August Outlook: Middle East Tensions and Trade Disputes Dominate Markets
The month of July was marked by escalating tensions in the Middle East and ongoing trade disputes between the US and its trading partners. The Iran ceasefire, which had been in place since June 14, collapsed on July 7 after Iranian attacks on commercial shipping near Oman triggered US retaliation.
US President Trump's handling of the situation has been characterized as 'erratic' and 'unhinged,' causing financial markets to swing wildly. The introduction of Section 301 tariffs is also expected to impact supply chains, further contributing to market volatility in August.
The Federal Reserve's July meeting saw a hold decision with three dissents pushing for a rate hike, keeping the possibility of a September move alive. New York Fed President John Williams suggested that inflation may continue to cool through the back half of the year, potentially leading to a lower rate move. The annual Jackson Hole Symposium on August 27-29 will focus on 'Financial Innovation: Implications for Payments and Policy,' but traders are not expecting new monetary policy insights.
The Canadian Dollar is expected to trade off oil prices, US yields, and tariff headlines in the absence of any significant guidance from the Bank of Canada. Section 338 tariffs, set to take effect on August 19, will impact autos, dairy, alcohol, and other products, with markets pricing a heavy majority for another hold at the next BoC meeting on September 2.