More Tariff News – Currency Thoughts
More Tariff News
July 7, 2025
(184) Like so many other Mondays this year, financial markets are marching to the beat of President Trump postings on Truth Social rather than economic fundamental trends. And as typically has been the case, the postings serve a dual purpose of unveiling new and changed information about future policy but also deflecting attention away from potentially embarrassing developments. Tariff rates against other countries will be decided by a week from tomorrow, but their effective date has been pushed back from July 9 to August 1. The original hope had been to achieve numerous bilateral trade deals with America’s trading partners proved too difficult, and so instead letters are now going out to each country informing those governments what the new tariff rate will be according to the criteria that Trump has decided to use. These formulas don’t make commodity-specific distinctions, as would have been the case in the initial plan. Whatever a country’s tariff rate is will apply to all of its exports to the United States. A further new wrinkle to those formulas is that any country found to be cooperating with what President Trump considers the “anti-American” polices of the BRICS group (Brazil, Russia, India, China & South Africa) will be penalized by an additional 10% tariff. At the recent BRICS summit in Rio, several additional countries were invited to join, such as Egypt, Indonesia, the UAE, Saudi Arabia, and Iran.
By stirring the pot of Tariphobia, the above clarifications pushed other news out of the limelight, like the controversial elements of the just-signed multi-trillion dollar tax and spending law, today’s face-to-face talks between Trump and Netanyahu, and the floods in Texas that have killed at least 80 people and which fit a pattern of escalating weather disasters even as Republicans double-down on their denial of climate change associated with human behavior.
As before, today’s latest wave of tariff threats has benefited the dollar, lifting the greenback overnight by 1.0% against the kiw, 0.8% versus the Australian dollar, 0.6% against the yen, 0.5% relative to the peso, 0.4% vis-a-vis the euro, loonie and Swiss franc, and 0.3% against sterling.
Ten-year sovereign debt yields have risen three basis points in Japan, two bps in France, Italy and Spain, and a basis point in the United States and Germany, but the 10-year British gilt has slipped a basis point.
Bitcoin is 0.5% weaker but still quite elevated in a historical sense. The decision by OPEC+ to lift oil production from next month by 548 million barrels per day was anticipated and made no discernible impact on price. West Texas Intermediate has dipped 0.1%.
U.S. stock futures have slipped, and Japan’s Nikkei closed down 0.5%. The German Dax, however, is up by 0.8% currently.
Retail sales volume in the euro area underperformed analyst expectations in May, falling 0.7% on month and recording only a 1.8% advance from the level in May 2024. Both those changes were the weakest in ten months. German, French, Italian, Dutch, Belgian and Slovakian sales were lower than in April, but Spanish sales went up 0.2% on month and 4.8% on year.
In Eastern Europe, Romanian and Hungarian retail sales respectively fell 0.1% and 1.3% in May.
German industrial production outperformed expectations in May, rebounding from a 1.6% drop in April with a 1.2% increase a month later. Production was above its year-earlier level (+1.0%) for only the first time in a year.
Czech industrial production advanced 1.6% in May and scored its largest year-on-year increase (2.2%) in 29 months. In Norway, factory output fell 1.7% on month but was 5.7% higher than in May 2024.
Among price data reports this Monday,
- Swedish consumer prices accelerated to a 0.5% monthly increase in June, lifting the year-on-year inflation rate back to April’s 0.8% following the 54-month low of 0.2% in May. Core CPIF inflation of 2.9% was its highest since a similar reading in February.
- Estonian CPI inflation rose half a percentage point in June to a 4-month high of 5.0%, still well below the August 2022 peak of 24.8% but twice the 2.5% reading in June 2024.
- Austrian wholesale price inflation turned positive in June (+0.8%) following four straight sub-zero readings.
- But consumer price inflation of -0.3% in Thailand last month was negative for a third straight time.
Dollar weakness in June was associated with increases in Chinese and Japanese reserves by $15.6 billion and $32 billion, respectively, to 35-month and 114-month highs of $1.3147 trillion and $3.317 trillion, respectively.
Japan’s index of leading economic indicators in May rebounded 1.1 index points but, at 105.3 according to the preliminary estimate, was its second lowest reading since August 2020. The index of coincident economic indicators slid further, eliciting a downgrade of the trend characterization to “worsening,” a designation not employed since July 2020 when Covid was very severe.
A 1.0% on-year rise in Japanese average cash earnings was the smallest increase in 14 months and associated with a 2.9% on-year decline in inflation-adjusted terms.
The British Halifax house price index flat-lined in June, resulting in an 11-month year-on-year low of +2.5%.
Despite the threat of tariffs, the July Sentix gauge of investor confidence in Euroland’s economy improved to its best reading since the Russian invasion of Ukraine in February 2022. Trump’s America First approach to all policies has solidified European willingness to undertake a major defense build-up in response.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland retail sales, German industrial production, Japanese leading and coincident economic indicators, U.S. tariff announcements
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