Weekly house view | To taco or not to taco?
The week in review
Trade tensions shook markets off highs last week as President Trump threatened to impose a 30% tariff on imports from Mexico and the European Union starting on 1 August, and announced a 50% tariff on copper imports. The 1 August deadline gives the targeted parties time to negotiate deals that could lower the threatened tariffs. Markets are trying to gauge the president’s resolve and whether the s0-called TACO trade (Trump Always Chickens Out) will apply to the latest tariffs. CEO confidence has recovered two-thirds of its decline since the “Liberation Day” tariff shock on 2 April. The S&P 500[i] fell 0.3% (in USD) last week, giving up some gains after hitting a record closing high on Thursday. The overall fall came despite a tech giant becoming the first company to hit USD 4 tn in market capitalisation thanks to its leading role in powering the artificial intelligence (AI) boom. The 10-year US Treasury yield rose 7 bps to 4.42%. The next CPI release may start to reveal the effect of tariffs on US inflation. The minutes of the FOMC’s June meeting showed participants judged “it remained appropriate to take a careful approach in adjusting monetary policy” given elevated uncertainty about inflation and the economic outlook.
Geopolitics
Russia attacked Ukraine with a record 728 drones overnight on Tuesday into Wednesday after Trump pledged to send more defensive weapons to Kyiv. Separately, the UN nuclear watchdog pulled its last remaining inspectors from Iran as a standoff deepened over their return to the country’s nuclear facilities bombed by the US and Israel.
Key data
The NFIB Small Business Optimism Index edged down 0.2 points in June to a slightly lower-than-expected 98.6. The index remains well below the post-election peak, suggesting cooling enthusiasm among small business owners about the impact of Trump policies on the economy. In China, PPI deflation widened in June, primarily driven by metals, coal and cement, on weak housing investment, and a tariff hit to export demand.