Ending ‘Goldilocks summer’ ?
- Marc Bentin
- 4 days ago
- 11 min read
BentinPartner Weekly
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US stocks closed mostly unchanged last week with expectations of upcoming rate cuts offset by a further unwind of AI related stocks and signs that inflation is starting to filter into core CPI inflation, at the same time as the US economy showed signs of weakening over the summer. The market also reacted with some skepticism to D. Trump’s decision to take a 10% share of INTEL (as part of a broader intention to acquire stakes in strategic companies in an effort to build a sovereign wealth fund which currently only contains cryptos).
A ‘Goldilocks summer’ is all over with mounting concern about the US economy, US trade tariffs and President Donald Trump’s latest assault on the Federal Reserve independence, strategists at Goldman and Deutsche Bank wrote. On Monday, President Trump said he was firing Federal Reserve governor Lisa Cook for alleged false claims in her mortgage applications four years ago. Cook said she will fight what she and her lawyers characterize as an illegal attempt to fire her, setting up a legal battle. Trump said he’s ready for the legal fight over his attempt to oust Fed Governor Lisa Cook, and looking forward to having a ‘majority’ on the central bank’s board.
On the economic data side, US unemployment benefits dropped last week (by 5,000 to 229,000) as employers appeared to be holding onto their workers despite the economy slowing but Americans’ view of the US economy declined in August with the conference board consumer confidence index ticking down by to 97.4 in August (from July’s 98.7). Consumers’ assessments of their current economic situation also dropped slightly to 131.2 in August from 132.8 in July.
Still, on Thursday, the US economy expanded 3.3% in Q2, with growth better than the initial 3.0% estimate). Consumer spending increased 0.5% on the month, in line with forecasts and indicative of strength despite the higher prices. Personal income accelerated 0.4%.
Later on Friday, July personal consumption expenditures price index (PCE, the Fed preferred measure of inflation) showed that core inflation ran at a 2.9%, as expected but higher than June (2.8%), indicating that President Donald Trump’s tariffs are working their way through the US economy. In particular, electricity prices are surging across the country as a perfect storm of aging equipment and AI demand slams the nation’s grid. Prices are up and projected to keep rising in 2026… The nationwide average retail residential price for electricity is about 7% higher than this time last year and 32% higher than it was five years ago, according to Energy Department data. These surging prices are driven by infrastructure problems, public policy and — increasingly — massive new AI data centers.
Citigroup strategists also recommended adding to bets that longer-term US bonds will underperform and the dollar will decline due to the risk that President D. Trump will undermine the Federal Reserve’s political independence…
Nevertheless, market participants expect the Fed to resume lowering its benchmark interest rate later this month with Fed Governor Christopher Waller reiterating his support for a cut in a speech Thursday, saying he would entertain a larger move (of 50bps) if labor market data continue weakening.
This enabled US bond yields to drop (between 3 and 7bps depending on the part of the curve) and outperform their European counterparts. Two-year Treasuries yield fell 34 basis points in August, marking the biggest monthly drop in a year as Fed Chair Jerome Powell said that downside risks to the labor market may “warrant adjusting” policy stance. Interest-rate swaps showed traders priced in about an 80% probability that the Fed will cut rates by a quarter-point at the Sept. 16-17 meeting, with some traders, at one point, seeing the possibility of a jumbo half-point reduction at the September meeting.
In contrast, France’s 10Y OAT yields jumped 9 bps last week to 3.51% while 30Y OAT yields also surged 12 bps to 4.42%, only 4 bps away from the highs of EU bond crisis month, in November 2011, exceeding those of Greece. (French stocks also dropped 3.3% on the week, pressured by French banks, which remain among the top performing stocks in Europe so far this year.
This was as investors reacted to the prospect of a government fall down later this week after Prime Minister François Bayrou called a confidence vote for September 8th over his deficit-cutting budget. Lawmakers have to ‘say whether they are on the side of chaos or on the side of responsibility’, Bayrou said as he warned that there was a risk the IMF could step in case the government would fall.
There is also a motion of destitution of French President Macron expected to be submitted by JL Melanchou (extreme left, a member of the current coalition), on September 23th, 2025 which would require 2/3d of the votes to go through, and which is highly unlikely to succeed given the current composition of parliament. E. Macron already insisted he won’t resign before his term ends in 2027. The risk is also in place that he might ultimately be seeking “full powers”, as foreseen by the Constitution, in exceptional circumstances, which a dramatization of the situation on the budget and Ukraine fronts might ultimately justify.
