Japan’s Exports Contract Moderately in August as Asia Demand Offsets U.S. Weakness

In case you haven’t seen our introduction to bond yields and an explanation on their recent moves, I formally invite you to read it over which may help you to understand some of tomorrow’s moves.

What is the Fed Funds rate and why is the FOMC meeting so big?

Tomorrow, and as-usual for every FOMC meeting, the Federal Reserve will decide whether or not to change its Main policy rate, the Fed Funds, currently locked between 4.25% to 4.50% (Effective Fed Funds is at 4.33%, but that’s a technicity).You will usually see the higher bound of that range represented, which is why you usually hear the “4.50%” rate from US President Trump and media – We will use this rate for the article.The FOMC is closely watched due to all banks (Central Banks and all others), traders, investors using this rate as the main US Dollar financing rate.As the Reserve currency, the US Dollar and its supply will have a great influence on global yields, demand and prices.

The current US Treasury Yield Curve

Current vs 2-year ago Yield Curve – Source: TradingView

Small explanation on the yield curve

The current curve (blue) is inverted –compared to a Flattening yield curve in purple– which means that the market expects that the yield on short-term obligations will be lower than on long-term ones.

This is due to lower inflation expectations and a lower time compensation in the short run, compared to higher inflation expectations and higher risk to outstanding debt in the long run.The 2-Year yield is the closest to expiry and is the best view of where the market expects the Fed Funds rate to be within the next two years.The same is true for 5-year and longer-term yields, but these also include a time-risk premium (and of course, reflect demand).This is why, for example, 30-year yields will be tied to longer-run mortgages for consumers, as they tend to reflect longer-term risks for banks to lend.

Also, one of the keys to understanding yields is that the higher the demand (or price), the lower the yield.Conversely, if fewer people want bonds, they will sell them, causing the yield to go up to attract more demand.One of the talks and curve pricing since Donald Trump’s investiture is how wider deficits steepens the curve even more (pressure for lower short-term rates puts pressure towards higher rates in the long-run).A jumbo cut tomorrow would hence boost economic activity and markets would hence price higher future inflation.

Current US Yields and change in today’s sessions

US Yields from the 2Y to 30Y and daily performance – September 16, 2025 – Source: TradingView

As you can see, these yields are showing another form of the blue curve observed just before.With the current huge selling in the US Dollar, market participants are hedging for an eventual 50 bps which is leading to big steepening in the curve.When the 2Y Yield decreases more than the 30Y, this is considered Bull steepening: Bond traders bought more the front (short-term bonds) than the back (long-term bonds).Let’s now look at different Bond charts and spot key levels for them.

2 Year US Treasury Bond

US 2Y Bond, September 16, 2025 – Source: TradingView

10 Year Treasury Bond

US 10Y Bond, September 16, 2025 – Source: TradingView

This bond is traditionally seen as the benchmark for the safest and most liquid financial product.Watch a break of the most recent highs (113.86) for further continuation towards the September 2024 highs. You may also check the equivalent Yields on the charts.Any downside below the Key 112.50 pivot (Yield = 4.25% to 4.30%) should lead to further increase in the yield.It is extremely difficult to anticipate what will be said in such a key FOMC but all eyes will be on the statement (14:00 ET) and Powell’s speech (14:30 ET).

Watch for any clues on potential dovishness from Powell which may add more rates towards the end of 2025 (25 bps for each meeting, 3 meetings left is the current pricing).Any unexpected hawkishness could have different effects: Either take out rate cuts in 2025 (flattening the curve) or take out 2026 cuts (steepening the curve even more).Tomorrow will be essential for all assets, currencies and flows for the coming period.Of course, do not forget the Bank of Canada rate decisions at 9:30 tomorrow morning and the Bank of England rate decision at 7:00 on Thursday 18th.

Source: ACTIONFOREX

The Federal Reserve’s upcoming meeting is a big deal for the US economy and financial markets as a whole.The latest economic data suggests the Fed should start lowering interest rates. However, the market already expects a rate cut and based on market moves it appears that it has largely been priced in.Because of this, the Fed’s announcement about their future plans will likely be more important than their actual decision at this meeting. That is likely to be what will really stoke volatility barring a surprise decision by the Fed.

