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So far, Wall Street stocks are gliding through a week filled with political turbulence in the US, where a determined Joe Biden dialled into "Morning Joe" on Monday, trying to wrangle some support and pacify the media and party unrest. But let's be honest: voting for Biden is pretty much casting a vote for President Kamala Harris, the heir apparent to the Democratic torch. This political soap opera shows no sign of ending soon, yet it hasn't thrown a wrench into the equity markets, especially when the Mega Cap train is chugging along smoothly, as it did last week.

Take Tesla (TSLA), for instance. The stock rocketed up 30%, thanks to better-than-expected Q2 deliveries, hinting at a promising quarterly report. Just weeks ago, many investors were steering clear of Tesla, but let’s face it: a bet on Tesla is a bet on Elon Musk, one of the most innovative and unpredictable entrepreneurs of our time. Whether you love or loathe him, his colossal rocket, Starship, is a marvel and could launch monthly soon, leaving even NASA slack-jawed.

With the prospect of a soft landing and rate cuts on the horizon, investors seem perfectly content with high valuations, causing a ripple effect where one mega-cap rise lifts all mega-cap boats.

The next hurdle for assets is Chair Powell's semi-annual monetary policy testimony before the Senate Banking Committee, followed by a grilling from a House panel the next day. Investors, gauging the Fed Funds futures, are putting about 75% odds on a rate cut in September. In market circles, anything above 70% is considered a lock.

However, this week, June’s U.S. CPI is the big blip on the radar. Fed officials have stressed that the next move hinges on the data. Core services inflation, excluding housing, has been on a rollercoaster—unusually low last month but likely to bounce back. We’re all holding our breath to see if it settles at a level consistent with 2% inflation.

In the midst of all this, U.S. Treasuries are trading with a zen-like calm, and the dollar is feeling a touch of pressure after last week’s softer economic data, especially with Friday’s Jobs report highlighting a cooling labour market and bolstering hopes for not one but two Fed rate cuts this year. Meanwhile, the currency markets are still digesting the surprising French election results, where the left-wing coalition thwarted Marine Le Pen's far-right ambitions, resulting in a hung parliament.

Quite the drama, but hey, at least it’s not dull!

(Via Blackrock)

Trading Today?

A more dovish Powell could solidify expectations for a September rate cut ahead of Thursday's CPI release. While the rate-cutting narrative is gaining traction in the US, the political landscape continues to sizzle.

With an 80% probability on the table for a 25bp rate cut, the market's feeling pretty confident. Chair Powell could shake things up if he wants, but we're betting he’ll stay the course. After all, the market “ odds on” rate cut bets reflect the same softened data the Fed has been analyzing since the last FOMC meeting.

What’s truly striking is the current low volatility and the upbeat market mood. It’s as if everyone’s enjoying a calm cruise, forgetting that the weather can change unexpectedly. Historically, when everything looks too good to be true, that's when surprises tend to pop up. So, while the sun’s shining, we’ll keep an umbrella handy—just in case.

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