With the popularity of E. Macron at the lows, talks of his resignation remain a hotly debated topic, especially as he is also believed to have been instrumental in F. Bayrou calling for a confidence vote on his budget which will likely be defeated and lead to the PM resignation, opening a new period of instability in French politics (the vote will be followed by mass demonstration/strikes on September 10th). Powerful opposition politicians, including National Rally President Jordan Bardella and Socialist leader Olivier Faure, reaffirmed this weekend that they wouldn’t change their positions and that they only planned to participate in meetings this week called by Bayrou out of courtesy. The Socialist Party told BFM TV on Sunday that the group’s decision to vote against the confidence motion was “irrevocable.” Referring to a meeting set for Thursday with Bayrou, he added, “The only word I’m waiting for him to say now is ‘goodbye.’”
Italy and France also sparred over tax competition within the EU, reigniting a debate over whether EU countries are seeking economic advantages at the expense of their peers. French Prime Minister François Bayrou accused Italy in a television interview Sunday of “pursuing a policy of fiscal dumping.” Italian Prime Minister Giorgia Meloni’s office replied with an unusual personal rebuke that called the claim “utterly baseless.”
Meloni’s rare intervention risks renewing tension between Rome and Paris, which were stoked by a recent clash between French President Emmanuel Macron and Italian Deputy Prime Minister Matteo Salvini (who advised E. Macron last week in response to his bellicose position to take his gun and helmet to go fighting in Ukraine).
Italian and French credit are both under review from credit agencies, with the former likely to be upgraded and the latter downgraded, later this month.
European bond yields have been creeping higher this year, in spite of the ECB cutting rates over 200 bps over the past year (to 2.15%).
UK long bond yields also soared to a 27-year high last Tuesday, surging as much as 9 bps to 5.63%... A move to 5.66% would be the highest since 1998 with pressure piling on Prime Minister K. Starmer’s government to rein in its fiscal stance.
At the same time, credit spreads kept grinding lower across the world, ranging from company debt to emerging-market currencies, driving the extra interest paid by investment-grade companies in USD to the lowest level since before the dot-com bubble burst. A handful of borrowers is also trading at lower yields than Treasuries…suggesting that the neutrality compass for zero risk is shifting away from government bonds.
Little wonder gold rallied nearly $80 last week to a record $3,448 (and up another 1% this morning in Asia with silver adding 2%).
Elsewhere in China, China’s stock market reached record turnover last month, underscoring the intensity of the current bull run which drove onshore benchmark CSI 300 Index up nearly 10% this month, making it one of the world’s best performers.
Alibaba leapt 17% after reporting a surge in revenue from AI, underscoring the steady progress it’s making against rivals. China’s e-commerce leader posted on Friday a triple-digit percentage gain in AI-related product revenue as well as a better-than-anticipated 26% jump in sales from the cloud division — the business most closely tied to the artificial intelligence boom. A new China-buys-China narrative is taking shape with China not only wanting to build generative AI models, but power them with its own hardware, redrawing a supply chain dominated by Nvidia. In contrast, BYD reported a 30% plunge in quarterly profit, its first decline in over three years, with net income of 6.36 billion yuan for the three months through June 30 due to heavy discounting.
This week, Friday’s payroll data will be the last key official job report before Fed officials decide whether they will cut rates for the first time this year. Another weak number (75k NFP creation from the shockingly weak 73k reported last month) is expected. Prior to that on Sep 4th, Challenger job cuts; ADP employment; nonfarm productivity; unit labor costs (2Q final); initial jobless claims; trade balance; S&P Global US services and composite PMIs; ISM services index will all be released.
Over the past week, the S&P500 was unchanged (10,1% YTD) while the Nasdaq100 dropped -0,3% (11,6% YTD). The US small cap index gained 0,1% (6,4% YTD). AAPL gained 1,9% (-7,3%).
The Equally Weighed SP500 dropped -0,5% (7,6% YTD), underperforming the S&P500 by-0,4%. The median SP500 YTD return closed the week at 7,8%.
Cboe Volatility Index rose 8,0% (-11,5% YTD) to 15,36.
The Eurostoxx50 sold off by -2,6% (11,7%), underperforming the S&P500 by -2,5%.
Diversified EM equities (VWO) dropped -1,2% (17,0%), outperforming the S&P500 by -1,2%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,1% (-7,0%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,1% (6,2%).
