• With US markets closed for Independence Day and little in the way of important data, European markets couldn’t but take a cautious approach going into the weekend. With the US budget (One Big Beautifull Bill act) approved in Congress, the focus evidently turned the US July 9 tariff deadline. Markets recently balanced between hope and doubt. Without any guidance from US markets, doubt dominated European trading. The EuroStoxx50 ceded 1.02%. European bond markets showed a mild safe haven bid, with German yields trading between little changed (30-y) and -1.8 bps (2-y). ECB’s Villeroy again elaborated on the risk of inflation undershooting the target. However, for now markets understand that in current context of low visibility on trade/global growth, there is little reason to aggressively front run on additional ECB easing beyond the 1.75% cycle low that is currently discounted for the turn of the year. On FX markets the dollar (DXY) gained marginally (97.2) extending a tentative bottoming out process post Thursday’s ‘better-than-expected’ payrolls. Still EUR/USD closed slightly higher at 1.1778.
• This morning, markets are trying to cope with multiple layers of uncertainty as the US will move to the next phase in imposing trade tariffs. President Trump is sending letters to (about) 12(+?) countries informing them on the higher tariffs they will face. However, US Treasury secretary Bessent indicated that these tariffs will start on August 1, providing some space for trading partners to do concessions. At the same time, the US still also intends to announce some ‘finalized’ (frame)work trade agreements. This set-up in a first instance leaves markets with plenty of uncertainty. Will August 1 become a next informal deadline? Which countries will get higher tariffs? Will they in some cases even go higher than the top tariffs announced on April 2? This morning, US president Trump even added a new layer of uncertainty as he threatened countries aligning with ‘anti-American policies of BRICS’ with an additional 10% tariff. However, the US president didn’t specify what this ‘alignment’ exactly contains. One can assume a series of unexpected ‘plot twists’ over the coming hours/days, which are impossible to anticipate. Markets this morning are starting the week with something between paralysis and a guarded risk off. Most Asian equities are trading with modest losses (<1.0%) and so do US equity futures. US Treasuries rise with yields declining about 2.5 bps at the short end of the curve. Even after last week’s payrolls apparently are still pondering the chances of a restart of the Fed easing cycle if the US data were to weaken later this year. The dollar gains marginally. The currencies of countries that face higher tariffs might be vulnerable in a fist stage. Even so, the post April 2 experience in mind, we assume that a broad-based USD rebound will be difficult in a context of US induced trade-protectionism. Aside from the trade storyline, the eco calendar this week contains few important (US) eco data. The Reserve Bank of Australia (Tuesday) and the Reserve Bank of New Zealand (Wednesday) will decide on policy. Post the OBBB, we also keep a close eye on the first series of US Treasury auctions (3-y Tuesday; 10-y Wednesday, 30-y Thursday).
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