Good morning Traders and Quants and welcome to the last trading day of August! Markets rode a post-NVIDIA bounce yesterday, with the S&P 500 closing at fresh records and communication and energy names leading. The Nasdaq regained some of its underperformance from earlier this week, though it remains just off its highs, while the Dow also ended firmly green. Treasury yields continue their week-long slide after Powell’s dovish Jackson Hole tone last week, with the 10-year now down to 4.21%, well off the July peak.

The second estimate of Q2 GDP came in at 3.3% versus 3.0% previously, with stronger fixed investment driving the revision. That left investors balancing signs of resilience in the real economy against expectations for rate cuts, particularly with today’s release of July PCE inflation. Core PCE is expected to rise slightly to 2.9%, keeping the Fed in play for September. Jobless claims edged lower, still consistent with a labor market that’s cooling but holding up well. With NVDA’s strong results now digested, the month closes with inflation data in the driver’s seat.

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Futures are taking a breather this morning after Nvidia’s big earnings day and the GDP release, with attention now shifting to Friday’s PCE inflation release. Core PCE is expected to inch up to 2.9% year-over-year, a reminder that disinflation is slowing and that the Fed’s path isn’t straightforward. The spending side of the report will also matter. Economists expect consumption to hold up on the back of wage gains, but the balance between still-solid household income and higher borrowing costs is delicate. If consumer demand holds up better than expected, the case for further rate cuts could weaken. Investors are also bracing for the possibility that sticky core inflation means Powell and company remain cautious even after last week’s dovish hints at Jackson Hole.

At the same time, market structure itself is becoming a story. Short interest in S&P 500 stocks has risen 30% year-to-date, even as the index hits record levels, suggesting hedging is on the rise rather than outright bearish positioning. Flows also continue to rotate: energy and communication services have led gains recently while defensive areas like utilities and staples lag. On the tech side, Alibaba unveiled a new AI chip to counterbalance U.S. restrictions on Nvidia’s hardware in China. The move highlights both how central AI remains to market narratives and how quickly competitors are stepping into the void left by export curbs. For now, the S&P’s breadth remains decent, but the market feels increasingly tied to policy moves and the AI trade’s durability.

The global trade map is shifting again, this time in a way that hits consumers more directly. The U.S. has ended its “de minimis” exemption that allowed duty-free entry for small packages under $800. That policy had long been a lifeline for e-commerce platforms like Etsy and eBay, as well as direct-from-China sellers on Temu and Shein. Now, every package will face tariffs and customs checks, adding costs and delays. Shares of major online retailers slumped on the news, as analysts warned the change could reshape consumer behavior, potentially slowing cross-border online shopping and raising shipping costs. For the administration, the move closes what officials called a “loophole” that undermined U.S. manufacturers, but it risks fueling consumer frustration with higher prices just as inflation is cooling elsewhere in the economy.

The knock-on effects won’t stop at American doorsteps. Brazil’s President Lula has already authorized retaliation against Trump’s new tariffs, underscoring how protectionist policies are reverberating through emerging markets. China, too, will see fresh pressure as its low-cost parcel exports to the U.S. lose their privileged status. While the administration frames this as national security and economic fairness, the reality is that tariff escalation is feeding a more fragmented trade environment. Multinationals will face rising costs in their supply chains, and U.S. consumers may ultimately carry more of the burden. What was once a niche customs exemption has become another flashpoint in the broader re-ordering of global trade rules.

The clash between President Trump and the Federal Reserve is intensifying, with Fed Governor Lisa Cook’s dismissal now headed into the courts. Cook has filed suit, setting up a legal showdown that could define the limits of presidential authority over the central bank. Trump’s allies have framed the move as a necessary clean-up over alleged misconduct, but critics see it as an attempt to stack the Fed with loyalists who would accelerate rate cuts. Markets are watching closely. While the near-term implication could be looser policy and lower rates, the long-term risk is that politicization erodes credibility and raises the specter of higher inflation down the road. The episode has also rattled international investors, who are questioning whether the U.S. is moving away from the independent-central-bank model that underpins confidence in Treasuries and the dollar.

The political theater isn’t confined to the Fed. Trump is also reshaping the health bureaucracy, ousting CDC Director Susan Monarez after she resisted pressure to fire senior vaccine officials and approve politically sensitive recommendations. Combined with Robert F. Kennedy Jr.’s continued role in vaccine policymaking, the moves reinforce how public health has become another arena for partisan contest. In Washington, the overlap between monetary policy, health policy, and electoral politics is growing harder to ignore. For markets, this fusion adds noise and raises tail risks: fiscal choices, regulatory priorities, and even pandemic readiness are now increasingly intertwined with campaign season dynamics. The “Fed versus White House” storyline may dominate headlines, but the deeper trend is a broadening of executive reach into institutions once considered insulated.

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August has been a month of big swings: AI hype tempered by skepticism, Powell leaning dovish but Trump pressing harder on the Fed, and tariffs layering new uncertainty over global trade. Stocks sit at records into month-end, but the tug-of-war between resilient growth and political risk leaves little margin for error. Today’s PCE could set the tone for September’s Fed meeting, and for how markets carry their momentum into September and October, two months that have shown a penchant for volatility historically.