The list of calendar events for this week is quite something – FOMC, BoJ, BoC, NFP, US PCE, EZ CPI, AU CPI, US and EZ GDP, and US ISM – we love an acronym! Those economic data points and central bank meetings will hit summer markets with many trading desk staffed by juniors, which means liquidity is thinner and price action could be prone to whippy two-way volatility. We also must add the August 1st tariff deadline plus more Q2 company earnings including a bevy of megacap tech behemoths such as Meta, Microsoft, Apple and Amazon that report after the US closing bells on Wednesday and Thursday.
Key discussions on potential trade deals / agreements / loose pledges (*delete as appropriate) are taking place between the US and China, and the US and Europe over the next few days. The August 1st deadline seems likely to go the way of those other previous three time limits we’ve seen pass and be extended. Indeed, Treasury Secretary Bessent, one of the most consistent and coherent voices in the Trump administration, has talked about a rolling 90-day deadline with China. This implies there is no tariff cliff, but the impact on economies, and especially for central bankers will take longer to glean.
Policymakers are very likely to sit on their hands this week, with proper debate not starting until at least September. That’s when there could be more significant data and possibly even some clarity around the administration’s policies on trade. In various ways, the FOMC’s dual mandate means the picture could be complicated for some time, with inflation higher and the employment picture clouded. That’s a tough post for rate setters, especially one’s in the ire of a US President demanding sharply lower interest rates by as much as three percentage points to spur economic growth. And that’s for an economy likely growing at 2.5% and with average 12-monthly jobs gains currently of around 150k.
We find it interesting that there are now more stories about the ‘froth’ in world stock markets as the major US ones made fresh record highs almost daily in the past week. Relief at the US-Japan trade ‘deal’ spurred more buying with equites immune to concerns about excessive US government borrowing and Federal Reserve independence that have knocked Treasuries and the dollar. The latter is down close to 10% against a basket of its peers. Several S&P 500 valuation metrics are near record levels, with talk about “meme stocks” re-emerging. This exuberance is definitely a warning sign – will we see a blow-off top after M.M.A.A earnings or simply a correction after some disappointments?