Given the light set of economic releases this week, market participants had little choice but to focus on trade policy headlines emanating from the White House. The positive progress on the inflation battle, along with the apparent benign inflationary pressure from tariffs thus far, may be called into question as the Trump Administration reignited the notion of higher tariffs for several trading partners. Meanwhile, the labor market continues to remain stable.
The Trump Administration revealed Monday that letters proposing trade policy terms were sent out to 14 countries with additional letters following throughout the week. The letters detail tariffs that would be imposed if deals are not reached by August 1st. Other tariff talks included the announcement of a 50% tariff on copper, 200% on pharmaceuticals, and an additional 10% on all BRICS participating members. BRICS is a group of five major emerging economies that cooperate on issues related to economic development, trade, finance, and global governance: Brazil, Russia, India, China, and South Africa.
A divergence of opinions is emerging among policy makers over the pace and magnitude of rate cuts. According to the Fed Minutes from the prior Federal Open Market Committee (FOMC) meeting released this week, 10 of 19 officials called for at least two rate cuts by year end, two projected one cut, while 7 opted for no cuts. The prevailing view among officials is that tariffs may lead to prolonged inflationary pressure with “considerable uncertainty” surrounding the magnitude of inflation that may result. Nevertheless, the results from the Federal Reserve Bank of New York’s monthly survey of consumer 1-year inflation expectations came in below expectations at 3.02% versus consensus estimates of 3.13%.
After a temporary uptick in Jobless Claims data in June, the latest Initial Jobless Claims report fell for the fourth consecutive week coming in at 227,000, while Continuing Claims were slightly higher on the week at 1,965,000. Labor market data continues to align with the Chandler Team’s view for the labor market to continue to normalize for the second half of the year.
In US equity markets, the S&P and Nasdaq hit new all-time highs this week. The bond market rallied through the week, sending US Treasury yields lower only to sell off on Friday, taking yields back up to where they began the week. The 2-year was at 3.90%, the 5-year 3.98%, and the 10-year at 4.41% as of writing. The yield curve steepened slightly led by the long end.
Next week: Empire Manufacturing, CPI, Real Ave Hourly/Weekly Earnings, PPI, Industrial Production, Fed Releases Beige Book, Retail Sales, Import/Export Price Index, Philadelphia Fed Business Outlook, Housing Starts, Building Permits, University of Michigan Consumer Sentiment.
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