Source: CME FedWatch Tool

The Macroeconomic Case for a Rate Cut

The main concern is the weakening job market. While the economy grew by 3.3% in the second quarter, this was mostly due to a big change in trade, which hid the fact that consumer spending was weak. People were spending less because they were worried about tariffs, a cooling job market, and unstable wealth.This was confirmed by the Federal Reserve’s Beige Book, which showed little to no economic activity and declining consumer spending across the country. It also reported that most districts were not hiring and that the job market was slowing. Last Friday’s jobs report also showed a small increase in jobs, and unemployment went up. Revisions to job numbers from the past year showed the economy created less than half the jobs that were previously reported.

Even though inflation is still above the target, the risk to the job market now seems more urgent to the Fed. They’ll likely start to move toward a less restrictive policy.Three factors that drove inflation up in 2022—oil prices, housing rents, and wages—are now gone, and are even helping to lower inflation. A cooling economy with rising unemployment will also help bring inflation back down to 2% by the end of 2026.The Fed will probably lower its forecasts for economic growth and inflation while raising its unemployment projections. We expect the Fed to cut interest rates by 0.25% at their September 17 meeting, with more cuts to follow in October, December, January, and March. It’s possible the Fed could start with a larger cut of 0.50%, but a 0.25% cut is more likely because most members are still cautious about the impact of tariffs on inflation.

The Fed’s Challenge: Reining in Dovish Expectations

The Federal Reserve is in a tough spot. Even with evidence pointing to a need for lower interest rates, the market has already bet on a lot of rapid rate cuts. This creates a significant communication challenge for the Fed. They have to manage market expectations very carefully.

The “Dovish” Surprise

One possibility is that the Fed tries to meet or even beat the market’s high expectations. Traders are already anticipating a lot of cuts by the end of 2026. For the Fed’s announcement to truly be a positive surprise for the market, they would need to signal an even faster pace of rate cuts than what is already expected. If they simply use their normal cautious language, even when announcing a cut, the market might see it as a disappointment. The real risk here isn’t a wrong policy decision, but a gap between what the Fed says and what the market wants to hear.

The “Powell Pushback”

A different view is that Fed Chair Powell will intentionally try to lower market expectations. This perspective suggests that he will push back against the idea of quick rate cuts in October and December. Instead, he would likely emphasize that the Fed will continue to be guided by incoming economic data, keeping their options open.This cautious approach is about protecting the Fed’s credibility. Having been criticized for underestimating inflation in the past, they don’t want to cut rates too soon only to have to reverse course if inflation spikes again. By remaining patient and focusing on data, Powell would be protecting the Fed’s reputation and ensuring they can react to the economy as it unfolds, rather than being forced into a schedule set by the market

Probable Scenarios and Forward Outlook

Source: Google Gemini

Impact Analysis on US Indices and Broader Markets

The market’s reaction to the FOMC meeting will translate the two primary scenarios into tangible consequences for US indices and other asset classes.The reaction to a dovish signal would likely be a boon for equities. The S&P 500 would likely rally, driven by the anticipation of lower borrowing costs and a broader “risk-on” sentiment. The Nasdaq 100, composed of technology and growth stocks, would likely outperform due to its higher sensitivity to changes in interest rates.

Conversely, a hawkish signal would be a source of disappointment for “doves,” potentially triggering a pullback in US indices as traders unwind their aggressive rate-cut bets. Tech and growth stocks would be particularly vulnerable. The following table summarizes the potential impact on key US indices and the U.S. Dollar Index (DXY) under the two scenarios.

Source: Google Gemini

Since the market is already highly dovish, the disappointment of a cautious Fed is significant. A potential sell-off might be sharp, but it could also be short-lived if the underlying macroeconomic data remains fundamentally sound. A cautious hold today might simply be a delay of an inevitable cut tomorrow. This understanding is critical for long-term investors aiming to distinguish between temporary market volatility and a fundamental shift in economic trajectory.Tomorrow’s meeting promises fireworks regardless of the decision. Volatility will definitely rear its head and the decision could have wider implications for global markets and risk sentiment.

Source: MarketPulse by OANDA Group

Key points:

The US economy may be approaching a point of no return and tonight’s FOMC decision and messaging will shape the course of the debate over just how bad it will get over the next 12 months. Sounds pretty serious, doesn’t it? My opening statement is not meant to be alarmist – there is indeed growing evidence in the economic data that the US economy is on track for a slowdown (how bad is still what the market is trying to determine). Add to this fact, the Fed’s decision tonight will undoubtedly play a role in how things play out. Perhaps more important than the 0.25% rate cut that is already baked in is the Fed’s messaging: How much support will they provide – if any – after tonight’s move?

