectations, and the employment component moved back into expansion for the first time since February. The FOMC minutes were uneventful, which may itself be a signal of the Warsh regime. The headline snapshot below is a great reminder that even in business economics, if you put two people in a room, you’re lucky to get only three opinions.

Rates reflected the oil move more than the data. Treasury yields rose across the curve as the ceasefire in Iran frayed, although demand at the 10-year and 30-year auctions remained strong. Real money still appears comfortable buying outright yield when levels are attractive, even as options activity suggests some investors are fading the remaining hike premium for later this year. The market is no longer in a simple “higher for longer” repricing, but it also is not ready to remove the inflation-risk premium while oil remains hostage to Middle East headlines.

FX was quieter, though that may not last. The dollar was broadly flat, but low G10 FX volatility is starting to look vulnerable as the market becomes more data-dependent ahead of CPI, PPI, and the next Fed meeting. With forward guidance being pulled back, each inflation print has more power to reset the curve and the dollar. Low FX volatility has been driven by low market conviction, rather than low macroeconomic uncertainty.

Our macro desk explored this topic in further detail and outlined their preferred vol plays.

APFX Research

Vol Is Too Cheap

G10 FX implied volatility is near multi-year lows, with the JPM G10 FX Volatility Index hovering around 5.87% on a one-month basis, close to its lowest levels since 2024. There are several structural and macro forces converging to suppress vol, but opportunities for both hedging and speculating on both sides are becoming apparent…

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4 months ago · 6 likes · AP Research

The takeaway from last week: the market remains supported, but the sources of support are narrowing and becoming more conditional… AI still has buyers, especially where scarcity is obvious… the consumer is still spending, but not evenly… the Fed is quieter, but not easier… and the Iran risk premium has not disappeared in certain markets, even if equities are less reactive to every headline than they were earlier in the conflict.

As earnings season begins, the market’s tolerance for disappointment is likely to be far lower at the single-stock level than at the index level. That is the next phase: calmer indices, wilder stocks.

Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.

• “Duration Rotation”

• “Ahead of CPI…”

• “Summary of House Views”

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Duration Rotation

For much of the AI rally, time was treated as a free input. Investors were willing to pay today for earnings expected years into the future, confident that technological progress would eventually fill in the numbers. That bargain becomes less comfortable when the risk-free rate is rising, inflation is resurfacing, and oil is again helping to set the direction of bond yields.

This is the logic behind the emerging “duration rotation.” Equity duration is an imperfect concept, but a useful one. A company whose value depends heavily on distant cash flows is more sensitive to changes in the discount rate than one returning capital today. Technology, software, and other high-growth businesses sit at the long end of that spectrum. Banks, insurers, energy companies, and much of healthcare sit closer to the front.

The market recognises the difference. Semiconductors including Micron, Nvidia, Broadcom, and SanDisk have fallen sharply from recent highs, while banks, insurers, pharmaceutical companies, and healthcare stocks have assumed leadership. Since June, the broad pattern has been one of lower-duration sectors outperforming as higher-duration groups have lost momentum.

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US equities were on course for a clean holiday-week advance before technology stocks once again complicated the picture. A softer payrolls report, less hawkish language from Kevin Warsh, and further signs of resilience outside the AI complex all supported risk appetite, but the late-week semiconductor selloff kept a lid on the broader move. The S&P 500 finished higher, the Dow outperformed and the Nasdaq lagged, which tells the story clearly enough.

After using his first FOMC meeting to signal a much tougher inflation stance, Warsh sounded less aggressive, noting that inflation expectations and price risks had eased slightly in recent weeks… enough to push back against the idea of an imminent hike, which gave equities room to breathe.

Payrolls then added to the same message. June nonfarm payrolls came in well below expectations, with a negative two-month revision and a drop in participation. The expected summer hiring boost failed to appear, particularly in leisure and hospitality, which made the report feel softer beneath the surface as well as at the headline level. Equity futures initially rallied as markets pushed hike pricing from October to December. After several weeks of the Fed becoming an active constraint on risk assets, this was the first clean data point that gave investors permission to question the urgency of tightening.

Across rates, the curve steepened as the market reacted to Warsh’s softer tone and the weak payrolls print. The move in the dollar was equally straightforward, with the greenback slipping as traders faded the more aggressive Fed path. USD/JPY briefly moved back below 161, offering some relief to Japanese officials, though the pair remains close enough to intervention-sensitive levels to keep the Ministry of Finance in focus, particularly in thinner holiday liquidity.

