Markets are sending mixed signals as mortgage rates fall to 2025 lows. At the same time, inflation is heating up, leaving investors unsure which trend will win out.

Find out our thoughts below.

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The Big Picture

Manufacturing

U.S. Manufacturing Weakness Deepens as Policy Makers Race to Support Domestic Industry

America’s manufacturing sector is struggling through one of its most extended slumps in years, with the ISM Manufacturing PMI signaling contraction for the fifth consecutive month.

July’s index reading marked the lowest since late 2024, highlighting the depth of the slowdown and adding to concerns about the broader industrial economy.

The weakness is being felt across key indicators.

Factories report declining new orders, shrinking backlogs, and a sharp pullback in hiring, with payroll reductions rising to levels not seen since the early pandemic years.

Supply chain disruptions have eased compared to 2021–2022, but soft global demand and higher financing costs continue to weigh on output.

At the national level, policymakers are seeking ways to blunt the downturn.

Recent regulatory rollbacks and incentives for domestic production are designed to stimulate new investment, while trade policy adjustments aim to reduce exposure to volatile international markets.

The effectiveness of these measures, however, will take time to filter through, leaving the near-term outlook fragile.

For the broader U.S. economy, the contraction in manufacturing underscores the uneven nature of growth.

While services and consumer spending remain resilient, the industrial side is flashing warning signals that will factor heavily into upcoming Federal Reserve and fiscal policy decisions.

Global Trade

U.S. Faces Inflation Pressures as New EU Trade Deal Reshapes Import Costs

A preliminary trade agreement with the European Union is set to reshape the cost structure of U.S. imports, with a 15% tariff now applying to a broad range of European goods.

While the deal avoids a full-blown trade war, the added costs will ripple through American supply chains, raising concerns about higher inflation at a time when price stability remains fragile.

The EU is one of America’s largest trading partners, sending everything from machinery and vehicles to pharmaceuticals and luxury goods across the Atlantic.

Importers will shoulder the new levy, but businesses often pass those expenses on, leaving U.S. manufacturers, retailers, and consumers exposed to higher prices.

For households already strained by elevated food and housing costs, the pressure on imported essentials and discretionary items could further squeeze budgets.

Industries reliant on specialized European inputs, such as aerospace, automotive, and chemicals, face particular challenges, with higher costs potentially reducing competitiveness in global markets.

At a macro level, economists warn the agreement could complicate the Federal Reserve’s path on interest rates, forcing policymakers to weigh tariff-driven price shocks against a slowing industrial sector.

The outcome highlights the close connection between U.S. economic performance and global trade dynamics, particularly with Europe.

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Technology

Tech Faces Supply Chain Risks as Export Controls Reshape Global Trade

The U.S. technology sector is facing a wave of legal and geopolitical risks associated with semiconductor exports, underscoring how policy shifts are altering the foundations of American innovation and manufacturing.

With new restrictions complicating trade with China, supply chains are being rerouted through partners in Japan and Europe, while U.S. firms face growing uncertainty over compliance and enforcement.

At the core of the issue is the broader push toward “technological decoupling.”

While intended to limit China’s access to advanced chips, the strategy is creating fragmentation across global supply networks.

This not only disrupts the flow of critical components but also threatens long-term domestic investment in research and development.

Industry groups have warned that continued restrictions could erode trust in American technology and encourage foreign buyers to diversify away from U.S. suppliers.

The impact reaches beyond chipmakers.

Higher costs for essential materials, such as copper and specialized equipment, are already being passed on to U.S. manufacturing, from automotive to aerospace.

Businesses reliant on advanced technology imports now face pressure to adjust pricing or absorb margin hits, raising inflation risks across sectors of the economy.

The uncertainty highlights a key challenge for the U.S. macroeconomic outlook: striking a balance between national security objectives and the need to preserve competitiveness in a sector crucial to productivity and growth.

Metrics to Watch

• Mortgage Rates and Housing Data:
  The average 30-year fixed mortgage fell to 6.58%, its lowest level since October 2024.
  
  With affordability still strained, investors will watch this week’s mortgage application and housing-starts data to see if lower borrowing costs spark a rebound in demand.
  
  

• Producer Price Index Fallout:
  July’s PPI surged 0.9% month-over-month, the steepest since 2022. Analysts expect that to push the Fed’s preferred inflation gauge, core PCE, closer to 2.9%, a potential obstacle to aggressive easing.
  
  

• Jobless Claims and Labor Market Clues:
  Initial claims remain in focus after downward payroll revisions last month. Any surprise uptick could heighten fears that the labor market is weakening faster than expected.
  

• Fed Speakers on Deck:
  Several policymakers, including Richmond Fed President Tom Barkin, are slated to speak this week.
  
