ORLANDO, Florida, Aug 13 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Stocks rose around the world on Wednesday, and bond yields

and the dollar fell, as comments from U.S. Treasury Secretary

Scott Bessent fueled traders' bets that the Fed will cut

interest rates next month, perhaps even by half a percentage

point.

More on that below. In my column today I suggest that what's

giving Fed Chair Jerome Powell his biggest headache right now is

not the pressure or attacks from U.S. President Donald Trump,

but the inconclusive economic data.

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. Fed cut seen near certain after inflation data,

Bessent

comments

2. U.S. embeds trackers in AI chip shipments to

catch

diversions to China, sources say

3. Just in time? Manufacturers turn to AI to weather

tariff

storm

4. China July bank loans unexpectedly contract for

first

time in 20 years

5. Stablecoins fuel liquidity, not yet money: Mike

Dolan

Today's Key Market Moves

* FX: Dollar falls again, lowest in nearly three

weeks on

index basis. Biggest G10 FX mover is sterling, up 0.5%.

* STOCKS: MSCI All Country, Canada, Japan, S&P 500

and

Nasdaq hit new highs. Chinese stocks now up 16 of last 20

sessions, Wall Street's VIX volatility index falls to 2025 low.

* SHARES/SECTORS: Beaten-down healthcare, and basic

materials sectors lead Wall Street rally, both up around 1.7%.

* BONDS: U.S. yields down across the curve, as much

as 6

bps at the long end. The 'MOVE' implied volatility index falls

to lowest since January 2022.

* COMMODITIES: Oil falls to lowest in more than two

months. Brent crude touches $65/bbl, WTI dips below $62/bbl.

Today's Talking Points:

* Fed policy. In the realms of market pricing, a rate cut

next month is now a nailed-on certainty, with traders putting

the chances of a quarter point cut at 99.9%.

This wager was strengthened by comments from Bessent, who

told Bloomberg News a 50-basis point cut was possible.

Bessent's comments are the latest in a growing list of

verbal interventions - or outright political interference - from

the Trump administration in the business and economics arena it

traditionally steers clear of, like the Fed, non-partisan

institutions, and private sector companies and banks.

* Trump's Fed nominations. Bessent said early on Wednesday

that no fewer than 11 candidates were being considered to

replace Powell, whose term expires in May (or, earlier, if he is

fired or resigns).

The president later shortened that list to three or four.

Interestingly, absent from Bessent's list was current

Council of Economic Advisers Stephen Miran, nominated to fill an

open Fed board seat with a term that ends in January.

* Trump-Putin meeting. The U.S. and Russian leaders are

scheduled to meet in Alaska on Friday, a face-to-face which

Ukraine's allies hope will see Trump urge Putin to agree a

ceasefire without selling out Kyiv's interests or carving up its

territory.

Trump, Ukraine's Volodymyr Zelenskiy and European leaders

met in a last-ditch videoconference on Wednesday to lay out

Ukraine's red lines, a call Trump said was "very friendly".

France's Emmanuel Macron said Trump was "very clear" that he

wants to achieve a ceasefire in Alaska.

Fed more hamstrung by murky data than Trump interference

It's widely believed that U.S. President Donald Trump's

insistence on lower interest rates is what's making life most

difficult for Federal Reserve Chair Jerome Powell and his

colleagues. But what's causing the biggest headache for Fed

officials is, in fact, probably more prosaic: economic data.

The key challenges facing Powell were encapsulated perfectly on

Tuesday by the release of an inconclusive U.S. inflation readout

followed by Trump's latest verbal attack - and threats of a

"major lawsuit."

Politics aside, most Fed officials agree that rates will

fall this year, with the median "dot plot" in the Fed's June

Summary of Economic Projections pointing to 50 basis points of

easing through December. Traders are betting heavily that the

first move will be in September.

But it's tough to justify that confidence based purely on

economic data. While some indicators suggest policy should be

eased sooner rather than later, others indicate that would be a

high-risk move. Looking at the "totality of the data," to borrow

a phrase from Powell, there is no clear signal either way.

PLENTY NOISE, FEW SIGNALS

Consider the latest U.S. inflation and employment reports,

the two most important data sets. On their own, they don't

appear soft enough to warrant the Fed trimming rates right now,

but they also aren't firm enough to dispel the notion that

policy easing is only a question of "when" not "if."

Annual headline CPI inflation held steady in July at 2.7%,

contrary to an expected rise, with month-on-month increases in

line with forecasts. But annual core inflation rose more than

expected to 3.1%, the highest level since February and still

meaningfully above the Fed's 2% target.

Economists calculate that durable goods prices rose 1.7% in

the first six months of the year - the biggest six-month rise

since 1987, excluding the COVID-19 pandemic. They warn there is

likely more of that to come as Trump's tariffs kick in.

"July's CPI data are probably more worrying under the

surface than in the headlines, and we expect the upward pressure

to goods inflation to build in the coming months," James

Pomeroy, a global economist at HSBC, wrote on Tuesday.

Meanwhile, last week's employment report showed job growth in

July was much weaker than anticipated, and, more importantly,

downward revisions to the previous two months were among the

biggest on record.

But these ominous signals were offset by accelerating wage

growth, an increase in hours worked, and a meager rise in the

unemployment rate. Hardly signs of a shaky labor market.

Nevertheless, markets focused more on the softer elements in

the jobs data, suggesting investors think the Fed's bar to

easing is much lower than the bar to standing pat. Indeed, the

rates market is now pricing in a near-100% chance of a cut at

the U.S. central bank's September 16-17 meeting.

RISK MANAGEMENT

But markets may be getting ahead of themselves.

Powell has indicated that a rise in the unemployment rate is

needed for the Fed to act. But that rate is potentially being

distorted by post-pandemic labor supply issues - employers'

reluctance to fire workers and Trump's immigration policies are

limiting the number of people looking for work.

Regardless, cutting before seeing a meaningful rise in the

unemployment rate would be tough to justify, creating a

significant communications problem for Powell.

And on a more fundamental level, as economist Phil Suttle

noted on Tuesday, is preparing to cut rates at full employment

just as inflation is accelerating good risk management?

This is a particularly apt question when looking at

financial markets: the S&P 500 and Nasdaq, gold, and bitcoin are

all near record highs, and corporate bond spreads are the

tightest in years. This hardly looks like a restrictive policy

environment.

In that light, patience and caution would appear justified,

especially given the added risk of appearing to buckle under

Trump's political pressure. If the Fed wants to cut, Powell

could use some cover. Unfortunately for him, he's unlikely to

find that in this noisy data.

What could move markets tomorrow?

* Australia unemployment (July)

* China's JD.com earnings (Q2)

* UK GDP (Q2, preliminary)

* UK industrial production (June)

* UK trade (June)

* Euro zone GDP (Q2, flash estimate)

* Euro zone unemployment (Q2)

* Euro zone industrial production (June)

* U.S. weekly jobless claims

* U.S. producer price inflation (July)

* U.S. Fed officials on the stump: Richmond Fed President

Thomas

Barkin, St. Louis Fed President Alberto Musalem

* U.S. earnings - Cisco Systems, Deere & Company

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