First Light News: Focus On US Inflation

Tariffs, Tariffs, and More Tariffs

For as long as I can remember, tariffs have been a large share of my daily posts!

Well, US President Donald Trump has been busy, announcing fresh tariff threats against the European Union (EU) of 30%. The EU are reportedly gearing up to impose countermeasures, and, according to recent developments, has finalised a list of counter tariffs totalling €72 billion. I believe this is more about sending a message to the US that the EU wants to secure a deal before 1 August and avoid a broader trade conflict, but at the same time they want to be clear that it is prepared to retaliate if necessary. Markets, of course, will hope that these tariffs are not implemented, as an intensifying trade war between the two sides could considerably weigh on the single currency.

Trump also threatened 100% secondary tariffs on Russia if no ceasefire deal is reached within 50 days. The President clearly showed his displeasure with Russian President Vladimir Putin during a meeting in the Oval Office with Nato secretary-general Mark Rutte yesterday, noting that he is ‘very, very unhappy with Russia’ and plans to deliver weapons to Ukraine. However, Trump was clear that this will be paid for by NATO member countries (North Atlantic Treaty Organization).

Macro Focus Is On US Inflation Today

In addition to June Canadian CPI inflation (Consumer Price Index), today’s key risk event will be the June US CPI inflation print, which will be released at 12:30 pm GMT. Economists expect to see a moderate increase in US price pressures, both at the headline and core level. Nevertheless, while there is likely to be some impact of tariffs in the June report, it is unlikely to be enough to prompt the US Federal Reserve to ease policy at the end of the month. I believe tariff-induced inflation will be more of a long-term story, rather than a one-off report where we see a notable change in prices.

Should the June data report higher-than-expected US inflation, as I noted in the week-ahead post, this could prompt a sell-off in US Treasuries and increase demand for the US dollar (USD). A USD bid could also be emphasised on the back of the USD being overstretched to the downside in terms of COT positioning (Commitment of Traders), as well as the technical picture displaying an absence of resistance on the long and medium-term charts.

Another event worth adding to the watchlist today is UK Chancellor Rachel Reeves’ annual speech at Mansion House in London this evening. This will give Reeves a chance to outline her vision as the UK economy is clearly slowing, along with subdued investment, and UK government debt nearing 100% of GDP (Gross Domestic Product). Market participants will be looking for signs of stability from Reeves, following her emotional appearance in Parliament, which led to a rise in Gilt yields and a sell-off in the British pound (GBP).

Bank earnings are also on deck today, with focus on JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC), Citigroup Inc. (C), and BlackRock, Inc. (BLK).

Market Snapshot

In terms of the markets in early European trading, US equity index futures are moderately on the front foot this morning, with European cash markets opening positive. The DAX is up 0.3% and the STOXX Europe 600 has added 0.2%.

US Treasury yields bear steepened yesterday, with the 30-year bond yield closing in on the 5.0% barrier, which could tempt a bid in longer-dated Treasuries at this level. The USD is tentative this morning, down 0.1% per the USD index, with the EUR/USD (euro versus the US dollar) trading up by 0.4%.

In the commodities space, both Spot Gold (XAU/USD) and Spot Silver (XAG/USD) are up 0.5% this morning, following moderate declines yesterday. Note that Silver recently reached highs of US$39.13, levels not seen since late 2011.

I would also be remiss if I did not direct some the spotlight to Cryptocurrencies, with BTC/USD (Bitcoin versus the US dollar) recently touching gloves with all-time highs of circa US$123,000. Though I must add that yesterday finished in the shape of a bearish shooting star candle pattern is now down nearly 3.0%, testing space south of US$117,000.

Written by FP Markets Chief Market Analyst Aaron Hill