US inflation
Despite having a hotter inflation headline, the Federal Reserve still priced in four straight rate cuts until January 2026 by 25 bps each time right after the data release. This could be a result of a weakening in the labor market conditions, as proven by the undeniable increase in the jobless claims data last night. Initial jobless claims rose to the highest since more than 3 years ago, indicating higher layoff activities in the United States and raising doubts on the cracking form in the labor market.
This also means that the market last night priced in the rate cut due to the weak labor market rather than the inflation. In a normal case, stronger inflation would scale back on the rate cuts, but due to weak labor, the rate cut is higher. In other terms, they plan to let the cracking labor market diminish the demand, consumption, and inflation data instead.
Below is the probability that the market priced in after the data release.
The Federal Reserve
Trump also requested the Federal appeals court to remove the Federal Reserve Governor Lisa Cook from her position ahead of the Federal Reserve rate decision by September 18, 2025. However, as per Cook’s lawyer, this act will likely deliver a major blow to the market conditions in return, especially when things are not certain lately.
The European Central Bank (ECB)
The ECB maintained the interest rate at 2.15% as they gained more confidence in the economic growth while the inflation rate is now reaching the desirable level amid the uncertainty reduction. For now, the trade bets on ending the rate cut cycles by lowering the probability of an interest rate cut in 2026 from 60% to 50%. Therefore, this led to the EURUSD strengthening after the ECB President Lagarde’s speeches were released.
Tariffs
Everyone is aiming for China’s auto manufacturer tariff with Mexico to increase the tariffs up to 50% on cars and other products, while the US also pressures G-7 countries to impose higher tariffs on India and China as well. In accordance with Bloomberg’s opinions, “China’s auto manufacturers’ inherently lower production costs” also mean that even with tariffs, their cars are still competitive with others. Aka—not much affected in China. However, according to US Commerce Secretary Lutnich, “The Europeans will block Chinese cars; they’ll learn. Chinese cars are not competitive; they’re government-backed.”
For now, we are unsure, but the data from the economy minister said that “some Asian exporters will only affect 8.6% of Mexican foreign trade.”
Israel-Qatar
The United States, the closest ally to Israel, along with other members, is calling for the de-escalation of the latest conflict between Israel and Qatar. Israel has been repeatedly assaulting/invading other countries, including Qatar, Yemen, Gaza, and more, which has led the United Nations Security Council to condemn its aggressive acts. Even the United States, which previously defended Israel, now also begins to show a strong rebuke against this act as well—aka, the US distances itself when it comes to the attack on Qatar.
Regardless, Qatar commits to solving this conflict diplomatically in the effort to stop the bloodshed in Gaza.
