The weekender: A rally built on AI stilts — Jackson Hole tests the foundation

Second weekly win, but the air’s getting thin

Friday’s close had that “don’t spoil the party” feel — the S&P 500 slipping just enough to show the tape can still blink after another record run. Traders didn’t need a fire alarm to cash a few chips; a strong week and a looming Jackson Hole were enough. Next week, Powell takes the podium, and the market’s already positioned for the Chair to give at least a sideways wink toward a September cut — even with that hawkish PPI shock still echoing through the curve.

But the elephant’s still pacing the room: tariffs. Their real bite hasn’t hit yet, and the back half of the year could get bumpier as import costs work their way into the inflation plumbing.

July retail sales rose 0.5% m/m, just shy of consensus, but June was revised sharply higher. Amazon Prime Day juiced non-store sales (+0.8%), autos revved 1.6%, and furniture jumped 1.4%. But electronics fell for a third straight month, building materials were down, and eating out slipped — a very mixed sector tape.

Retail accounts for 40% of consumer spending, and while sentiment’s wobbling on tariff fears and job-market jitters, spending hasn’t rolled over. That resilience makes a jumbo 50bp September cut a tougher sell — firm consumption and sticky import prices blunt the case.

The summer rally has been powered less by broad conviction and more by concentrated lift from megacap tech. The S&P’s top 10 now carry record weight, Nasdaq shorts are at lows, and CTAs are heavily skewed long. That’s a fine mix if the wind stays at your back, but if a macro shocker hits — think surprise inflation pop, ugly data print, or geopolitical tail risk — you could see a 5–10% “fast money” flush as positioning unravels.

Breadth is narrowing, index concentration is climbing, and vertical ramps like we’ve seen are harder to sustain without fresh catalysts. Earnings are largely in the rear-view, and the street’s next real fuel comes from Fed confirmation at Jackson Hole or a surprise drop in yields. Without those, this tape can stall fast.

Inflation data shows the first clear fingerprints of tariff pass-through. Headline CPI stuck at 2.7% y/y, core up to 3.1% y/y, both in-line — but core goods inflation has crept back into positive territory. Tools, appliances, window coverings, outdoor gear — all showing curious price jumps. PPI is also picking up hints of imported cost pressure. It’s not a wildfire yet, but the embers are there.

Anchorage played host to a geopolitical stage set straight from a cold-war-meets-reality-TV script. Trump and Putin arrived on separate red carpets, shook hands, smiled for the cameras, then climbed into the same car. The meeting is billed to last six to seven hours, covering “all aspects” of U.S.–Russia relations — but the marquee act is Ukraine.

Trump says he’s “not going to be happy” without a ceasefire. He’s hinted at walking out if talks go nowhere, but also teased territorial negotiations — dangling that the final say rests with Kyiv. Moscow says it wants a “result” before the day is done.

The optics matter: a warm handshake in Alaska sends a different signal than the frosty reception Putin gets in European capitals. Whether this ends with a headline pop or a dud, markets will be watching for any whiff of oil, grain, or FX spillover from a sudden breakthrough — or breakdown.

JPY – Policy crosswinds and the case for more Yen strength

The yen call from last week just got more interesting. USD/JPY is already 5 big figures off its August 1st peak of 150.92, and the setup is leaning harder toward more downside as the Fed-BoJ policy gap threatens to narrow more than currently priced in. The dollar’s slide has been broad, but the yen’s outperformance stands out , fuelled first by the weak July NFP and its spooky downward revisions to May and June payrolls. That data all but locked in a September Fed cut — the market’s pricing a near full 25bps — and while July CPI eased fears that tariffs were bleeding too fast into consumer prices, the hotter PPI print threw a flare into the sky: tariff pass-through may yet force prices higher into year-end which has snuffed out 50bps jumbo cut chatter

The next big tell will be Jackson Hole on August 21–23. The Fed used last year’s meeting to tee up that 50bp cut, with Powell practically telegraphing “the direction of travel is clear.” This time, he may hedge his bets. If Powell ducks a firm rate-cut signal, the dollar could find a near-term floor, at least until the September FOMC forces the issue.

Meanwhile, Tokyo’s backdrop has turned quietly hawkish. Japan just posted its longest growth streak since 2017–18, with GDP surprising to the upside at +1.0% annualized in Q2, and Q1’s -0.2% contraction revised away to +0.6%. Consumption is up for the second quarter, capex accelerated, and exports — despite tariff noise — beat imports to add to growth. That resilience, along with a not-so-subtle hawkish jab from the US Treasury Secretary, gives the BoJ more incentive to resume hikes this year, and the market’s starting to price it in. The policy divergence risk is now front and centre, where if the Fed eases while the BoJ nudges rates higher, USD/JPY could quickly target the 143.00.

