Macroeconomics: The Day Ahead for 8 July

Leaving aside the extension of the US tariff deadline to August 1 for a moment, today’s run of statistics and scheduled events may look busy, but closer inspection suggests there is little that will distract from the tariffs vigil. There are Japan’ Economy Watchers (services) survey and German Trade to digest, with only the US NFIB and NY Fed Inflation Expectations surveys ahead. Australia’s RBA opted to keep rates on hold at 3.85% against expectations of a further 25 bps, though this had been seen as a very finely balanced decision (the vote was 6-3), and governor Bullock was keen to emphasize while the RBA was cautious about the inflation outlook, the path for rates remains lower. Markets have reacted by raising their expectations for the terminal rate to 3.10% against 2.85% prior to the meeting, but anticipate a further cut in August. In event terms, there is the start of the 3-day Franco-British summit, while the US’ EIA publishes its monthly Short-Term Energy Outlook (STEO).

** U.S.A. – June NFIB & NY Fed Inflation Expectations **

– The consensus looks for NFIB Small Business Optimism to be little changed 98.7, though the already published Employment indices did see a small improvement, and the survey will not capture reaction to the passage of the budget bill. The ‘Expect better economy’ sub-index which plummeted from 52 in December to 15 in April, but rebounded to 25 in May will likely be the key element. The NY Fed’s 1-yr Inflation Expectations will also attract attention, after rising from 3.0% in December to 3.63% in April, the question is whether it eases further having dropped back to 3.2% in May.

** U.S.A./World – Tariff deadline extension **

– The reality of the complexity of nay form of trade negotiations, above all between developed countries, has forced a further extension to the date when tariffs are set to be imposed, which the US administration conceded may see a further extension, contingent on the state of negotiations. The fact is that both the UK and China agreements that have been ‘concluded’ are in reality no more than a framework for further negotiations, thus for the EU, Japan and South Korea (amongst others) the object for the US is to reach similar agreements. The challenge is that they are all highly sensitive to the sectoral tariffs on steel, aluminium, autos and pharmaceuticals, and indeed semiconductors, thus achieving even a framework agreement is difficult, especially as those three will seek some form of exemption on the sectoral tariffs, which would need to be consistent. For markets the extension offers some further temporary relief. But all this extension does is kick the ball down the road on lifting some of the uncertainty clouding outlooks, which along with a seasonal drop in trading volumes will likely create more inertia. It also makes the task for the Fed and other major central banks on setting rates and formulating an inflation and growth outlook that much more difficult. As the saying goes: “Plus ca change, plus c’est la meme chose”.