By Ahmad Assiri Research Strategist at Pepperstone
August 6, 2025
Markets are clawing their way out of labour market weakness, yet the rally still lacks a solid catalyst. Monetary policy tailwinds are offering balance rather than outright lift, leaving risk sentiment fragile and highly attuned to shifting macro currents. Investors know their recent gains rest more on hopes for an accelerated rate cut cycle than on meaningful improvement in underlying fundamentals.
The S&P 500 is hovering north 6,300, but the rebound has cooled. Momentum chasing flow pared considerably in high beta tech exposure which is an early sign that the fast money providing incremental liquidity is turning less eager to press higher and perhaps fresh highs.
Behind this caution stands the Fed, or more accurately, the erosion of its pre-NFP path certainty and now finding its feet for a clarity that suits the new facts. Governor Adrina Kohler’s resignation, which becomes effective today, has reopened debate about the Fed’s resilience to mounting political pressure, a trend that seems to be only on the rise. OIS markets assign a 25-basis-point cut on 17 September and they flirt with the notion of a 50-bp move should labour-market data continue to deteriorate. Traders seem to believe the Fed will deliver a quick policy fire hose to douse labour market flames but they are far less convinced of a sustained easing cycle while services inflation is still high and near 3%.
Currency markets echo the cross current. The DXY is in a band while EURUSD has repeatedly failed to sustain pushes to 1.16. USDJPY has edged stronger into the 147s on softer US yields, yet options indicate demand for topside protection beyond 150, an options skew that could fuel outsized moves should volatility spike.
In the energy market, Brent has retreated below $70 even after OPEC+ fully reinstated its voluntary cuts, a response largely muffled by headlines over Washington’s push to curb India’s purchases of discounted Russian crude. If India were forced to halve those imports (roughly 750 k bbl/d ) it will certainly give solid ground to hold above $68 level and perhaps find new levels higher. For now, though, price action continues to orbit the US$68 support zone, tested half a dozen times over the past month.
Gold, meanwhile, has latched onto the dip in yields, climbing to a session high $3,390/oz and holding above its 50-day moving average. With policy uncertainty high and services inflation still 2.9%, the metal’s ability to respect its medium term trend line since January keeps it in favour for positioning when retreats lower.
Tariffs news from the White House is floating rates of up to 250% on select semiconductor components and biopharma inputs, billed as a national security shield. Triple digit levies are less about orthodox trade policy than about halting imports outright until terms shift and deals are made, one of the clearer lessons of the past quarter.
Markets, in short, are in conditional calm. Three main components loom large the next payroll print, next week’s US CPI print and Washington’s decision, due in six days, on whether to extend the China tariff deal. A play in defence, gold and Treasuries, paired with a selective sleeve of high quality equities that defend margins well appears the wisest to-me stance in today’s anxious equilibrium.