What started as a tactical yen long is looking more like a medium-term trend — Fed policy momentum pointing south, BoJ pressure tilting north, and a chart that’s broken away from the 150 handle and is picking up speed downhill. In this kind of air pocket, the real risk is underestimating how far the pair can fall before bids step in.

Jackson Hole: Powell’s high-wire act in a market that smells rate cuts

Jackson Hole is usually the folksy mountain retreat where the great and good of central banking swap policy papers over coffee in the thin Wyoming air. But this year, the postcard backdrop has morphed into a high-stakes poker table, and Jerome Powell is walking in with a hand the market’s already trying to read off his face. No riverside espressos, no academic chin-stroking over obscure DSGE models. This time, Powell’s carrying a portfolio stuffed with tariff shrapnel, weakening job numbers, and a White House breathing down his neck like a bad counterparty in a thin market.

The Fed’s been fretting that tariffs would be a one-shot inflation hit that morphs into something stickier — the kind of glue that gums up their rate-cut gears. But the latest CPI print tells a messier story. Core prices ticked higher, sure, but strip out autos and the goods side looks softer than July. Someone’s eating the tariff bill, and it’s not the foreign suppliers. Import prices keep climbing, so the damage is landing closer to home — corporates are taking the slap. Yet producer data hints retail and wholesale margins expanded in July, suggesting that somewhere in the chain, someone’s quietly making it work.

Could be inventory games — firms burning through stockpiles bought before tariffs bit, especially in autos, where sticker prices are actually falling despite the duty wall. Yes, services inflation has more juice to squeeze, but rents are rolling over and the near-term inflation path doesn’t look like a brick wall for a September cut.

Two weeks ago, Powell said the labour market wasn’t weakening. Forty-eight hours later, the payroll revisions took that notion, dunked it in the ice bath, and left it shivering. Jackson Hole’s official theme — “Labour Markets in Transition” — now reads like an inside joke. Powell can try to hang his hat on the unemployment rate as the cleaner gauge, maybe spin immigration curbs as a subtle squeeze on worker supply.

The trouble? If worker shortages were really biting, wage growth should be popping — and it’s not. Other gauges, from ISM services to consumer sentiment surveys, are flagging a softer hiring climate. It’s harder to shrug that off when the data is pointing the same way across the board.

Here’s the live one — Powell’s not just playing against the tape, he’s squaring up to the White House. The Treasury Secretary wants a 50bp cut, Trump’s hand-picked temp could push for even more, and there are Fed governors eyeing his chair like it’s already half-vacant. The September meeting has the feel of a boardroom knife fight dressed up in FOMC minutes.

Markets have fully priced a cut, so the street’s already called his bluff. Powell could push back to keep optionality — with another payrolls and CPI drop before the meeting, that makes sense. But jawboning against a market this convinced is like trying to talk a stampede back into the pen. And beyond September, the betting slips are split three ways between one, two, or three more cuts into year-end. Our camp’s leaning toward a faster easing cycle than consensus, but Powell will need to play his hand carefully to keep from being boxed in.

This Jackson Hole isn’t a retreat — it’s a live-fire exercise. And Powell’s about to find out if the Fed’s still holding the high ground, or if policy’s being traded like any other asset in a market that’s smelling blood.

China’s July data – From cruise control to engine trouble

China’s economy just tripped over its own shoelaces coming out of what looked like a decent first-half sprint. July’s numbers weren’t just a stumble — they showed a couple of faceplants in places the street wasn’t watching closely. Some of it was in the script (retail, jobs), but some came out of left field (fixed asset investment, housing), and those hits landed right where it hurts.

Retail sales growth cooled to +3.7% y/y, well shy of the +4.6% consensus and down from June’s +4.8%. That was always on the cards once Beijing’s trade-in subsidy program started running out of fuel. Throw in a heatwave so brutal it could have melted rebar — something I felt firsthand on my trip there — and you had the perfect excuse for construction and industrial output to underperform (+5.7% y/y vs. +5.9% expected). The planners saw this coming, hence the pre-emptive rollout of an interest-rate subsidy scheme — 1 percentage point shaved off loans to both households and corporates — to keep the consumption engine from seizing up. Urban unemployment nudged up to 5.2% from 5.0% as fresh grads discovered that job offers aren’t as plentiful as graduation speeches suggest. The official numbers aren’t seasonally adjusted — and frankly, anyone trading on Beijing’s employment data without a salt mine worth of skepticism is in the wrong game.