Wow, this is just sounding worse and worse! Well, much of the kerfuffle lies with the Trump administration’s fiscal and trade policies. Pitched as “pro-growth” and “pro-jobs”, they are arguably beginning to bear the wrong kinds of fruit. Some of these policies are bleeding into the Fed’s domain, putting it between the rock of stubbornly high inflation and the hard place of a weakening labour market.For investors, the message is clear: Risks are mounting and the outlook demands close attention. With the fate of the world’s economy to be decided within the next 24 hours , let’s investigate what’s at stake. Just how bad are things really for the US economy, and should you be worried about your portfolio?

Growth slows, drivers falter

An interesting research report from major investment bank UBS lobbed onto my desk yesterday. Titled “US Economic Outlook 2025-2027: What next?”, it outlines the bank’s views on, well, as the title suggests, what’s coming next for the US economy!UBS notes that the US economy is slowing rapidly. After expanding by 3.2% in 2023, US gross domestic product (GDP), a measure of total economic output, slowed to 2.5% in 2024 and is expected to dip to just 1.1% in 2025. For comparison, the long-run average GDP growth rate for the US economy is around 3% p.a.Looking further forward, UBS forecasts that GDP will stabilise around 1.6-1.7% through 2026-2027 – which means we’re on track for around half of the US economy’s typical growth for the next few years.

For those of you whose brains just synapsed and flashed back to Year 11 Economics: GDP = Consumption + Business Investment + Government Spending + Net Exports. Yep, oops – 4 strikes and the US economy is OUT!

Policy missteps are beginning to bite

Some would call me a drama queen if I said that President Trump’s tariffs are at the heart of all the US’s GDP woes. Well, let me say this: Tariffs are very likely at the heart of the sharpest pressures on US economic growth.And UBS’s report backs me up. It notes that the effective US tariff rate has jumped sevenfold, to roughly 16%, driving up the cost of imported goods for consumers and businesses. This threatens to dent real incomes, and with savings buffers eroding, households are already feeling the pinch. UBS highlights that real consumption growth – the biggest component of GDP at around two-thirds – is slowing to about 2%.

For businesses, tariffs are pushing up input prices, weighing on confidence and investment. As the bank bluntly puts it: “The business sector of the economy seems likely to suffer from the tariffs.” On trade, UBS cautions: “the announced tariff actions are large enough we expect them to set in motion sizeable reordering of the United States’s trading relationship with the rest of the world and be a headwind to growth into 2026.”

Then there’s Trump’s immigration policy… Oh, don’t get me started (you can’t ship out a big whack of your workforce and not expect some nasty consequences). UBS agrees here too, noting that changes to immigration policy are slowing population growth and shrinking the labour force. That lowers the economy’s “speed limits,” it proposes. Translation: With fewer workers available, potential GDP growth gets capped – meaning any given pace of expansion generates more inflationary pressure.

Put it all together, and you’ve got a stagflationary shock – higher prices, weaker demand. And if you asked US Federal Reserve Chairman Jerome Powell what keeps him up at night, it would be just that: Stagflation. It’s the ultimate bane of a central banker’s existence because its impacts on the economy are severe and it’s notoriously difficult to fix.

Can policymakers respond?

Attention now turns to whether Washington can offset these headwinds. On the fiscal side, UBS finds little reason for optimism. While new tax cuts appear supportive at first glance, they are likely to be offset by the negative impacts of tariffs and spending cuts, leaving the deficit to widen and limiting growth benefits. State and local government hiring is also slowing, further reducing the fiscal contribution to economic growth.For the Federal Reserve, the dilemma is even sharper. Tariffs push up prices but sap demand and hiring. UBS writes: “The tool of the federal funds rate won’t stop cost-push price increases from tariffs. But it would make a weakening labor market even weaker.”

