Market Review:
🤝 In an attempt to calm investors, U.S. President Donald Trump said he had no plans to dismiss Powell, but he acknowledged that he had discussed the possibility with Republican lawmakers and that he had left all options open. He also stated that he would love for the Fed Chair to step down.
💼 A senior White House official told CNBC that Trump had told Republican members of Congress he likely will fire Powell “soon.” However, Trump later publicly denied any plans to do so. While the President can remove Fed Board members “for cause” under the Federal Reserve Act, no Fed Chair has ever been dismissed, and such a move could trigger market chaos and legal challenges.
📊 Even the rumour of this letter caused significant market volatility yesterday, with the EUR/USD and U.S. 2-year Treasury bond—typically stable assets—experiencing sharp, unusual movements. The bond, considered risk-free, moved over 1.7% in a single day, underscoring the market’s sensitivity to political developments.
📉 Good news for US inflation. The data published yesterday on the PPI, a precursor to inflation, came in lower than expected, showing a 0% change. However, it is not industrial production that would be sensitive to Trump’s tariffs but rather the inflation caused by imported goods, so the relief from this data is relative. Meanwhile, US industrial production increased beyond expectations, with a growth of 0.3% in June compared to the 0.1% anticipated.
⚙️ Possible machine stoppage at the Bank of Japan (BoJ): Japan’s exports fell for a second straight month as sweeping U.S. tariffs took a toll on the country’s manufacturers, exposing its fragile economy to greater risks from the global trade war. Japan failed to clinch a deal with the U.S. before the expiration of the temporary pause on country-specific tariffs, and now faces a 25% tariff on its imports to the U.S. starting August 1. Exports to the U.S. tumbled 11.4% in June, with a 26.7% plunge in automobiles, 15.5% fall in auto components, and 40.9% drop in pharmaceuticals. Japan’s trade surplus with the U.S. in June fell 22.9% to 669 billion yen, while exports to China also declined by 4.7%.
📉 The prolonged uncertainties over the tariff impact and trade negotiations will likely force the Bank of Japan to keep focusing on downside risks to the economy and hold off on rate hikes for the time being.
🇫🇷 French Prime Minister Francois Bayrou has proposed scrapping two public holidays in order to help put France’s finances back on track, a move that is reminiscent of a failed attempt by a previous French leader. In 2003, then-Prime Minister Jean-Pierre Raffarin announced a plan to scrap the Pentecost Monday holiday and replace it with a “day of solidarity” to finance aid for the elderly. This measure was a disaster, leading to strikes, protests, and ultimately Raffarin’s resignation.
✊ The opposition, including the National Rally party and leftist parties, have signaled their willingness to topple Bayrou’s government over this proposal, which is seen as a “direct attack on our history, our roots, and the France of workers.”
📦 By the way, speaking of France and trade wars. The French-led push to use the anti-coercion instrument -ACI- is backed by more than half a dozen European capitals, while some member states remain more cautious.
🛡️ A growing number of EU member states want the bloc to activate its powerful “anti-coercion instrument” trade tool against the U.S. if the two sides fail to reach an agreement by August 1 and the U.S. imposes 30% tariffs. The overwhelming preference is to keep negotiations on track and find a negotiated outcome, while maintaining the threat of proportional retaliation through countermeasures.
💶 If activated against the U.S., the ACI could lead to tariffs on American goods, exclusion from EU public contracts, bans or limitations on U.S. tech firms and service providers, restrictions on investment, and much more—all coordinated at the EU level for maximum impact.
💰 The European Union has proposed a budget of close to €2 trillion -two thousand billion euros- for its next seven-year budget cycle, starting in 2028. This represents a substantial increase from the €1.2 trillion budget for the 2021-2027 period, as the EU seeks to address a range of challenges including rising global economic competition and increased defense demands. The budget negotiations are expected to be contentious, as the EU grapples with competing demands from member states and the need to address economic threats from the U.S. and China.
📱 TSMC, a major supplier to Apple and Nvidia, is anticipated to report a 52% increase in second-quarter profit to record levels, but its prospects may be hampered by strong Taiwanese currency and U.S. tariffs.
📉 The Dutch business ASML, which has emerged as a unique European tech champion, saw its biggest decline since April when CEO Christophe Fouquet retracted the company’s growth projection for the upcoming year, citing trade disputes and international tensions as the reasons. Many of the company’s largest clients are suffering as a result of Trump’s trade policies.
Geopolitics:
⚖️ Attorney General Pam Bondi has dismissed Maurene Comey, the daughter of former FBI Director James Comey, from her role as the top DOJ prosecutor in Manhattan, according to Politico. Maurene Comey was notably responsible for prosecuting high-profile cases involving Jeffrey Epstein and Ghislaine Maxwell. This move is seen by some as part of a broader effort to erase all traces of the Epstein case.
🕵️ Donald Trump assured the press a few days ago that the Epstein case is a hoax. Elon Musk calls for President Trump to release the Epstein files to prove it.
🚁 A drone struck another US-operated oil field in Iraq, stopping the daily output of 200,000 barrels of oil. The US continues to maintain military occupation of certain territories in Iraq and Syria despite claims by the governments of those countries.
🇮🇱 Israel is attacking the same jihadist groups it supported to overthrow Al-Assad and which now occupy the government in Syria. The chief of staff of the Israel Defence Forces (IDF) has issued an ultimatum stating that Syrian government forces must leave As-Suwayda or Israel will intensify its bombing. This change of sides could be part of an attempt to expand Israeli territory.
Market View:
📊 The markets are recovering after a scare caused yesterday by Donald Trump amid rumours of the dismissal of the Chairman of the Federal Reserve. The S&P 500 Mini futures are currently trading above 6,300 points, up from yesterday’s lows of 6,241 points. The Nasdaq 100 is also recovering, extending above 23,130 points in the market.
💵 Volatility in the dollar and US Treasuries was explosive yesterday. The DXY Dollar Index experienced a movement of more than 1.20% from its highs to its lows, but it is currently advancing and stands above 98.75 points. This has caused the EUR/USD pair to continue its decline, dropping below 1.16 and currently trading near 1.1575. The GBP/USD pair also experienced significant volatility yesterday due to dollar strength; despite attempting a bullish rebound, it lost 1.34 as support and is now trading at 1.3380.
📈 In Europe, equities appear poised to advance during today’s session. DAX 40 futures are positioned at 24,350 points, while Euro Stoxx 50 futures stand at 5,380 points.
🛢️ The crude oil market remains steady, with Brent crude trading around $68, its current price being $68.55.
🥇 Gold futures also exhibited nervousness yesterday due to the volatility caused by Trump’s remarks concerning the Fed. Initially, they rose above $3,385 but have since retreated and are currently trading at $3,335.
