Post-Summer Trading Outlook; Uncertainty Rules

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Post-Summer Trading Outlook: Uncertainty Looms Over Fed Cuts, Jobs Data, and Global Risks

 

Federal Reserve interest rates – Post-Summer Trading Outlook

The start of post-summer trading often mirrors the beginning of a new year, as traders and investors return from vacation and markets regain momentum. Historically, the first week of September tends to bring false starts, whipsaws, and choppy price action as liquidity builds back to normal levels (Trading Tip: Beware of a New Year Whipsaw).

This time, however, markets are facing more uncertainty than clarity. from Federal Reserve policy and U.S. employment data reliability to political risks in Europe and legal challenges to tariffs in the U.S.

 

Federal reserve interest rates

Will the Fed Cut Interest Rates in September?

The upcoming Federal Reserve meeting on September 16-17 is dominating market conversations. Current expectations place the odds at 90% for a 25-basis-point cut, with some forecasting a possible 50-basis-point move.

The Fed faces a delicate balancing act:

• Slowing employment data
• Inflatio0n remains sticky
• Political pressure from President Trump for aggressive cuts is intensifying, raising concerns about the Fed’s independence.

A 50 basis-point cut could be viewed as a concession to politics, which the Fed wants to avoid. For now, a 25-basis-point reduction appears most likely, but all eyes are on the August employment report due September 5, which could shape final expectations.

Can We Trust U.S. Employment Data Anymore?

Recent developments have shaken confidence in the reliability of Non-Farm Payrolls (NFP) data. Massive downward revisions to prior months even led President Trump to fire the BLS commissioner, citing flawed reporting.

Here’s what’s causing concern:

1. BLS Job Cuts
2. Lower Employer Response Rates –
3. Greater Use of Imputation – initial NFP number seems more like an educated guess than a final figure.

Markets still react strongly to the first release, but traders should watch revisions closely, as they often change the story weeks later.

Will the French No-Confidence Vote Shake Markets?

On September 8, French Prime Minister François Bayrou’s minority government faces a critical confidence vote over a controversial €44 billion austerity package. Opposition from both the left and far-right makes the government’s fall likely.

If Bayrou loses, President Emmanuel Macron has three options:

1. Replace Bayrou with a new prime minister.
2. Keep him temporarily as a caretaker.
3. Call snap elections, the most disruptive scenario for markets.

So far, fears of contagion within the EU are not evident. Still, traders should monitor French stocks, bonds, and the spread between French and German yields for signs of stress.

French vs. German 10 Year Bond Yield Spread (71.1 bps)

Source: Investingt.com

Are Trump’s Tariffs Legal?

In another twist, the U.S. Court of Appeals ruled by 7-4 that the statute Trump used to impose sweeping tariffs did not grant him such authority. The government is expected to appeal to the Supreme Court, and then until the decision is made, tariffs remain in effect.

Treasury Secretary Bessent predicts the court will uphold Trump’s use of emergency powers but admits there’s a backup plan if the ruling goes against the administration. This legal uncertainty complicates business planning and trade forecasts.

Should Trump tariffs be deemed illegal, there is a risk that duties already collected would have to be refunded, which would add strain on government finances amid already high budget deficits.

Is Fed Independence Under Threat?

Perhaps the most profound risk is erosion of Fed independence. Trump’s push to install loyalists on the Fed board and his effort to fire Governor Lisa Cook for cause, which she refuses to accept, signal a looming constitutional and legal fight.

Bond markets are already showing signs of concern, and history suggests that when bond vigilantes push back, policymakers take notice. However, the Trump administration is anything but predictable, and its response to a potential bond market revolt remains uncertain.

Navigating a Market Full of Uncertainty

As post-summer trading resumes, markets face a rare convergence of domestic and global risks:

• A Fed struggling to balance economic data and political pressure.
• Employment reports whose accuracy is increasingly questioned.
• A French political crisis that could spark volatility in EU markets.
• Legal uncertainty over U.S. tariffs and potential implications for trade policy.
• A fight over Fed independence that could unsettle bonds and the dollar.

For traders and investors, the message is clear: expect volatility, stay nimble, and watch key catalysts like the August jobs report, French confidence vote, bond markets and tariff-related court rulings. In an environment like this, risk management isn’t optional. it’s everything.

 

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