The market has not lost its appetite for risk, but is becoming more selective. A softer Fed path, lower oil, and resilient non-tech sectors are enough to keep the index supported. But the AI trade is now more volatile, more crowded, and more exposed to changes in market structure than it was earlier in the year.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “US Labour Market and Rates Impact”

• “Small Themes, Defence Shines”

• “Software Strength, the Pain Trade”

US Labour Market and Rates Impact

The dominant macro event of the week was Thursday’s June payrolls print. The number came in at just 57,000, barely half the consensus expectation and a sharp loss of momentum from the spring run-rate (three consecutive beats). On the surface, the unemployment rate falling to 4.2% should have been hawkish. In normal times, a lower unemployment rate is not exactly an invitation for the Fed to relax.

But this wasn’t the market’s read. The unemployment rate fell because the labour force shrank. Participation dropped sharply, removing workers from the denominator and inflating the headline unemployment rate.

Treasuries rallied, the dollar sold off, and the market quickly stripped out the near-term Fed hike risk that had been building since the stronger May print. The 2-year yield fell around 5–6bps toward 4.11–4.13%, while the 10-year was little changed around 4.46–4.48%, leaving the curve with a cleaner path to re-steepen.

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US equities ended lower after a rough week for tech stocks, with the Nasdaq suffering the bulk of the damage as markets reassessed the valuations, positioning, and durability of the AI rally. A warning shot from Asia carried across to US equities, an upside surprise from Micron couldn’t hold for long, and by the end of the week, the sector breakdown looked much more defensive.

Leverage is very much at play here. Highly leveraged semiconductor ETFs create a messy gamma backdrop, forcing dealers to hedge aggressively as volatility picks up — and it has. Pressure transmits from derivatives into cash equities, which amplifies the moves in sectors which have become crowded after aggressive moves higher. The volatility spread between Nasdaq and the S&P is at its highest since 2020.

The rotation away from tech was softened by falling oil prices. Traffic through the Strait of Hormuz continued to increase, helping crude extend its decline and giving airlines, especially, a major boost. Lower fuel costs do not solve every consumer problem, but do help offset some of the pressure from higher rates and elevated prices. Without that move in oil, the equity selloff would have looked more severe last week.

On the macro side, May PCE came in slightly softer than expected and triggered a dovish cross-asset reaction. That reaction shows how sensitive markets have become to any sign of disinflation now that the FOMC is focused almost entirely on one side of the dual mandate. Fed speakers didn’t give investors any extra comfort. Goolsbee, Williams, and Kashkari all reinforced the message that inflation is too high, risks remain elevated and further tightening is still possible.

• Goolsbee: Core inflation is too high and is trending the wrong way

• Williams: Substantial risks to inflation remain; sees level at 3.5% at the end of 2026

• Kashkari: Sees need to hike this year due to elevated inflation

Bloomberg’s Fedspeak index shows continued hawkish language, despite Z6 pricing easing.

The Treasury curve rallied as markets smoothed out the path of expected hikes rather than pricing a more urgent tightening cycle. Monday may have been peak hawkish sentiment, but given how the rates trade has played out this year, that view may come back to bite us. The move helped fade some of the prior bear flattening, but it did not change the broader policy picture. The Fed remains live from July onward, and the next payrolls report now carries extra weight after Warsh’s recent hawkish reset.

The dollar continued to benefit from the macro backdrop. Institutional positioning has shifted more bullish as solid US data, the prospect of medium-term Fed hikes, and still-resilient equity inflows make the dollar attractive against lower-yielding currencies. The rally was limited by falling oil prices and month-end flows, but the structural tone is firmer than it was earlier in the year.

Elsewhere, Starmer is gone. Burnham is set to be next in command, but in hock to the bond market. We’ll have a specific note out on the UK in due time.

Lower oil and resilient earnings are keeping the broader equity market supported, but the leadership is becoming more fragile. In thinner summer liquidity, we see that as a caution to pay attention to.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “Putting Debasement Through the Warsh”

• “A Bruising Round for the AI Trade”

• “Dollar Haven”

• “Defensive Allocation (portfolio update)”

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Putting Debasement Through the Warsh

The gold trade, or the debasement trade as it became known in more excitable corners of the market, took another leg lower last week.

What began as a fundamentally driven thesis morphed last year into something more speculative. It then ran into a sharp selloff in late January, before facing fresh pressure as oil soared and dollar demand refused to roll over. Sell your gold pieces for dollar bills (more on this later).

That is not to say there is no perfectly good rationale for central banks to hoard gold. There clearly is. But at the height of debasement-trade thinking, gold was being bought not only as protection against US financial warfare, fiscal deterioration, or the slow erosion of fiat credibility. A meaningful slice of demand for gold (silver and Bitcoin were speculative, too) was bolstered by the sense that the Federal Reserve was moving out of sync with a broader tide of central bank tightening.

