The Week Ahead
Trade rhetoric is expected to remain a significant market theme this week as the 90-day reciprocal tariff hiatus deadline falls on Wednesday. Other key events include the conclusion of the BRICS Summit and the ECB Governing Council gathering today. We also have a smattering of US quarterly earnings reports, and 3Y, 10Y, and 30Y US Treasury auctions, with the latter providing a key test of market demand.
Today's economic calendar includes eurozone retail sales and German industrial production figures. On Wednesday, China's CPI and PPI figures will be closely watched by markets, followed by the FOMC minutes and US wholesale inventories. US initial jobless claims are due on Thursday, and we will hear from the ECB's Cipollone and Galhau, and the Federal Reserve's (Fed) Daly and Musalem. German and French CPI, UK industrial production, and the US federal budget balance are scheduled for Friday.
Last week, market sentiment was dominated by tariff noise, US fiscal concerns amid the "megabill," and a mixed US labour market picture. The yield on the 10-year Treasury rose 7bps to 4.35%, while the S&P 500 Index surged 1.72% to all-time highs. The dollar's rollercoaster ride ended with the DXY Index falling 0.23% on the week. Brent crude gained 0.78%, closing at $68.30pb. Over the weekend, OPEC+ announced a further production increase for August, as expected. Unexpectedly, however, the hike in production is 33% larger than the previous month's increase. The caveat: "the gradual increases may be paused or reversed subject to evolving market conditions. This flexibility will allow the group to continue to support oil market stability."
President Trump stated he would send out letters this week to trading partners laying out unilateral tariffs, effective August 1. He said, "They'll range in value from maybe 60 or 70% tariffs to 10 and 20% tariffs." Trump also warned that "any country aligning themselves with the Anti-American policies of BRICS" will be subject to a further 10% trade levy. In another "win" for Trump, his "Big, Beautiful Bill" passed through the House and was signed into law on Independence Day. The $3.4 trillion fiscal package includes tax cuts and reductions in spending on safety-net programs and clean-energy projects. The resulting debt-to-GDP ratio is now forecast to surge from 97.8% to a record high of over 125%, significantly surpassing the Congressional Budget Office's January baseline projection of 117.1%.
US payroll data largely scuppered any chance of a Fed rate cut in July. Non-farm payrolls in June rose by 147k, pushing unemployment down to 4.1%. However, a deeper dive reveals a more complex picture: private sector job losses reported by ADP, a drop in the labour force participation rate, and employment still below April levels, suggest underlying fragility, with most new jobs concentrated in government and healthcare sectors. Leading indicators also hinted at labour market weakness. The employment sub-indices of both the US ISM manufacturing and services reports fell to three-month lows, remaining in contraction.
Elsewhere, the Caixin China manufacturing PMI rebounded into expansion, to 50.4 (prev. 48.3, exp. 49.3), signalling improved market conditions despite global trade uncertainties. The Caixin index's rebound was driven by increased production and new orders, possibly reflecting a delayed effect from recent US-China tariff reductions. However, new export orders declined for the third consecutive month, and employment remained weak as businesses focused on cost control amidst intense price competition. Overall business optimism has also softened due to ongoing external complexities and insufficient domestic demand. Last week, there were renewed calls from Chinese government advisors to prioritise household consumption as a key driver of economic growth in the upcoming five-year plan, aiming to reduce reliance on debt-fuelled investment and exports amidst concerns about industrial overcapacity and deflation.
If you would like to receive The Daily Update to your inbox, please email markets@epicip.com or click the link below.