After markets were hit with a real shock on Friday—caused on the one hand by actions taken by Donald Trump, and on the other by extremely weak labor market data—investors responded in a textbook fashion as early as Monday.

At the end of last week, three major negative events dominated the picture: the implementation of Trump's tariffs against trade partners, the release of negative labor market data, and the erratic behavior of the U.S. president, culminating in the unexpected dismissal of Bureau of Labor Statistics Commissioner Erica McEntarfer. Initially met with negative investor reaction, by Monday, sentiment had already flipped from pessimistic to optimistic.

What caused such a sharp shift in sentiment?

Primarily, it is linked to changing expectations regarding future actions by the Federal Reserve concerning interest rates. In my previous article, I already touched on this, suggesting that a general deterioration in the U.S. economy—and the labor market in particular—could force the Federal Reserve, despite the firm stance of Chair Jerome Powell not to cut rates until inflation drops to the 2% target, to enact an emergency 0.25% rate cut at the September meeting. Moreover, the number of expected rate cuts by year-end could increase from the previously anticipated two to three or even four.

But that's not all. Historically, the Fed has implemented emergency 0.50% rate cuts, so if August's economic and jobs data again disappoint, such a move could be on the table. And it seems that many market participants are beginning to lean toward this scenario—a sharper rate cut on September 17.

What can we expect in the markets?

I believe that if U.S. economic data continues to come in weaker than forecasts, the "worse is better" principle will be fully realized. Investors would then likely price in the probability of a more aggressive half-point rate cut in September. In this scenario, we can expect continued demand for company stocks. The U.S. dollar would remain under pressure against major currencies, although a significant drop is unlikely due to existing issues, including those tied to Trump's tariff policies.

The cryptocurrency market will likely also remain under pressure, as investing in equities becomes more attractive. Gold prices are also unlikely to rise—on the one hand due to the dollar's relative stability, and on the other because of a degree of clarity in U.S. trade relations with the rest of the world.

Forecast of the Day:

Bitcoin

The token is showing a local reversal amid a shift in investor interest toward equity purchases driven by expectations of Fed rate cuts in September. Against this backdrop, the cryptocurrency may continue a gradual decline toward 111,600.00. A potential sell level could be around 113,832.62.

Gold

Gold is also turning downward as the dollar stabilizes and market tensions ease. If this trend continues, prices could fall toward 3,283.20. A potential sell level is around 3,363.00.