Markets brace for 25 bps cut, amid China chip drama and Powell's tightrope presser

• It’s FED Day…and the countdown begins.
• 2 or 3 mandates? That is now the question.
• Xi Xi is belly aching ‘again’ – more BS with NVDA.
• 10 yr sits atop 4%, Mortgage apps explode higher.
• Try the Rodeo Cowboy Caviar – Thank you Yellowstone!

And the bang turned into a bust as buyers decided to step aside….and wait for what happens today – because today is the day. The FED drops the news at 2 pm and then JJ takes the stage at 2:30 pm. I will be with Liz Claman on Fox Business to help break it down after he makes his statement and answers what is expected a plethora of questions from reporters.

In any event – stocks ended the day lower – the Dow lost 125 pts, the S&P down 8, the Nasdaq lost 15 pts, the Russell gave back 15, the Transports added 72, the Equal Weight S&P lost 19 pts while the Mag 7 continued to push higher…up 175 pts.

That might change today – more belly aching out of China concerning one of the NVDA chips that XiXi no longer wants Chinese companies to buy, or use and in fact, he has asked (told really) companies to cancel any outstanding orders for the chip, this as they test their first domestically produced ‘advanced’ lithography machine for 7nm* chips. This morning NVDA is down 1%, ASML is down 0.6%, TSM – 0.4%.

*7nm chips refers to a semiconductor built using a 7-nanometer manufacturing process. A 7nm chip means the smallest structures on the chip are ~7 nanometers wide, just a few dozen atoms across. Compare that to earlier generations: 28nm, 14nm, 10nm, etc. Each shrink means transistors can be packed more densely.

Why it matters? More transistors per chip → more computing power in the same space. Lower power consumption → important for mobile devices, laptops, data centers. Faster switching speeds → better performance for AI, gaming, high-end servers. To be clear – TSM is preparing to produce 2nm chips later this year.

In any event - a quick assessment would suggest that at best – the China news is not a real threat to NVDA, ASML or TSM – no matter how much the media makes an issue out of it. So, don’t overthink it!

Ok – back to the issue at hand – JJ and the FOMC decision – by now you are aware (and if you are not, you have been living under a rock) – that JJ is about to start a rate cutting cycle – it begins today with a 25 bps cut and will most likely continue thru January 2026 – for a total of 100 bps worth of cuts. Now there is some speculation that he cuts by 50 bps today…. (Petey Navarro (Sr Counselor for Trade and Manufacturing) is calling for 50 bps today and 50 bps in October) but I think it is just speculation because we never heard from Nicky T at the WSJ or our friends at Goldman Sachs.

Remember – if the FED was going to change their minds and cut by 50 bps, they would have leaked that to Nicky or Goldman – in fact – in this morning’s WSJ – Nicky basically confirms the 25-bps cut in his front-page article –

“What to Watch at the Strangest FED Meeting in Years”

Strange because of all the drama – Pressure from Trump to slash and burn rates, the loss of Fed Governor Adriana Kugler only to be replaced by Stevey Miran who is suggesting that the FED actually has 3 mandates not 2 and the drama over Lisa Cook’s mortgages.

Let’s discuss the mandates…..because traditionally we talk about the Fed having a dual mandate: maximum employment + stable prices. Stevey is under the impression that there is a 3rd mandate – Moderating Long-Term interest rates – ensuring that long term borrowing costs don’t become ‘excessive or volatile’.

Now that 3^rd point has always been the goal but has been treated as a consequence of the first two, not as its own ‘mandate’. Stevey’s position would allow (almost force) more aggressive bond market interventions – shifting how investors expect the FED to act in the future vs. now. In the end – critics are worried that this actually reduces the FED’s independence, making it more political – something that would be a NO, NO.

Now, keep in mind — Miran is only in that seat until January. His appointment is temporary… unless, of course, Trump decides to make him JJ’s replacement — and then the story really changes. But let’s not go there just yet.

Here’s the other pushback against a 50-bps cut: how will the market read it? Will it see that move as a sign of panic from the Fed? If that’s the case, expect the algos to flip the switch and go from buy to sell mode, with buyers stepping aside as wave after wave of selling blankets the market.

Investors will be looking for the dissenters. In July there were 2, are there more or less today? In the end - it will be the tone of the presser that sets the tone for investors and markets. If he isn’t dovish enough, markets won’t like it and they will back off, if he too dovish then markets will assume he’s panicking and back off harder….and if he’s hawkish (0% chance) the algo’s will hit the ‘eject’ button before he finishes his sentence. In the end he needs to be ‘just right’ – cut by 25, indicate that more methodical cuts are coming and suggest that the economy while cooling is NOT circling the drain.