The real shock was fixed asset investment — up just +1.6% y/y YTD vs. +2.7% expected, but in monthly terms down an eye-watering -5.6% y/y in July after June’s -1.7%. Manufacturing investment? Off -1.6% y/y versus +8.1% as recently as December. That’s not a slowdown, that’s a gearstrip. Two possible reads: either the trade war is freezing confidence and capex, or Beijing’s “anti-involution” push against overproduction is starting to bite. I’m leaning toward the first, given that auto sector investment — ground zero for China’s price wars — is still ripping at +18.7% y/y. Cutting capacity in new high-tech sectors is easier to talk about than to actually execute when the whole “new quality productive forces” playbook is built around them.

Real estate looked even uglier. Development spending cratered -16.8% y/y in July vs. -13.7% in June. Sales of new floor space fell -8.1% y/y, and in value terms -14% y/y — telling you prices in both new and existing stock are still heading south. That’s the toxic double whammy: collapsing construction activity choking upstream/downstream supply chains, and a negative wealth effect that puts discretionary spending into a bear hug and squeezes until the cash stops flowing.

Instead of cruising into the back half of the year, Beijing is now flying through trade-war crosswinds with an engine sputtering and warning lights flashing across the dashboard. Policy hands will need to keep the stimulus taps open, whether they like it or not, because the alternative is letting growth stall in midair.

Beijing steps in as India backs off — The Russian Oil baton pass

Trump’s tariff crosshairs may be fixed on New Delhi, but Beijing is quietly backing a bigger tanker into the loading dock.

For the past month, the U.S. president has been hammering India over its Russian crude habit — accusing refiners of buying cheap barrels, laundering them into refined products, and flipping them to Europe at fat margins. The punishment: punitive tariffs, doubled levies on Indian goods, and public threats to cut the flow entirely. That pressure campaign has worked — at least on paper. India’s refiners, suddenly camera-shy with the global spotlight blazing, are easing off their Russian feedstock runs and scrambling for alternative supply.

That scramble is global. IOC and BPCL have been spotted hoovering up cargoes from the U.S., Brazil, and the Middle East, even pulling in an extra WTI load for October arrival. Saudi Arabia has stepped in as a stopgap — shipping roughly 22.5 million barrels for September loading, the highest since September 2024. But the shift isn’t cheap: spot market barrels come at a premium, and every diverted purchase tightens benchmarks.

And into that gap sails China. According to Kpler, Chinese state giants and top-tier private refiners have been quietly snapping up Western Russian crude — Urals and even the long-absent Varandey — for October and November delivery. Roughly 13 Urals/Varandey cargoes are locked for October, with another pair for November. The last time Beijing touched Varandey was over a year ago.

Moscow, for its part, has product to move. Ukrainian drone strikes have hobbled refineries from Saratov to Ryazan, slashing domestic crude intake and freeing up 10–12 extra Urals cargoes for export. But while China’s buying spree is notable, it’s not enough to fully plug the hole left by India’s retreat. Urals are now fetching a mere $0.80/bbl over Dated Brent, down from $2/bbl before July’s pullback — and that premium could soften further if Indian demand stays light.

The irony for global markets: every Indian barrel lost to Russia is now being replaced in the open market — at higher prices. That substitution effect is primed to lift broader benchmarks in the coming weeks, even if the Russian differential slides. In other words, Trump may get his symbolic win on Russian crude, but the rest of us we could end up footing the bill at the pump.

Chart of the week

We’ve been ringing the China equity gong for the first time in ages, and I’ll give credit where it’s due — the tape’s traded well lately. GS PB data backs it up: hedge fund length is sitting at YTD lows, which leaves room for some tactical pop. There are a few setups out there worth leaning into.

But zoom out, and the bigger picture still matters. The SHCOMP remains miles under its 2015 peak. Stack that against the S&P, which has ripped over 250% in the same timeframe, and the relative underperformance jumps off the chart. It screams “catch-up potential,” but Friday’s gnarly data dump was a reminder not to confuse tactical juice with a clean structural turn. There’s room to run, sure — but it’s a trade you size with the handbrake still on.

SPX vs SHCOMP