Market Wrap-Up: Geopolitics, the Fed, and Corporate Earnings

Market Performance Overview

The Dollar Index exhibited a rise-and-fall pattern this week, with the 98 level proving crucial. Early in the week, it rebounded from Powell's dovish remarks, but Trump's announcement to dismiss Fed Governor Cook triggered a decline. Interest rate cut expectations and concerns about Fed independence continued to weigh on the dollar.

Spot gold benefited, regaining safe-haven buying amid the Fed turmoil and political uncertainty in France, returning above the $3400 level and poised for a second consecutive week of gains.

Among non-dollar currencies, the Euro is set to record its first weekly decline in four weeks due to political unrest triggered by the French Prime Minister's confidence vote. The British pound depreciated for the second week due to uncertainty surrounding the Bank of England's policy direction. The Dollar/Yen followed the Dollar Index's pattern, while the Australian Dollar saw overall gains.

International oil prices are on track for a second consecutive week of gains. Reports suggest ExxonMobil may return to a Russian Far East oil and gas project, and traders reassessed Russian fuel supply prospects. However, continued low probability of a meeting between Russian and Ukrainian leaders supported oil prices.

Bitcoin sharply fell below $110,000 this week and is expected to close lower for the second week in a row. Ethereum, however, performed well. Data shows Ethereum rose over 17% in the past 30 days, while Bitcoin's return was -5.5%.

Selected Investment Bank Insights

• Morgan Stanley expects the Fed to cut rates by 25 basis points in March, June, September, and December 2026, ultimately bringing the target range to 2.75%-3.0%. Credit Agricole anticipates two rate cuts this year, with a terminal rate of 4%.
• Commerzbank believes Fed independence risk and rising U.S. debt are structural headwinds for the dollar.
• UBS pointed out that Fed politicization could trigger triple economic risks. Fed politicization will push up U.S. Treasury risk premiums, UBS said.
• Citi expects silver and palladium to face high tariffs. Goldman Sachs expects a weaker dollar, but upside for commodity currencies may be limited.
• HSBC raised its year-end Shanghai Composite Index target to 4000 points, citing ample liquidity. CICC said potential funds from household deposits entering the market are about 5-7 trillion yuan.

Key Weekly Events

1. Trump plans to rewrite FOMC voting patterns: dismisses governor, targets regional Feds
2. Dovish voices renew calls for a 25 bps rate cut in September; worse-than-expected non-farm payrolls could support a larger cut
3. When will the Gaza war end: two to three weeks? By the end of this year?
4. Russia launches large-scale attack on Ukraine; German Chancellor Merz bluntly says a "Putin-Zelensky" meeting is unlikely
5. Iran's nuclear talks with Britain, France, and Germany are unfruitful; sanctions snapback process initiated
6. U.S. permanently eliminates de minimis tariff exemption for small packages, expected to increase annual tariff revenue by $10 billion
7. French Prime Minister "fights for his life"! Political uncertainty leads to stock and bond sell-off
8. U.S.-South Korea summit: Trump "wants land," hopes to meet Kim Jong-un this year
9. Cambrian stock price surpasses Kweichow Moutai, winning the "stock king" crown in the A-share market
10. Nvidia's earnings report "mediocre"; Q3 guidance misses expectations
11. Meituan's stock plunges; "bloody war" in food delivery leads to an 89% plunge in net profit
12. Elon Musk's xAI sues Apple and OpenAI, SpaceX's tenth test flight successful