Remember – he will also need to address the latest Dot Plot graph…. What will that suggest about FED think? Will there be consensus or will it be scattered? (Scattered would not be good – just fyi). The Dots will need to have a theme and scattered is not a theme – Capsice?

Eco data yesterday was strong….Advance Retail Sales came in much stronger than all expectations – and that is not helpful for anyone pushing for a 50 bps cut…you see – the data suggests that the consumer is just fine, not panicking nor suffering…..and that’s good news for the economy, but will heighten the debate over how aggressive JJ and the FED need to be. Apparently, the softening labor market is not hurting the consumer and that may temper the language that JJ uses at the presser today.

Eco data today (away from the FOMC decision) is all about Mortgage apps – up a stunning 29.7%. 30 yr conforming rates are now in the 6.25% range down from 7% only 2 months ago. (Guess who is waking up???) Housing Starts – expected to be down 4.4%, Building Permits expected to be up by 0.6%.

Bonds rose a bit – the TLT and TLH up 0.2%..... This morning the 10-yr yield is sitting right on top of 4%, the 30 yr is yielding 4.62%. Now if we break 4% on the 10 yr and I mean decisively – that would be a clear signal that bond investors expect slower growth, softer inflation and MORE FED CUTS.

Think of the 10-year flirting with 4% like pasta water just starting to boil. A bubble here, a bubble there — that’s not decisive.

A decisive break is when the pot boils over — water rushing down the sides, steam everywhere. No mistakes, no false signals.

So, in market terms: if yields just “sits” at 4% and bounces back, that’s noise. But if they break 4% and stay below and move lower - That’s decisive. Remember – the 10-yr tested as low as 3.75% during the April Liberation Day Panic. – Here’s a hint - That is the level to watch.

Oil hasn’t moved – it continues to trade at $63.90 – although we did test as high as $64.67 overnight – but failed. It remains within the trendlines…$62.92/$64.86. A break above $64.86 would see a push higher – although I don’t think it holds. Remember – while demand is strong, there is plenty of supply.

Gold did pierce $3700 yesterday to trade as high as $3705 – but did end the day lower at $3689. This morning gold is down $30 at $3661 all while the dollar index churns at its low at 96.74.

US futures at 6 am churning…. Dow futures up 15 pts, S&P’s down 3, the Nasdaq is down 20 while the Russell is flat.

European markets are mixed as well. Donny and Melania have just landed (via helicopter) at Windsor Castle and will be visiting with the King and Queen before moving on to meet with PM Kier Starmer.

The S&P closed at 6,606 down 8 pts. Now we wait.

Remember – it’s about ‘the plan’ – make sure you have one. It’s about time in the markets, discipline, and risk management more than trying to time every move.

Rodeo Cowboy Caviar (The crowd pleaser) – Straight out of the Yellowstone Cookbook

Every cowboy knows that when the rodeo’s over and the dust settles, it’s time to gather, share, and celebrate. Markets are no different — after the speculation, the drawdowns, and the recoveries, there’s always that moment when people come together around the table. Rodeo Cowboy Caviar is that dish: bright, bold, and built to feed a crowd. It’s the Wall Street equivalent of a relief rally — everyone gets a scoop.

Vinaigrette: ⅓ cup olive oil, ¼ cup red wine vinegar, 2 cloves garlic, minced, 1 tsp sugar, ½ tsp kosher salt, ½ tsp freshly ground black pepper

The “Caviar”: 1 can (15 oz) black-eyed peas, drained & rinsed, 1 can (15 oz) black beans, drained & rinsed, 1 cup fresh corn kernels (or frozen, thawed), 2 large plum tomatoes, diced, ½ small red onion, finely chopped, 1 red bell pepper, seeded & diced, 1 jalapeño, seeded & finely chopped, ½ cup cilantro, chopped (plus extra for garnish), 2 scallions, thinly sliced.

Shake up the market — think the vinaigrette.

In a jar, combine olive oil, vinegar, garlic, sugar, salt, and pepper. Put the lid on and shake like you’re trading in the pit — fast, hard, and with conviction. Set aside.

Build the base. In a big bowl, toss together beans, peas, corn, tomatoes, onion, bell pepper, and jalapeño. This is your diversified portfolio — every bite brings a different angle.

Let it chill. Cover and refrigerate for at least 2 hours (or overnight). Just like the market, the flavors need time to consolidate before they break out.

Finish it off. Right before serving, stir in cilantro, scallions, and the vinaigrette. Adjust seasoning. Bright, tangy, and balanced — like a well-timed rebound.

Serve it up. Scoop with tortilla chips and pass it around. No fancy presentation, just good food for good people.

To be clear - Rodeo Cowboy Caviar isn’t really caviar — just like some rallies aren’t really about fundamentals. The lesson is the same: recognize what you’re looking at, then act accordingly.