Butter, not guns
August 20, 2025
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–Rates edged lower as tech stocks encountered profit taking pressure. Nasdaq Comp fell 1.46%. 2y yield fell 1.7 bps to 3.752% while tens dropped 3.5 to 4.30%. Bitcoin’s weakness was a major feature, having run a round-turn so far in August. The low on 3-Aug was around 112k. By 14-Aug it had surged to 125k. Late yesterday it was 113,200.
–UK inflation on the high side at 3.8%. Going into Powell’s speech at Jackson Hole on Friday, some are expecting a hawkish tone due to inflation concerns in the US. However, given the employment data and shift within the FOMC I would expect a balanced message leaning toward ease. Aside from inflation concerns, loose financial conditions are often cited as a reason to hold the line. On the year, SPX up around 9% and Nasdaq just over 10%. Strong but not crazy. Financial asset prices can be fickle as shown by bitcoin. PLTR was down over 9% just yesterday, and MSTR down 7.4%. Bessent noted that student loans are the largest asset of the US government, and the NY Fed reports “… the delinquency rate for student loans stands out: it surged from below 1 percent to nearly 8 percent, as the pause on reporting delinquent federal student loans ended. …Among borrowers who were required to make payments, nearly one in four student loan borrowers (23.7 percent) were behind on their student loans in the first quarter of 2025.”
On the one hand, financial asset speculation, though worrisome, seems to be reaching limits, while labor market warning signs are increasing. Powell has no reason to press the hawkish case and risk a completely split Fed when he can probably find consensus with a 25 bp cut. Waller speaks this morning at 11:00. Fed minutes in the afternoon.
–Was the Trump summit a possible watershed moment? I have seen several reports noting that European defense stocks are now under pressure. The idea of EU financing $100 billion in arms for Ukraine would likely be offset in part by access to cheaper Russian energy. Potential upside for US, EU, Ukraine and Russia. Possible negative effects on India and China.