Still, rates are expected to fall to cushion the economy. UBS is forecasting the Fed will lower its funds rate from the current 4.25%-4.50% to 3.4% in 2026, and to 2.9% by 2027. Ultimately, the Fed will be forced to choose between tolerating higher inflation or risking higher unemployment. UBS argues it will choose jobs: “The FOMC will worry about inflation but likely react to the labor market slowdown when it becomes necessary.”In short, investors should not expect fast or decisive relief. With inflationary constraints still in play, the Fed is likely to be reactive rather than proactive.

Conclusion: Time to get out the popcorn

So where does that leave us? UBS’s forecasts underline a US economy that’s losing momentum – slowing growth, sticky inflation, and with policy missteps compounding the risks. What matters most for investors now is the policy response.All eyes will be on the Fed tonight. The market has already priced in a 0.25% cut to the Fed Funds Rate due at 4:00 am Sydney time, but the real suspense lies in what Chairman Jerome Powell says at his press conference at 4:30 am. Will he hint at a path of deeper easing, acknowledging the threats of tariffs and fiscal drag? Or will he play hardball and signal wariness toward the looming inflationary threat?

The market response to either scenario is likely to be very different – euphoric relief in one case, downright soiling the bed in the other. Either way, the bottom line for investors today is clear: Prepare for volatility!

Source: TradingView

The UK and US are strengthening their collaboration on cryptocurrency matters, engaging key financial figures such as Chancellor Rachel Reeves and US Treasury Secretary Scott Bessent in the discussions.

This cooperation could enhance market stability and accessibility, particularly impacting stablecoins, while paving the way for increased institutional investment in the crypto market.

The UK and US are strengthening cooperation on cryptocurrency matters, focusing on regulatory alignment and market improvements. Key discussions have taken place among influential financial leaders.

UK Chancellor Rachel Reeves and US Treasury Secretary Scott Bessent are spearheading discussions with representatives from major financial institutions. The initiative aims to leverage stablecoins for expanding global market access.

Crypto Market to Benefit from UK-US Cooperation

Market participants anticipate that increased UK-US cooperation will enhance regulatory clarity, potentially reducing market volatility. This move is viewed positively by the financial community.

Stakeholders expect improved market stability and greater institutional involvement in cryptocurrencies such as ETH and BTC. Historical trends suggest such cooperation fosters regulation improvements, further supporting market growth. In the words of Rachel Reeves, UK Chancellor, "Discussions emphasized the potential for stablecoins to enhance UK companies' access to global financial markets."

Past Collaborations Led to Financial Market Stability

Past UK-US collaborations on financial regulation have resulted in market stability and clearer guidelines, leading to significant market benefits. Similar outcomes are anticipated with this cryptocurrency initiative.

Experts from Kanalcoin project that greater regulatory alignment will increase institutional investments, providing a platform for stable growth based on historic trends and analysis of past cooperative efforts.

Source: CryptoSlate

Bullion traded less than $10 below its fresh record of $3,703.07 an ounce reached on Tuesday. It’s also been buoyed by a softer US dollar, with one gauge hovering around levels last seen in March 2022. A weaker greenback makes gold cheaper for other currency holders.

Traders are squarely focused on the outcome of the Fed’s rate-setting meeting, where they see a quarter-point cut this week as a certainty. A solid US retail sales reading on Tuesday did little to move the bets. Lower rates are positive for the non-interest bearing precious metal.

Gold has rallied more than 40% this year on geopolitical uncertainties, concerns about potential negative impacts of US tariffs on the global economy, as well as buying from central banks — especially those from emerging markets. Investors and analysts widely expect more upside for the rally, with Goldman Sachs Group Inc. forecasting prices could rise to near $5,000 an ounce.

US President Donald Trump’s attacks on the Fed’s independence is adding to momentum for gold. His legal battle with Governor Lisa Cook highlights a desire to bend US rates and the dollar to his will. He has also successfully brought his economic adviser Stephen Miran to the Fed to fill a temporary term.

Gold edged 0.1% higher to $3,694.24 an ounce as of 8:20 a.m. Singapore time. The Bloomberg Dollar Spot Index dipped after Tuesday’s 0.5% fall. Silver steadied at just below the highest in 14 years. Palladium rose, while platinum was flat.

Source: Bloomberg Europe

Hanoi attracts international attention as not only a charming cultural capital, but also one of the most polluted cities in the world. In late 2024, Andrew Goledzinowski, then Australian ambassador to Vietnam, wrote on his social media that he was cutting his Hanoi posting short for health reasons. Air pollution was the trigger, as his family’s medical condition left him with little choice.Goledzinowski is not alone. Foreign professionals are increasingly declining attractive postings in Hanoi due to health concerns. Even domestic residents quietly weigh up the cost of staying in a city that ranks among the world’s most polluted capitals for much of the year.

