This week is a macro week with extremely important events, including Fed and Bank of Japan meetings, key US employment data over multiple days, US growth, and PCE inflation data. Each of these developments/news items has the potential to cause significant price fluctuations. Therefore, we could be in a very different position this weekend than what's happening now.

Let's get the easiest out of the way first: US employment, after beginning to slow over the last three years, hasn't actually shown any trend-recognizable change for months. If you look very carefully, with a magnifying glass, you'll see that employment generated by the US economy has been slowing very slowly. We shouldn't expect this week's data to slow significantly, contrary to the trend. Growth data, however, will likely show that the US economy remains strong in the second quarter despite everything. The PCE data, which the Fed closely monitors, will also provide some indication of the impact of tariffs, and particularly if it shows that monthly inflation is rising and annual inflation is falling, it will create a moderate environment for the Fed to cut interest rates in September.

Moving on to the Fed meeting, although the PCE will come after the Fed meeting, it's inevitable that Powell could point to September at this meeting. Those following the meeting know that I initially expected this meeting to be a dead end and that Jackson Hole would prioritize September. However, the agreement reached with the European Union and the restructuring of tariffs with many other countries have significantly reduced future uncertainties. Therefore, Powell's continued preoccupation with the uncertainty narrative will be unnecessary. Ultimately, while the 62% probability of an interest rate hike at the September meeting was priced in at the beginning of the week, we shouldn't be surprised if that probability rises to 90% by Wednesday evening.

There are numerous indicators indicating a strengthening of price cut expectations in the bond market. But I'll tell you about a lesser-known indicator. The "bond spread," the difference between the yields on investment-grade bonds and those on junk bonds, has reached its lowest level in recent times. So, what does this mean? It means: Because the market believes interest rates will soon begin to fall and that low interest rates will stimulate the economy, it has begun filling portfolios with junk bonds, which are considered high risk and offer significantly higher yields than investment-grade bonds, and the yields on these bonds have begun to fall. Thus, the difference between the two bond groups has narrowed. In other words, junk bonds have become the alpha of fixed-income portfolios.

This alone shows that the market is preparing portfolios in different ways for the interest rate cut. Everyone should hold on tight; in a few months, the world will already be in a very different economic environment!

Over the weekend, we saw the US and Europe reach an agreement on tariffs. According to the agreement, the US will impose a 15% tariff on European goods. In return, Europe will not impose tariffs on American goods. The previous tariff was 30%. Europe will purchase $750 billion in defense industry products and energy products and invest an additional $600 billion over the next three years. We have seen promises broken in previous agreements with China, and the US has not (or has not) implemented any sanctions against this; for now.

One wonders, how viable in practice is a trade agreement reached with terms so unfavorable to Europe? I can see the dissatisfaction on this issue in the social media posts of many European bureaucrats. It was a true defeat for Europe. I'm curious to see how the film ends. Still, the market will now see this as a compromise and the removal of uncertainty, and won't even consider what will happen when Trump steps down three years from now.

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