No. of Recommendations: 16
President Trump’s emphasis on tariffs puts the focus on manufacturing which has a large international trade deficit.
But services are actually 80% of GDP and have an international trade surplus. Based on the latest data from the U.S. Bureau of Economic Analysis (BEA), the U.S. services trade surplus for the past year (the 12 months ending in May 2025) was approximately $308.9 billion. That ain’t chicken feed!
Cheap goods imports have suppressed inflation for a long time. Services have higher inflation. Based on data from the U.S. Bureau of Labor Statistics (BLS), services inflation for the past year (the 12 months ending in June 2025) was 3.6%.
Economic activity in the services sector grew in July for the second consecutive month, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The Employment Index was in contraction territory for the second month in a row and the fourth time in the last five months. The Prices Index registered 69.9 percent in July, a 2.4-percentage point increase from June’s reading of 67.5 percent. The index has exceeded 60 percent for eight straight months, with July’s reading the highest since October 2022 (70.7 percent). https://www.ismworld.org/supply-management-news-an...The Federal Reserve will be watching this carefully. Their dual mandate is to maintain full employment and they are trying to bring inflation down to 2.0% The Fed is under intense pressure from President Trump to slash the fed funds rate. Trump just appointed a "loyal" new fed governor to replace one who quit. That will tend to tip the balance toward fed fund cuts.
The options market now predicts a 90% chance of a fed funds cut in September. Also strong likelihood of cuts in October and December.
At the same time, the Atlanta Fed's Inflation Nowcast predicts Quarterly annualized percent change for 2025:Q3 PCE of 2.71%. This is well above their goal and has been rising through 2025. And Trump's tariffs haven't begun to bite yet.
The Atlanta Fed's GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2025 was 2.5 percent on August 7. The combination of a reasonably strong economic growth and higher-than-desired inflation doesn't give a reason to cut the fed funds rate.
The fed funds rate is a short-term (overnight) rate. This may apply to stock margin accounts which is at a record high, over $1 Trillion for the first time. Margin correlates with the stock indexes.
The Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems, shows financial conditions are extremely loose. This is providing a wave of lending that is inflating the asset bubbles.
The market sets the longer-term bond yields that underpin the mortgage market and so much more. Treasury yields suddenly dropped this week but that is probably noise.
President Trump caused tremendous worry in the bond market last week when he fired the director of the BLS because he didn't like the job numbers. The BLS also calculates inflation figures. The $2 trillion market in Treasury Inflation-Protected Securities could crack if U.S. inflation data are politicized. CPI is also used to calculate Social Security COLAs so it directly impacts millions of retirees.
https://tipswatch.com/2025/08/10/tips-investors-fa...The SPX and Nasdaq indexes rose last week. The Fear & Greed index moved into Greed. The trade is returning to risk-on.
Copper, which jumped a couple of weeks ago, suddenly plunged. I don't know why.
Gold and silver are gradually rising, with noise. USD is gradually sinking with noise. Oil may have peaked near the top of its 1-year channel.
The Trump tariffs are due to bite in August. So far the stock market isn't reacting.
The METAR for next week is sunny.
Wendy
https://www.cmegroup.com/markets/interest-rates/cm...https://www.atlantafed.org/cqer/research/gdpnowhttps://www.finra.org/rules-guidance/key-topics/ma...https://www.chicagofed.org/research/data/nfci/curr...https://stockcharts.com/freecharts/candleglance.ht...https://stockcharts.com/freecharts/candleglance.ht...https://stockcharts.com/freecharts/candleglance.ht...https://stockcharts.com/freecharts/yieldcurve.phphttps://www.cnn.com/markets/fear-and-greed 