Morning Macro 27th August 2025
Morning Macro 27 August
US durable goods orders fell 2.8% in July to $302.8bn, extending June’s 9.4% slump but beating expectations for a 4% drop, as firms continued to unwind May’s tariff-driven front-loading. The decline was led by manufacturing and a 32.7% plunge in nondefense aircraft, partly offset by gains in machinery, metals, and computers.
The Fed stressed that governors serve 14-year terms and can only be removed for cause, after President Trump said he was firing Governor Lisa Cook. If Trump succeeds, he could control four of seven FOMC seats – so much for Fed independence. BoC Governor Macklem warned Tuesday that central bank independence is critical to controlling inflation.
Concerns over Fed independence sent the treasury curve on a rapid bull steepener, which extended today. 2s10s at 61.7 bps now, up about 8bps from last week, the 2s30s is now at 127bps up 15 bps last week before Jackson Hole (figure 1). A more dovish Fed relieves concerns over short-term recession risk, while increasing longer-term inflation expectations. The 30-year continues to bear the brunt of Fed-related uncertainty with yields creeping up towards 5%. The 10-year finding buying above 4.30%.
Hedge funds are aggressively shorting the VIX expecting markets to remain in a state of indifference. Typically this tends to be a precursor for volatility break outs… (Figure 2)
Japan 10-year yields rose to 1.625%, the highest since 2008, which has been supporting the yen, but month-end corporate flows are starting to aid the dollar. CFTC data show asset managers adding to JPY longs (+71,379 vs +60,866), while leveraged funds extended shorts (-50,848 vs -41,257). Those leveraged funds would’ve been sweating after the initial Jackson Hole reaction, but recent dollar support will provide some relief.
Chinese equities extended gains, led by tech and AI, as focus shifts to Nvidia earnings. China’s July industrial profits fell 1.5% y/y (vs -4.3% in June, expected -5.8%). High-tech sectors drove an 18.9% gain, reversing June’s decline, adding 2.9% to the headline. Manufacturing profits rose 6.8% y/y (vs 1.4% in June). The improvement masks continued weakness in traditional sectors. (Figure 3)
French OAT bond spreads could blow out to 100bps over Bunds if political stress deepens, Carmignac said. The 10 year spread continues to widen up to 78 bps today, on vote of confidence concerns. (Figure 4)
Data today: MBA Mortgage data