  Markets will parse remarks for hints on whether September brings a rate cut or another hold.

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Market Movers

🪑 Fed Politics Heat Up
President Trump’s attacks on Powell have intensified, but investors are just as focused on the other voting members of the FOMC.

Recent dissents from governors Michelle Bowman and Christopher Waller marked the first break in three decades, underscoring divisions over how urgent a cut really is.

🏠 Housing Gets a Window of Relief
Mortgage rates have finally pulled back, helping refinance activity jump. But affordability remains stretched, with many buyers waiting for sub-6% rates before re-entering the market.

A better-than-expected fall selling season could help break the housing gridlock.

💹 Tariff Impact Creeps Into Prices
Wholesale goods from furniture to tires rose sharply in July, suggesting tariffs are beginning to filter into broader inflation.

Companies say they’re reaching the limits of absorbing costs and may soon pass them on to consumers.

🌐 China Trade Flows Keep Shifting
U.S. imports from China have dropped to just 12% of total goods trade, the lowest since 2003.

Vietnam, India, and others are picking up some of the slack, but enforcement of “transshipped” goods remains a wild card for supply chains.

Market Impacts

Equities: U.S. stock futures edged higher Sunday evening, extending momentum after two straight weeks of gains.

The Dow advanced 1.7% last week, while the S&P 500 and Nasdaq added 0.9% and 0.8%, marking four positive weeks out of the last five for both indexes.

Small-caps outperformed with a 3% surge, as traders bet that rate cuts will arrive in September.

Earnings season is winding down, with retail giants like Walmart, Target, Home Depot, and Lowe’s set to report.

With more than 92% of S&P 500 companies already posting results, 82% have topped expectations.

Attention now shifts to the Fed’s Jackson Hole gathering, where Powell and other central bankers will set the tone for fall policy.

Bonds: Treasury yields firmed on Friday after retail sales data matched expectations and consumer sentiment surprised to the downside.

The 10-year yield closed at 4.32%, while the 2-year ended at 3.75%. Despite July’s sharp PPI jump, markets are still pricing in about an 85% chance of a quarter-point cut in September.

Strategists expect yields to remain range-bound until the Fed meeting, with steepening curves likely once cuts begin.

Currencies: The dollar slipped to finish the week lower, as traders held firm on bets for September easing.

The euro climbed to $1.1708, sterling gained to $1.3570, and the yen strengthened after Japan’s stronger-than-expected growth data.

Commodity-linked currencies like the Aussie and kiwi also advanced. Traders will watch this week’s Trump-Putin talks in Alaska for geopolitical surprises that could tilt safe-haven flows.

Crypto prices bounced after Thursday’s dip, with bitcoin reclaiming $123,000 and ether regaining traction above $4,600.

Commodities: Gold steadied at $3,336 per ounce but booked a 1.8% weekly decline as inflation data tempered hopes for a larger Fed cut.

Analysts say the outlook remains bullish given macro risks, tariff pressures, and a weaker dollar.

Oil eased for a fourth straight session, with Brent at $65.53 and WTI at $62.57, after OPEC+ announced another production increase and Trump’s meeting with Putin signaled no new energy sanctions.

Supply remains ample, though upcoming talks with European leaders on Ukraine could reset geopolitical risk premiums.

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Key Indicators to Watch

📅 Homebuilder Confidence (Monday, Aug. 18)
Confidence among builders is forecast at 34, up slightly from 33 in July. A sustained recovery would suggest lower mortgage rates are beginning to unlock demand.

📅 Housing Starts (Tuesday, Aug. 19)
July starts are projected at 1.30 million, down modestly from June’s 1.32 million. A softer print could reinforce concerns about construction headwinds and supply shortages.

📅 Building Permits (Tuesday, Aug. 19)
Permits are expected at 1.39 million, just under last month’s 1.40 million. Any surprise decline would highlight fading momentum in future supply pipelines.

📅 FOMC Minutes (Wednesday, Aug. 20)
The Fed’s July meeting minutes will be combed for details on the debate between cutting rates sooner versus holding steady.

Markets are looking for clues on whether September’s decision is a foregone conclusion.

Everything Else

• Jefferies’ chief economist David Zervos, a potential Fed chair contender, calls for aggressive rate cuts to counter slowing growth.

• The July producer price index jumped 0.9%, the sharpest monthly gain in three years, raising pressure on the Fed’s easing path.

• U.S. business inventories rose in June, matching expectations, as retailers and wholesalers continued to rebuild stockpiles.

• Manufacturing output stalled in July, with weak consumer demand and trade uncertainty weighing on factory floors.

• Japan delivered stronger-than-expected GDP growth in Q2, helped by resilient exports that offset tariff and currency pressures.