The data backs them up. Hanoi’s fine particulate matter (PM2.5) levels — particles that can penetrate deep into the lungs — regularly exceed national safety thresholds. Between November and March, air pollution spikes due to temperature inversion and lower rainfall. Air pollution was classified as ‘unhealthy’ or worse for over half of 2023.For many, clean air has become a luxury. Hanoi’s children are growing up breathing polluted air. The city’s working-age population is paying with hospital visits and diminished productivity.

The Vietnamese government is not standing still. It has announced an ambitious phase-out of internal combustion engine two-wheelers in Hanoi’s inner districts, starting in July 2026 and extending to all internal combustion engine vehicles by 2030. To help the switch, it plans to offer up to VND 5 million (US$190) in financial support per low-income person. Bans on charcoal stoves and open burning are also being rolled out.While these are decisive steps, sizeable challenges loom. Limited public space, a large share of residents in high-rise blocks, and elevated fire risks from battery charging call for innovative solutions such as including charging docks for removable batteries.

Hanoi also needs more mass public transport apart from the two existing urban railways. Wider intermodal connections would encourage people to use public transport. A more compact urban form that reduces travel demand could further cut mobility-related air pollution.Hanoi’s fight for clean air may not be won within city borders alone. Modelling suggests that about 40–65 per cent of PM2.5 in Hanoi originates outside the urban core, depending on season and method. The external sources include outdated industrial facilities, open agricultural burning, and Vietnam’s vast network of informal recycling villages.

Straw burning is one such example of non-urban pollution. After each rice harvest, especially in June and October, smoke from open-field burning of rice straw drifts into Hanoi, cloaking it in toxic smog. This single practice contributes over 10 per cent of the city’s PM2.5 burden. In total, agriculture — from ammonia emissions linked to excessive fertiliser use to methane from livestock and waste — accounts for about a fifth of Hanoi’s air pollution.Then there are the recycling villages, hundreds of which exist, mostly in the Red River Delta surrounding Hanoi. Often family-run, these informal industries burn low-grade coal and use primitive technology. Because they are classified as traditional craft activities rather than formal industries, they fall into regulatory grey zones — hard to monitor, harder still to reform.

The power sector adds another layer to the pollution problem. While Vietnam’s revised Power Development Plan 8 sets ambitious targets for increasing solar and wind capacity by approximately three times compared with 2024 levels, coal still looms large in the short-term energy mix. Unless energy storage infrastructure is introduced soon to support the rapid uptake of solar and wind, cities like Hanoi will remain highly vulnerable to regional emissions.Because air pollution does not respect administrative boundaries, a national approach is needed. That means expanding electric vehicles and air quality plans not just in Hanoi, but across the Red River Delta. It also means accelerating the carbon market introduction — now slated to roll out officially in 2029 — to make emissions count financially. And it means incentivising change where it is hardest — in the fields and recycling villages that have so far been left behind.

There is a path forward. New agricultural initiatives could explore how to reward rice farmers who adopt circular straw management, turning agricultural waste into energy pellets to be used in thermal power plants instead of burning it.With Vietnam piloting its national carbon trading system between August 2025 and 2029, such approaches can enable farmers to sell verified carbon credits to domestic industries, earning incomes while reducing air pollution and meeting net-zero goals. It is a win-win — cleaner air for Hanoi and a fairer climate transition for rural communities.

As one of Vietnam’s close development partners, Australia has a role to play. Support for sustainable agriculture, renewable energy infrastructure, green battery technology, and urban planning can complement domestic reforms. Hanoi and Canberra could even partner in pilot clean-air cities. Australia’s experience in energy transition and sustainable agriculture can help Vietnam move faster and more fairly.

Air pollution is no longer just an environmental issue. It is a public health threat, a productivity hinderance and a reputational risk for Vietnam’s fast-growing economy. Without deeper reforms beyond Hanoi’s ring roads, clean air may remain out of reach. The moment demands coordinated national action and international cooperation. The future of Vietnam’s capital and the health of millions depends on it.

Source: East Asia Forum