Daily Points

ON DECK FOR WEDNESDAY, JULY 9

KEY POINTS:

• Dollar firmer, equities up ahead of Trump’s love letters, FOMC minutes
• Trump may send more tariff letters to minor trading partners today…
• …as markets largely discount his latest tariff threats
• Trump is panicking, major trading partners should ride out developments
• FOMC minutes to reaffirm a hold bias
• The public campaign for Powell’s job continues
• RBNZ held, hinted at August move
• Negara cut with a dovish bias
• Chinese core CPI edges slightly higher

Global asset classes are largely treading water so far this morning. The dollar is slightly firmer, sovereign bond yields are little changed, and equities have a mild positive bias especially in Europe. Regional variations are focused on a continued sell off in Antipodean rates post decisions by the RBA and RBNZ.

Perhaps Trump’s tariff tirades are being faded by markets given relatively little reaction to his announcements on copper and pharmaceuticals tariffs yesterday. Markets may be waiting to see proof and even then waiting to see if the moves are durable, given Trump’s well documented erratic ways that derail his credibility with America’s trading partners. Simply put, markets have a tough time viewing his moves as credible. Chart 1 shows soaring prices for the base metal over recent years and US restrictions on imports amid little domestic capacity are likely to drive US costs higher. There is no sensible rationale for these measures that American consumers and businesses will pay for.

Trump’s social media post last evening—while poorly crafted—seemed to suggest that something is afoot concerning announcements for seven countries this morning followed by more this afternoon. They may be tariff letters, but they are likely to be sent to minor trading partners. FOMC minutes may serve as another lightning rod for Trump to attack Powell. A pair of regional central banks delivered decisions and data is relatively light.

FOMC MINUTES TO REVEAL DIVISIONS AROUND CENTRAL TENDENCY TO HOLD

Minutes to the June 17^th–18^th FOMC meeting arrive this afternoon (2pmET). See the recap of the meeting here. Data like nonfarm payrolls combined with the jockeying to take Powell’s job may have made the minutes somewhat stale but the clear signal at that meeting was that the majority felt July would be too soon and that patience remained a virtue. In fact, I would say that the more Trump attacks the Fed, the more difficult it is for the FOMC to ease without looking like it’s doing so under political pressure. Still, expect the minutes to fan further divisions given that the June dot plot showed 7 Committee members preferring no cuts at all this year, two who wanted one cut, 8 who leaned toward 50bps of cuts and two who want 75bps of cuts. Waller and Bowman may be the two in the latter camp. Markets are likely to view some of the differences in opinions as politically motivated in light of the very public campaigns being conducted to succeed Chair Powell.

Further on the Fed, the WSJ has an article out this morning stating that Kevin Hassett and Kevin Warsh have emerged as the two leading candidates for Fed Chair to succeed Powell and that Hassett may have the edge. Hassett’s stances on the Fed have been wildly inconsistent and have pivoted toward sharper attacks in keeping with Trump’s bias. Waller and Bowman have stated their openness to nearer term easing by generally sticking to substantive differences of opinion on the dual mandate’s evolution, but Hassett and Warsh have delivered scathing attacks that appear to be much more politicized which may put at risk their market credibility as candidates.

TRADING PARTNERS SHOULD RIDE OUT TRUMP’S PANIC ATTACKS

Why has Trump escalated his attacks on the Fed and specifically Chair Powell in a desperate push to have easier monetary policy now? Why is he flinging tariff missiles and applying intensified pressure on trading partners? Because he’s panicking in my opinion. He’s pressuring the Fed to cut now because he fears there will be evidence that tariffs show up in higher prices over coming months and that Powell’s caution would be vindicated. If the first stage of price pressures from tariffs were to be revealed, then the optics of easing would be difficult for the Committee to accept until it has evidence one way or the other on the durability of such pressures. Trump is also panicking because major trading partners are hardly beating a path to the US administration’s door in a quest to sign trade deals; they understand the US political cycle better than the US administration that overplayed its protectionist hand. It’s not hard to conceive a nightmare scenario for Trump in the near-term:

• Tariffs could boost prices over coming months.
• the Fed could remain patient and restrictive for a long while yet.
• the lifting of the debt ceiling could prompt a gusher of Treasury supply to replenish Treasury’s depleted cash coffers and push yields higher in a replay of 2023. Watch the schedule for Treasury funding announcements later this month.
• Tighter immigration policy could damage growth this year and beyond while marginally boosting inflation (here).
• So could elevated uncertainty and tariff wars.
• The ‘big beautiful bill’ is regressive and unlikely to materially boost growth in a durable way.

America’s trading partners probably know all of this. Trump’s willingness to deescalate trade tensions could improve as the costs of his policies become more evident and midterms approach.

RBNZ HELD, HINTS AT AUGUST

The RBNZ met expectations by holding its official cash rate unchanged at 3.25%. It retained an easing bias by stating “If medium-term inflation pressures continue to ease as projected, the Committee expects to lower the Official Cash Rate further.” Updated formal rate guidance will be provided at the next meeting on August 20^th. For now, it stated that the case for holding was based on “the elevated level of uncertainty, and the benefits of waiting until August in light of near-term inflation risks” plus having an opportunity “to assess whether weakness in the domestic economy persists, and how inflation and inflation expectations evolve” while also assessing the global economy. The case for easing was based on weak economic growth. Bring on Q2 CPI on July 20^th and then the August decision that is two-thirds priced for a cut (chart 2).

NEGARA CUT, REMAINS DOVISH

Bank Negara Malaysia cut its overnight rate by 25bps after a divided consensus was split between a hold and a cut and it warned of downside risks to growth with a dovish bias.

LIGHT DATA

Mexican core CPI landed at 4.2% y/y as expected with headline up 0.3%. There is usually little risk around the monthly estimates given the bi-weekly cadence of releases.

China’s CPI inflation was a smidge firmer than expected at 0.1% y/y (-0.1% consensus and prior). Core CPI edged up to 0.7% y/y for the highest reading since April 2024 (chart 3). Inflation remains well below the revised inflation target for 2025 of 2%.