Swissquote Bank: Bullish or bearish?
By Ipek Ozkardeskaya, Senior Analyst, Swissquote Bank
The week kicked off on a positive note as investors rushed to buy the dips from last week’s correction. While the European indices remain under the pressure of tariffs, there are now two distinct camps regarding whether the major US indices should return to fresh all-time highs or whether a further correction is in order.
The bullish camp argues that earnings have been stronger than expected, and that rising rate cut prospects from the Federal Reserve (Fed) are sufficient to send major US indices to fresh records – with optimism potentially echoing across global financial markets.
The bearish camp hears these arguments but highlights that strong US earnings were partly due to a softer dollar; that while technology companies eked out a 26% increase in profits, the rest of the market posted just 4% growth; and that rate cuts are not necessarily justified – even with a deteriorating economic outlook – while inflation remains hot and at risk of further rising, especially as some companies have announced they will be passing part of the tariff costs onto clients.
What’s clear, however, is that retail investors seem to be running the bull show, as CFTC data continues to show strong net negative positioning among institutional traders. And that’s understandable – traditional investors don’t like uncertainty, and there’s nothing more certain than political uncertainty, monetary uncertainty, geopolitical uncertainty, and trade uncertainty on the horizon.
But hey, the Fed has proven capable of fighting any market weakness with its juicy policies, and Donald Trump will likely form a committee that reflects his vision of the perfect central bank: one that cuts rates.
Speaking of that, the Fed is expected to cut rates twice before the end of the year, with the first cut now broadly priced in for September. Fed funds futures now imply a more than 90% chance for a September cut, versus less than 40% last week – before the dramatic US jobs data landed and resulted in the firing of the BLS chief.
Investors will be watching the ISM and PMI data today. Softer-than-expected figures could further fuel dovish Fed expectations and support equity valuations – despite rising price pressures – while stronger-than-expected data will likely do little to reverse expectations for a September cut. On the contrary, any bright spot would support the idea that the US economy is holding up well despite tariffs.
In summary, we’re in a blind spot where investors are capable of seeing the glass half full, whatever the data suggests. And even though the equity rally barely matches the global headlines, the rally is on. The S&P 500 printed its best day since May. Futures are in the green this morning, with Nasdaq futures leading gains after Palantir announced better-than-expected Q2 results after the close yesterday, sending the share price some 4.5% higher in after-hours trading.
AMD is due to report after today’s close and is also expected to announce strong quarterly numbers on robust AI demand. Note that despite robust results, some leading chipmakers – including Arm Holdings and Qualcomm – failed to bring investors on board. For AMD - which has been the best-performing chip stock of 2025 - beating expectations alone may not be enough; investors will also require a strong outlook.
In the bond markets, calm reigns ahead of US 3-, 10- and 20-year bond auctions. Here too, investors seem to have digested the explosive US debt news of a few weeks ago. The US 10-year yield is down to 4.20%. Beyond the US, the Japanese 10-year yield has eased below 1.50%, and a gauge of European 10-year debt yields has fallen to a two-week low. Even though the long-term outlook remains positive for DM yields on the back of rising debt worries, investors don’t seem disturbed by the rising trend.
In FX, the US dollar consolidates losses following a sharp post-NFP selloff. The outlook – which had turned slightly positive since early June due to crowded short positions – is now turning neutral, as trade tensions, weak economic data, and rising dovish Fed expectations support the bears.
As such, the EUR/USD is testing the 50-DMA to the upside. Strong PMI data could help clear resistance. Cable rebounded from a critical Fibonacci support last week and remains in a bullish consolidation zone, as the 25bp cut from the Bank of England (BoE) later this week is already priced in. Hence, the dovish shift in Fed pricing is currently weighing more heavily on sentiment than the BoE’s stance.
Plus, Brits are facing rising inflation in the coming months, which could result in a cautious cut from the BoE this Thursday. If that’s the case, Cable could remain in the medium-term bullish consolidation zone above the 1.3140 mark – the major 38.2% Fibonacci retracement of this year’s rally.
In energy, crude oil extends losses following OPEC’s decision to increase production by 547,000 barrels per day from next month, fueling expectations of a surplus in H2.
Critical support is seen near the $65.20–$65.30 per barrel area – which shelters the 100-DMA and the major 38.2% Fibonacci retracement of the year-to-date decline. A sufficiently soft US dollar could help keep oil prices in the bullish consolidation zone.
Elsewhere in commodities, a weaker dollar and lower yields are turning supportive of gold prices amid ongoing trade and geopolitical uncertainties. While strong resistance is seen into the $3,400 per ounce level, the outlook for the precious metal remains positive, and a further rise toward $3,500 per ounce looks increasingly plausible.