US markets returned from the July 4th long-weekend and promptly announced a slight reprieve on the imminent tariff deadlines, where Secretary Lutnick signaled the country-by-country tariffs will kick in on August 1st, effectively giving trading partners some breathing room to make last minute deals.
Source: Reuters
Meanwhile, risk markets enjoyed another solid week with NFP surprising doubters once again with another strong print (at least on the surface):
- Headline NFP came in at +147k vs +106k expectations, with 2-month revisions going up to +16k vs -95k prior.
- Unemployment rate at 4.12% vs 4.3% estimates, and 4.2% prior.
- Average hourly earnings at 0.2% MoM (3.7% YoY) vs 0.3% (3.8%) estimates, and 0.4% (3.8% YoY) prior.
While economists will point out that the labour strength was uneven and concentrated in hospitality, markets will be taking the headline number at face value and keeping goldilocks narrative alive for yet another day.
NFP Internals were Much Softer Than What the Headlines Indicate, But the Market is Happy to Take the Positive Print at Face Value
Source: Citi
In terms of market reaction, the strong labour print took out ~15bp of rate cuts in 2025, with the July meeting seeing just a 5% chance for an ease vs ~24% a mere week ago. Terminal rates for YE2025 is at ~3.8% vs 4.3% spot (-50bp), and around 3.15% for YE2026 (-85bp).
Markets Back to Pricing Just ~2 Cuts for 2025
Source: Bloomberg
The USD saw a relief rally against the majors (USDJPY ~145), while equities had a quiet close to the week after making new ATHs. BTC also approached recent highs at >109k again on steady inflows, with ETH ETF receiving the largest daily inflows in the past quarter. Tom Lee (of Fundstrat fame) is the latest talk of town as his ETH Treasury play (BMN) surged over 30x at launch, after announcing that they are raising 250M to acquire ETH as a treasury position.
Thank goodness stocks are ‘regulated’ securities, otherwise investors might have mistakened them to be volatile, speculative altcoin tokens. As usual, TradFi gets to have all the fun.
Crypto ETFs Saw Strong Inflows to Close the Week, Particularly on ETH
With ETH Interest Likely Spurred by the Equity Spike in the Latest ETH Treasury Play from Funstrat’s Tom Lee
Source: Farside Investors, Messari
Crypto correlation with equities remain near interim highs, so we should BTC to keep following SPX price action throughout what is looking like a very quiet summer.
Equity vs BTC Correlation Remains Near Cycle Highs
Source Citi
In the meantime, away from all the tariff threats, geopolitics, and policy uncertainties, the US did actually manage to pull off some important developments over the past month. Namely, the administration:
- Passed a major US tax bill with significant fiscal injection and dramatically lowered the risk of any probable recession
- NATO and other trade allies have agreed to ramp up defense sending as a global impulse
- US economy continues to putter along with corporate earnings successfully climbing the wall of worry
- Fixed income yields have settled back in despite a lot of earlier fears about runaway deficits
- The worst of geopolitical conflicts appear to be behind us
As a result, the SPX made new ATHs following the passing of the tax bill and NFP, and have gained additional grounds this morning on the back of the deadline delay. 36 out of the S&P 500 stocks hit 52 week highs to end the week, while sentiment remains buoyed at ‘extreme’ territory on US equities.
Sentiment is Back at Frothy Levels Post the Latest Market Developments
Source: GS
Seasonals look positive in the summer months as well, with July looking to be some of the best months historically. Don’t mess with a good thing!
Don’t Sell in May and Go Away… A Quiet Summer Should See a Continued Grind Higher in Risk Assets
Finally, in terms of what to look ahead, earnings season is upon us again with this week seeking the bulk of earnings announcements, with expectations looking for more positive guidance with the tariff disturbance to be slightly better than what we saw in Q2, where CEOs were caught off guard with the sudden announcements.
In the meantime, it’s looking to be a hot but quiet summer. Good luck and enjoy the rally everyone!
Sentiment is Riding High into Earnings Seasons Again, with the Bulk of Companies Reporting This Week
