Trade tensions remain a key drag. Export-dependent economies are struggling with rising tariff barriers, and many companies are reporting production cutbacks and rising stockpiles. In Switzerland, sentiment has weakened sharply: the ZEW expectations index fell in August, while Q2 growth slowed more than anticipated. The SMI has underperformed European peers since April, with a strong franc adding to the headwinds. Some firms are reportedly considering relocating production within the EU to mitigate tariff pressures. Market participants are beginning to speculate whether negative rates could return to Switzerland.

In the US, a federal appeals court upheld earlier rulings that questioned the legality of the tariffs imposed on a wide range of countries. Legal debates aside, tariffs continue to weigh on global growth. The US dollar index started the week softer, with futures little changed in thin holiday trading. September is historically a weak month for equities, with an average return of -0.7%, but expectations of Federal Reserve (Fed) support remain a backstop.

The Fed’s preferred inflation gauge, core PCE, rose from 2.8% to 2.9% year-on-year in July, exactly in line with expectations. Headline PCE held steady at 2.6%. The lack of surprise limited market reaction, but the fact that the data was ‘too close to expectations’ sparked worries about its reliability and accuracy.

Attention now turns to Friday’s US jobs report — the first since leadership changes at the Bureau of Labor Statistics. Bloomberg consensus expects around 74K new nonfarm jobs in August and a slight uptick in unemployment. Revisions to prior months will be closely watched, too. With the labour market softening, investors see growing pressure on the Fed to cut rates, provided inflation remains contained.

For FX, ongoing uncertainty is weighing on the dollar, though positioning suggests the downside could be limited.

For equities, expectations of lower rates continue to support valuations, with dip-buying still evident despite trade and political risks.

In Europe, last week’s inflation data were mixed: French and Spanish CPI undershot forecasts, while German inflation came in stronger. The euro eased initially but has since rebounded above 1.17 against the dollar on broad USD weakness. Upside looks capped into 1.18, with political risks in France and uncertainty around next week’s government stability vote weighing on sentiment. The eurozone CPI print on Tuesday will be key for the European Central Bank (ECB), which is expected to remain on hold in September. The ECB rates are not too restrictive and not too supportive right now. The latter hints that the EURUSD is more likely to find direction with the US dollar and the French news, while the equities could bear the brunt of French political uncertainty in the short run.