Traders hoping for a quiet long weekend with the US and the UK closed for holiday on Monday the 26th might be up for disappointment. US President Donald Trump has developed a habit of making major market-moving announcements over the weekend. There are rumors that India is close to reaching a deal, which could be announced potentially on Saturday or Sunday.
What’s more certain is the Fed Chair Jerome Powell speech on Sunday. But what markets might be looking forward to is the release of durable Orders on Tuesday. There has been persistent concern that the US economy is slowing down so fast it might fall into a recession. If the current quarter GDP comes in negative, then that would meet the technical definition. Even if it doesn’t, the slowdown will be pivotal to judge what the Fed will do in terms of rates.
Sticking to the Uncertainty Narrative
What could move markets in the wake of Powell’s speech is if he deviates from the current Fed narrative. That has been to double down on the uncertainty line, but provide warnings about future growth. The last time Powell spoke, he stuck to the script saying that tariffs provided an increased threat of supply shocks that could push up inflation. As a result, he warned, interest rates could be higher than the market expects.
At the moment, the market is generally expecting the Fed to keep rates on hold until the September meeting. But it does price in around a 30% chance of a rate cut in July as well. After that, markets are still expecting at least a 60% chance of a second rate cut by the end of the year.
The Weakening Dollar
Normally, the prospect of rates staying higher for longer would give the currency a boost. But the dollar actually weakened in the wake of Powell’s comments. That’s because there is considerable uncertainty about the US economy growing, and higher rates would also slow down growth. This has contributed to expectations of underperformance in the stock market, with capital flowing out of the US (mostly to Europe), weakening the dollar in the process.
The other issue is the budget, which was due to be approved by congress last October and was only just recently passed through the House. It still faces a dangerous road in the Senate and further reconfirmation in the House. In its current form, it includes a large amount of deficit spending, but can increase the debt ceiling. Markets are becoming increasingly nervous that the US will be able to service its debt, as interest payments have been rising in an environment with high interest rates. This is another factor weighing on the dollar.
Get Out of Debt by Growing
One of the ways that the increased government spending could be overcome is by strong growth in the economy that would increase tax revenue organically. Trump’s first term tax cuts were followed by economic growth that produced an increase in tax revenue. But with already one quarter negative due to the tariff war, markets are worried that there hasn’t been much progress on trade deals to lower tariffs recently. The dollar would likely experience some relief if new major trade deals were announced.
Meanwhile, traders can look to Tuesday to see if businesses are still confident in the economy enough to make large capital investments. Durable Orders for April are expected to have fallen by -6.8% compared to March growth of 7.5%. When looking at the figure excluding airplane orders, the situation is a lot more stable, at 0.0% compared to -0.2% prior. The major shift reflects the timing of large aircraft orders in 2024 vs 2025.