Weekly Review: Trump's policy suddenly shifts! The unexpected firing of Powell shocked the market, and the Federal Reserve's interest rate cut in July has completely cooled down.

Financial markets this week were primarily driven by a strengthening dollar, which extended gains for a second consecutive week, underpinned by robust U.S. economic data—including higher CPI and strong retail sales—that effectively eliminated July Fed rate cut expectations. This occurred amidst initial market turbulence from unsubstantiated rumors of Trump attempting to dismiss Powell, which were quickly walked back. A notable development was the apparent U.S.-China tech agreement, allowing NVIDIA to resume H20 chip exports to China, signaling a potential easing of trade tensions. Concurrently, China's Q2 GDP growth exceeded expectations, contributing to overall risk sentiment, while strong U.S. earnings reports supported mixed but generally positive equity performance.

Analysis

Financial markets this week were driven by a robust U.S. dollar, which gained 0.8% for a second consecutive week, propelled by strong economic data that tempered expectations for imminent Federal Reserve rate cuts. U.S. June CPI rose 2.7% year-over-year, beating forecasts, while retail sales grew 0.6% and initial jobless claims fell to a three-month low, effectively eliminating the prospect of a July rate cut. This fundamental strength overshadowed transient political noise surrounding potential changes in Fed leadership. In a significant geopolitical development, NVIDIA announced it would resume H20 chip exports to China, signaling a potential easing in U.S.-China tech trade tensions and providing a specific tailwind for the semiconductor industry. While China's Q2 GDP growth of 5.2% surpassed expectations, underlying data revealed weak domestic demand and a ninth consecutive quarterly decline in the GDP deflator, suggesting the export-led resilience may be fragile. This backdrop led to mixed performance in U.S. equities, with the tech-heavy Nasdaq gaining 1.51% while the Dow Jones Industrial Average fell 0.07%. In commodities, gold demonstrated resilience by holding the $3300 support level despite dollar strength, whereas crude oil prices retreated over 1.5%.

Key Decisions for Investors

• Given the strong start to the U.S. earnings season and NVIDIA's renewed market access in China, investors should consider maintaining or increasing exposure to the U.S. technology sector, while closely monitoring upcoming reports from Alphabet and Tesla as key sentiment indicators.
• The combination of resilient U.S. economic data and fading Fed rate cut expectations provides fundamental support for continued U.S. dollar strength; consider positioning for further dollar upside against currencies facing domestic headwinds, such as the Japanese Yen and British Pound.
• Exercise caution with China-exposed assets, as the headline 5.2% Q2 GDP growth masks significant weakness in domestic consumption and persistent deflationary pressures, indicating that the economic recovery's foundation is narrow and potentially unsustainable without further stimulus.
• Gold's ability to hold key support levels despite macroeconomic headwinds suggests a neutral-to-hold stance may be prudent, as its resilience points to underlying demand that could catalyze a sharp move on any shift in geopolitical risk or central bank policy.