10Y US Treasuries rallied -3bps (-34bps) to 4,23%. 10Y Bunds were unchanged (36bps) to 2,72%. 10Y Italian BTPs underperformed rising 6bps (7bps) to 3,59%, underperforming Bunds by 6bps.
10Y French OAT's underperformed rising 9bps (32bps) to 3,51%, underperforming Bunds by 9bps.
US High Yield (HY) Average Spread over Treasuries dropped -7bps (-15bps) to 2,72%. US Investment Grade Average OAS climbed 5bps (-1bps) to 0,86%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 5bps (-5bps, Z-score 2,1) to 0,59%.
Gold rallied 2,3% (31,4%, Z-score 2,5) while Silver rallied 2,1% (37,4%, Z-score 2,7). Major Gold Mines (GDX) rallied 5,0% (86,3%, Z-score 2,3).
Goldman Sachs Commodity Index gained 0,6% (3,9%). WTI Crude gained 0,5% (-10,8%).
Overnight in Asia…
S&P future -4 points; Hong Kong +1.8%; Nikkei -1.6%; China -0.1%
Investor sentiment was buoyed by an US appeals court ruling that President Donald Trump’s tariffs were illegal.
Despite the decline in profit, BYD's overseas revenue was up 50% in the first six months versus the same period a year ago to 135.4 billion yuan, with the company noting that higher profitability overseas has made its overseas business a key driver for continued growth.
The Nikkei 225 index fell as investors offloaded tech shares after declines in Nvidia and Dell Technologies on the US stock market over the weekend. SoftBank Group Corp. contributed the most to the Topix Index decline, decreasing 5.4%.
Most of President Donald Trump’s global tariffs were ruled illegal by a federal appeals court that found he exceeded his authority by imposing them through an emergency law, but the judges let the levies stay in place while the case proceeds. The US Court of Appeals for the Federal Circuit on Friday upheld an earlier ruling by the Court of International Trade that Trump wrongfully invoked the law to hit nations across the globe with steep tariffs. The Trump administration has enacted a sweeping suspension of approvals of almost all types of visitor visas for Palestinian passport holders, according to American officials. It was not clear what prompted the visa curbs, but they follow declarations by a number of U.S. allies that they plan to recognize a Palestinian state in the coming weeks. Some American officials have strongly opposed this push for recognition, which Israel has condemned.
D. Trump called for billionaire progressive donor G. Soros to face racketeering and corruption charges for supposedly supporting ‘violent protests’ across the US (and abroad, notably in Georgia). In a post on his social media platform on Wednesday, Trump claimed the 95-year-old Soros and his ‘radical left’ son Alex, who leads the family’s philanthropic foundation, ‘should be charged with RICO, referring to a statute usually used to combat organised crime.
The Pentagon is deploying warships to waters around Central and South America, an unusually large naval build-up that has stoked tensions with Venezuela and other Latin American countries. The US Navy has sent at least seven vessels, The Trump administration has billed the move, which involves thousands of sailors and marines, as part of its efforts to combat drug trafficking by cartels. The White House has used increasingly hostile rhetoric about Venezuela’s President Nicolás Maduro, referring to him as ‘illegal’ and accusing him of trafficking drugs.”
D. Trump vowed… to impose ‘substantial’ new tariffs and restrict U.S. chip exports for all countries that do not remove digital taxes and related regulations. Trump wrote… that digital services taxes, or DSTs -- which are currently imposed by dozens of countries – ‘are all designed to harm, or discriminate against, American Technology.’ ‘I put all Countries with Digital Taxes, Legislation, Rules, or Regulations, on notice that unless these discriminatory actions are removed, I… will impose substantial additional Tariffs on that Country’s Exports to the U.S.A.’… The European Commission… defended the bloc’s right to set and enforce its own tech rules, after D. Trump threatened to impose new tariffs on countries with digital policies he considers ‘discriminatory.’ ‘It is the sovereign right of the EU and its member states to regulate economic activities on our territory, which are consistent with our democratic values,’ European Commission said.
Thanks to a breakneck pace of new launches, there are now more than 4,300 exchange-traded funds, a figure that for the first time eclipses the total number of stocks, currently hovering around 4,200.
Silver climbed past 40 overnight while Gold notched another record high gaining USD20 to USD3’470
Copper climbed back above 10’000$/ton this morning after 4 weeks of gains.
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