MPC Morning Call 25th August – Equities run higher as Fed Chair Dovish on rates

Overnight – Equities run higher as Fed Chair Dovish on rates

Stocks headed higher as revived hopes for a September rate cut pushed Treasury yields lower and tech stocks higher after Federal Reserve Chair Jerome Powell signalled the Fed was open to cutting interest rates as soon as next month.

Federal Reserve Chair Jerome Powell signaled at the Jackson Hole Symposium that the U.S. economy may soon require interest rate cuts due to mounting risks to employment and limited inflationary pressures from tariffs. While Powell emphasized that monetary policy remains restrictive, his remarks suggested that a September rate cut is now highly likely, with markets nearly fully pricing in the move. Analysts noted that Powell’s tone was more dovish compared to July but cautioned that he still expressed concern about inflationary risks. The bond market reacted immediately, with sharp declines in the yield of the 2-year Treasury, reflecting investors’ heightened expectations for easing.

Meanwhile, trade relations between the U.S. and Canada saw some easing as Canada announced it would remove most of its retaliatory tariffs on American goods. These duties were initially imposed in response to U.S. tariffs on Canadian steel and aluminum. However, tariffs on sensitive sectors such as autos, steel, and aluminum will remain intact. The move comes ahead of a review of the U.S.-Mexico-Canada trade agreement and signals a potential reduction in trade tensions between the two neighboring economies.

On Wall Street, optimism grew as UBS raised its S&P 500 targets, citing robust second-quarter earnings and stronger-than-expected growth from U.S. companies. The investment bank lifted its year-end target for the index to 6,600 and projected 6,800 by mid-2026. Earnings across the S&P 500 grew by 8%, beating earlier projections, while the “Magnificent Seven” tech stocks surged by an impressive 30%. UBS noted that third-quarter profit guidance also looked strong, suggesting momentum in earnings growth continues despite the headwinds from tariffs filtering into U.S. markets.

In corporate developments, tech and retail stocks saw mixed performances. Meta struck a $10 billion deal with Google Cloud to support AI infrastructure, reflecting the intensifying competition among major companies in the artificial intelligence sector. NVIDIA faced pressure as reports emerged that it asked suppliers to halt production of its China-specific H20 AI chip due to Beijing’s scrutiny. Meanwhile, Intel shares jumped after President Trump confirmed the U.S. government would acquire nearly a 10% stake in the chipmaker. Elsewhere, BJ’s Wholesale raised its earnings outlook, Intuit offered a weaker revenue forecast, and Zoom posted strong results, underscoring continued divergence in corporate performance across the tech and retail landscape.