Insights 
VT 
The Dow Jones Industrial Average rose, buoyed by hopes of new trade deals and anticipated rate cuts from the Federal Reserve. US Commerce Secretary Howard Lutnick announced a trade framework between the US and China, while the Trump administration anticipates agreements with 10 key partners.
However, a White House clarification altered Trump’s view, noting an understanding with China for a Geneva agreement framework. US Treasury Secretary Scott Bessent mentioned expectations of around 15 trade agreements soon, while Trump anticipated five to seven deals.
Trade Tensions With Canada
Amid these announcements, Trump threatened to abandon talks with Canada, citing disagreements over dairy tariffs despite these forming part of his USMCA trade agreement. The President plans to place tariffs on Canada within a week.
The CME FedWatch Tool indicates a high chance of multiple Fed rate cuts by year-end, starting in September. Traders expect a quarter-point cut on September 17 with additional trims in October and December.
Rising inflation pressures were noted, with the PCE inflation figure hitting 2.7% YoY. Personal income fell by 0.4% in May and spending by 0.1%, both under forecast.
Markets focused on positive sentiment as the UoM Consumer Sentiment Index increased to 60.7, with inflation expectations dropping slightly. The DJIA aimed for the 44,000 mark, ending the week over 3% higher from the week before, though caution remains due to potential overbought conditions.
Despite upbeat trading sentiment and an encouraging lift in the Dow, the undercurrents remain more layered than they appear at the surface.
Lutnick’s announcement of a new trade framework with China triggered positive reactions across equity indexes. Markets seized on that message, drawing forward hopes of policy certainty. Yet, the subsequent re-framing from the White House diluted some of that early conviction. The distinction between political optimism and actual policy delivery stood out, widened further by ongoing uncertainty around how the Geneva agreement terms would ultimately be reflected in cross-border trade flows.
With Bessent projecting around fifteen agreements on the horizon, and Trump placing his figure notably lower, the gap underscores a lack of alignment even within the administration. That divergence shouldn’t be ignored—it suggests that policy timelines could stretch and that initial optimism might meet delays in execution.
Canadian Trade Frictions
And while attention gravitated toward multilateral agreements, the potential breakdown with Canada over dairy tariffs revealed deeper frictions. The President’s move to consider additional duties within days signals how quickly cooperative narratives can tilt. For those of us watching fiscal responses and tariff timelines, the risk of retaliatory measures feeding through to commodities markets and cross-border flows should not be underappreciated.
Monetary policy expectations are becoming steadily more pronounced. According to CME-fed linked indicators, markets have now clearly priced in a minimum of one rate cut in September, with nearly full positioning for reductions in both October and December. These forecasts are not speculative—they are being built into forward pricing.
So we note that the Federal Reserve is now navigating a set of pressures that include inflation, underperformance in personal income, and a pullback in household spending. The most acute of these came from May’s figures: a 0.4% decline in income and 0.1% fall in spending, both lagging expectations. Combined with a persistent PCE reading of 2.7%, that squeezes the Fed from both sides—needing to ease financial conditions without triggering further inflation rebound.
Consumer sentiment, based on recent survey data, picked up a touch. Encouraging on paper, yes, although lower future inflation expectations mirrored that signal. It’s likely that the public’s mood may have been helped more by falling fuel prices and easing cost concerns than wage or employment optimism. We treat this cautiously in estimating future consumption trends.
The Dow’s 3% rise for the week shows that equity traders saw more light than shadow. Yet it also means some positions are now stretched and edging toward technical extremes. When sentiment rallies quicker than fundamentals justify, it gives us more than a few reasons to pause.
This positioning matters. For those dealing in interest-rate futures or options contracts linked to Treasury benchmarks, the expected Fed path gives reason to lean more confidently into the curve, although hedges must be maintained in case the inflation metrics surprise to the upside in coming monthly prints.
Rate traders may want to push into short-dated volatility, particularly as CPI approaches. On the equity volatility side, the jump in optimism has begun to suppress implied vols—creating potential entry points ahead of autumn.
And as always, in this sort of macro climate, it’s the reaction—not the data itself—that often moves the market. Carefully monitoring intermarket signals in the coming days, particularly in FX crosses linked to trade-sensitive currencies, will help guide more effective positioning.
The fundamentals haven’t broken, but neither are they on fully solid footing. The days ahead likely won’t lack for movement.
