SUMMARY:
- 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.
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.