In late March, we laid out why we still believe in the trade over the medium- to long-term, with a predominant focus on oil and dollar demand dynamics…

…However, gold now faces a fresh headwind to overcome before the upside case can reassert itself.

With new Fed Chair Kevin Warsh taking a more hawkish approach, the idea of the Federal Reserve being meaningfully out of step has been kicked into touch. Inflation expectations have fallen quickly enough to become a gift for long-end Treasuries, while the shift from expected rate cuts to expected rate hikes has pushed the Fed toward the more hawkish end of the central bank spectrum. That has supported the dollar. It has also made the short end of the Treasury curve look much more interesting, with 2-year yields now well above 4%.

Kevin Warsh’s reputation was already well known on Wall Street. Note the inflexion point across XAU, BTC, DXY, and 2s10s after his nomination.

For investors looking for something to speculate on, AI and chip stocks still offer the cleaner dopamine hit. Admittedly, that comment might sound off after last week’s price action, but the broader point holds. Precious metals and Bitcoin are no longer the obvious home for marginal speculative capital as they were when the market was convinced the Fed was about to turn dovish.

The sell-side has started to reflect that shift. Deutsche Bank cut its gold price forecast to $4,300 for the third quarter, down by more than a fifth from its prior outlook, and to $4,800 for the final three months of the year. That followed Goldman Sachs, which last week cut $500 from its year-end target to $4,900, as it now expects no rate cuts from the US central bank this year.

If the Fed has regained a hiking bias, it is hard to see how the debasement trade materially benefits in the short term. To be clear, the argument was never solely about monetary policy. Concerns over government borrowing, debt sustainability and the political incentives around inflation remain firmly in place. The US budget deficit is still running close to 6% of GDP, despite Treasury Secretary Scott Bessent’s pledge to halve it by the end of Trump’s term.

The debasement narrative is structural, and has not disappeared altogether. But structural stories still have to survive cyclical pressure, and right now the cyclical pressure is running in the wrong direction for gold.

A Bruising Round for the AI Trade

The AI trade had its first proper wobble in a while last week.

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That changed on Wednesday, at least temporarily, when Kevin Warsh delivered his first FOMC meeting as Chair. Rates were left unchanged, as expected, but the statement and press conference made clear that this is not a Fed trying to preserve optionality around cuts. The new message was inflation first, patience second. The shortened statement was blunt: “The Committee will deliver price stability.” Updated projections showed headline and core PCE revised materially higher, with nine officials now seeing at least one hike this year and six pencilling in 50bps or more.

Markets reacted accordingly. Equities sold off through the statement, press conference and into the close, while rates repriced sharply. OIS now prices a 25bp hike by October, a remarkable shift from the pre-war environment.

The front end bore the brunt of the move, with 2s5s close to inverting as policy expectations adjusted. The Fed reaction function has changed, and the market is still adjusting to what that means.

Yet equities again proved reluctant to stay down. Thursday’s rebound was led by semiconductors. Macro markets are trading a genuinely tighter policy path, while equity markets are still willing to look through it as long as AI-linked earnings and capital spending remain intact.

The dollar was the clearest macro winner. Even as oil prices fell toward the end of the week, the hawkish Fed repricing kept the greenback well bid and raised the question of whether the USD can finally break out of the structural weakness that defined the last 18 months.

USD/JPY moved back above the prior intervention zone, trading beyond 161, which keeps Japanese officials firmly in focus.

Markets have entered a more complicated phase. The geopolitical tail risk has eased, the AI trade remains alive, and dip buyers are still active. But the Fed has become an active constraint. From here, the market needs either continued AI earnings strength, a durable fall in oil, or a clean disinflation impulse to offset a policy path that is now moving in the wrong direction for risk assets. For now, equities are still climbing, but the macro floor underneath them has become noticeably less forgiving.

Let’s get into the guide to trades moving markets, where things stand and where they may be heading.

• “AI Funders and Winners”

• “The Hawkish Hold Needs a Witness”

• “Sentiment Can Adjust Immediately, Oil Barrels Can’t”

AI Funders and Winners

The dominant theme over the past week has been a broadening of the AI trade away from the largest mega-cap names. Mag 7 and hyperscaler names are both nearly flat for the year.

For most of the past two years, exposure to AI was simple. Own the largest US technology platforms and own the semiconductor leaders. The trade is now starting to separate. Memory, semiconductors, custom chips, Asian supply chains, and data-centre infrastructure are among the leading beneficiaries of the AI capex cycle. The hyperscalers themselves are beginning to look more like the funding vehicle for the cycle than an upside expression of it.

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