Daily Points

ON DECK FOR THURSDAY, JULY 10

KEY POINTS:

• Cautious tone across global markets amid light developments
• BoK holds, may ease over next two meetings
• Norges watchers shake off CPI
• US: claims remain off the recent peak, light Fed-speak on tap
• BCRP expected to hold tonight
• Canadian jobs preview
• Six climate-science-denying US Senators should focus on their own policies
• Arbitrary and politicized US tariffs against Brazil are weighing on local assets

Light developments and a lack of a unifying theme are driving divergent global market patterns so far today. Sovereign bonds are little changed. Ditto for most major currencies. Stocks are mixed with little change in N.A. futures and a mixture of gains and losses in Europe. Overnight developments were very light as will be the case into the N.A. session.

BOK HELD FOR NOW

The Bank of Korea held its base rate unchanged at 2.5% as widely anticipated. The bias noted that “the Board will maintain its rate cut stance to mitigate downside risks to economic growth” while noting that the decision to hold at this meeting because of higher uncertainty related to trade negotiations, “broadly stable” inflation, and “the significant acceleration in housing prices in Seoul and its surrounding areas and household debt.” Governor Rhee noted that four out of six members are open to cutting in the next three months during which there are two decisions on August 28^th and October 23^rd. Rhee emphasized they expect material new information on trade in August which is in keeping with Trump’s 25% tariff threat against the country on August 1^st and any potential response. Rates rallied by a few points across the curve.

NORGES WATCHERS SHAKE OFF INFLATION UPDATE

Norway’s inflation rate landed on the screws at 0.5% m/m in June. Markets held to pricing no adjustment by Norges on August 14^th.

OTHER LIGHT DEVELOPMENTS

Calendar-based risk should be light over the duration of the day. Weekly initial US jobless claims landed at 227k last week We’ll get a little Fed-speak (Musalem 9amET, Daly 2:30pmET), Peru’s central bank may hold tonight (7pmET), and we’ll see if US initial claims continue to ebb a touch (8:30amET).

CANADIAN JOBS PREVIEW

Canada updates the Labour Force Survey for June tomorrow morning (8:30amET). I’ll share a few thoughts In lieu of a weekly this week.

My guesstimate is for a gain of 15k and unchanged unemployment rate of 7%. It’s hardly a high conviction call. Seasonal adjustment factors are likely to bias the estimated change higher all else equal (chart 1). May was a miserable month for Spring weather and that may have been partly responsible for holding back categories like construction and hotel and food services, so weather effects might drive a rebound in June. Small business hiring attitudes have improved somewhat of late (chart 2). The lost election jobs in May after the surge in April will shake out as an influence; excluding election jobs that aren’t real jobs anyway, employment was up 41k in May against fears of a tariff hit as services hiring carried the day which could repeat. As for the unemployment rate, timing the effects of tighter immigration policy on labour force expansion is difficult but on a trend basis should be a moderating effect.

SAY WHAT??

There is nothing on tap today for Canada but get this: Six US Republican senators in northern states gallingly sent a letter to Canada’s ambassador demanding that Canada control wildfire smoke coming across the border into their communities. That’s rich. Super rich.

Those same six Republican senators belong to a climate-science-denying administration that withdrew from the Paris Agreement and that is shifting back to dirtier forms of energy production and away from cleaner forms. Their country also suffers from devastating wildfires; ask LA, for one. My advice? Join much of the rest of the world’s concerns about global warming, or install very large fans.

MORE LETTERS TODAY?

The wild card facing markets will once again be whatever actions the volatile US President pursues today. There may be more tariff letters going to countries that represent miniscule portions of US trade because, well, I guess the administration believes they’re pickable-onable with less by way of negative repercussions compared to larger trade partners. The tariff rates are based on arbitrary calculations that are as arbitrary as the reasons for a 50% tariff on copper imported into the US.

On that note, regular readers know my view that there is nothing credible about US trade policy and so don’t even try defending it. Tariffs are a tool often used to suit the administration’s grievances while bypassing Congress and manipulating pieces of past legislation that were never designed for such purposes. There were tiny differences in US tariff rates and rates charged by most major trading partners before trade wars, while non-tariff barriers are more prevalent in emerging countries because they can’t play the same subsidy racket that is pervasive across the US economy (Farm Bill, subsidies to auto plants, subsidies to defence cos, subsidies to IT companies, subsidies to aerospace firms, GFC and other bail-outs aplenty, GSEs, chips subsidies, etc) and because they don’t have the privilege of a reserve currency to backstop reckless fiscal policies that drive much of America’s twin current account and fiscal deficits. The victim thesis is flat out wrong as US domestic policies are primarily responsible for the country’s external imbalances and the pattern is continuing with the ‘big beautiful bill.’ If other countries are exploiting protectionist policies to their own advantage, then apparently they are suffering the consequences given their underperformance relative to the US economy over many years. Instead of expecting mass trade liberalization to ensue, we need to acknowledge that the US administration is fundamentally protectionist in nature and will use tariffs for whatever purposes suit it while elevated uncertainty harms world growth. The goal posts shift in arbitrary ways and negotiating with the US administration is largely pointless not least of which because of diminished confidence in the signature on any prospective ‘deals’ and the sense that jumping through one hoop merely means facing another; witness the UK’s limited and desperate deal nine years after Brexit followed by US metals tariffs against it. That signature used to be gold, but no more.

Canada experienced this when it became clear that a prime motivator of the US tariffs against Canada was opposition to its former administration because Trump didn’t like Trudeau and invented arbitrary excuses for tariffs like made-up fentanyl and migrant threats defied by data from US agencies themselves. Insults aplenty that challenged Canadian sovereignty were unprecedented. Now it’s Brazil’s turn.

US trade policy crossed another sacred line yesterday by abusing tariff tools in order to directly interfere with internal Brazilian politics. Trump’s tariff letter to Brazil made it explicitly clear that the reason for a 50% tariff against imports from Brazil is to force an end to that country’s prosecution of former President Bolsonaro. Bolsonaro is being targeted by Brazilian judge Alexandre de Moraes (“Xandao”) for his alleged role in denying the outcome of Brazil’s election in October 2022 and the storming of Congress by his supporters in January 2023. Sound familiar?! Whatever one thinks of such developments, it is an internal affair for Brazilians to settle. Ironically, Trump’s involvement in a highly polarizing affair in Brazil could perversely galvanize Brazilian support for the prosecutory efforts and opposition to the US administration. And interfering in Brazilian politics because its leaders have chosen questionable ties with unsavoury folks elsewhere takes the US down the treacherous path of defending its consistency in such an approach with other countries.

Unfortunately, it’s the average working stiff in Brazil who will pay the price. Investors too. Brazilian stocks fell by over 1% later yesterday and are down again this morning with the real depreciating by over 2% over the past couple of days.