This week began with the United States and China at the negotiating table in London as the two sides attempted to work out details for future trade before Trump’s 90-day pause on reciprocal tariffs ends on July 9. After two days of negotiations, Trump declared on Truth Social that a deal had been "DONE." Clarity on minutia in the London "tech truce" remains sparse. Disputes remain and it’s likely the world’s two largest economies will begin a tech decoupling over the long run. Trump also announced that he intends to send letters to trading partners to settle unilateral tariff rates before his self-imposed July 9 deadline.
A pair of tame inflation reports were well received by markets with interest rate futures pricing in a full cut for October’s meeting and now showing a 60% probability for a cut in September. At the same time, auctions for the two and thirty-year Treasuries saw healthy demand, assuaging some concerns about tepid macro-level interest in U.S. debt. Market concern has recently shifted to the relative strength of the U.S. dollar. Wall Street banks (Morgan Stanley, JP Morgan Chase and Goldman Sachs) project the greenback will fall farther from its recent three-year low over the next year. The banks cite a combination of interest rate cuts, slowing economic growth and Trump’s tax and trade policies as the likely culprits in a dollar devaluation.
The week wrapped up with an escalation in international tensions as Israel launched airstrikes against Iran’s nuclear facilities after the International Atomic Energy Agency cited Iran for failure to comply with the 2015 treaty from which the U.S. withdrew in 2018. Oil prices surged as much as 13% intraday, adding to inflationary concerns. This is concerning because central bankers around the world have not been modelling an oil price spike into their projections.
KEY INDICATORS THIS WEEK
Inflation – CPI rose 0.1% month-over-month and 2.4% year-over-year, beating and matching estimates, respectively. PPI did the same with a 0.1% month-over-month increase and a 2.6% year-over-year increase.
Consumer Sentiment – Rose by the most since January 2024 and is the first monthly increase of the year, showing consumers are less anxious about trade than previously reported.
Next Week – Fed Week! No rate moves are expected.