Market Report:
📈 ECB President Christine Lagarde stated yesterday that uncertainty is likely to remain a key feature of the global economy, making inflation more volatile and requiring the ECB to act more forcefully to keep prices around its 2% target.
📊 The ECB has concluded that major deviations from its 2% target in either direction would require “appropriately forceful or persistent” policy action to ensure price growth returns to the target. Inflation in the euro zone is now around 2%, but Lagarde admitted there are risks as corporate pricing behavior has changed, with firms reacting more quickly to shocks to protect against potential future losses.
💱 Personally, we would bet that this is the context that will be used to justify new monetary policies based on the concept of CBDC, since one of its characteristics is rapid response capacity.
📍 A central question at the upcoming ECB Forum on Central Banking in Sintra, Portugal, today, will be whether the monetary system centered on the U.S. dollar is beginning to unravel. Central bank heads from the U.S., Eurozone, UK, Japan, and South Korea will discuss how global trade tensions and geopolitical conflicts are affecting the outlook for inflation and growth.
💬 With inflation seemingly under control, the deeper issue is whether President Trump’s protectionist and unpredictable policies could undermine the 80-year-old global financial system centered on the U.S. dollar. Considering Trump’s pressure on Powell to reduce interest rates, the Fed chairman will play one of the leading roles at the meeting.
🇪🇺 ECB President Christine Lagarde sees an opportunity to promote the euro as a bastion of stability, but the EU still needs greater financial, economic, and military integration to truly challenge the dollar.
🇯🇵 Not to mention the Bank of Japan (BoJ), which is stuck in a policy that forces it to raise interest rates to contain inflation, but fears causing a recession in its economy along the way. And finally, the Bank of England (BoE) has seen new increases in inflation that will most likely prevent it from cutting rates anytime soon.
⚔️ Meanwhile, the deadline for the resumption of the trade war continues to approach. The White House claimed that Canada “caved” to President Trump by hastily rescinding its digital services tax after Trump threatened to shut down trade negotiations between the two countries. White House press secretary Karoline Leavitt said it was a “big victory” for U.S. tech companies and workers that Canada dropped the tax after Prime Minister Carney called Trump. Canada said it rescinded the tax to “advance broader trade negotiations” with the U.S., after Trump threatened to terminate all trade talks with Ottawa if the tax remained in place.
⚡ Kevin Hassett, Director of the US National Economic Council, said he expects countries with digital services taxes will be facing “the wrath” of U.S. Trade Representative Jameson Greer over these “unfair trade practices.” Trump administration is eager to pass its major tax-and-spending bill through Congress by Friday, after which it plans a “marathon session” to finalize U.S. tariff rates with various countries.
🍚 President Trump expressed frustration with U.S.-Japan trade negotiations, complaining that Japan “won’t take our RICE” despite having a “massive rice shortage.” Treasury Secretary Scott Bessent warned that countries could be notified of sharply higher tariffs as a July 9 deadline approaches, despite ongoing trade negotiations. Bessent said the U.S. has countries negotiating in “good faith,” but they should be “aware that if we can’t get across the line because they are being recalcitrant, then we could spring back to the April 2 levels.”
🤝 Japan’s main tariff negotiator, Ryosei Akazawa, said Japan would continue working with the U.S. to reach a trade agreement while defending Japan’s national interests, noting that a continuation of Trump’s 25% auto tariffs would significantly damage Japan’s economy.
🔄 The European Union is open to a trade agreement that maintains a 10% U.S. tariff on EU goods, but wants U.S. commitments to reduce tariffs in key sectors like pharmaceuticals, alcohol, semiconductors, and commercial aircraft.
🚀 Elon Musk, the CEO of Tesla and SpaceX, is strongly opposed to President Trump’s signature megabill, labeling it a “DEBT SLAVERY bill” and vowing to unseat any fiscal conservatives who vote for it. Musk, who spent around $290 million backing Trump and other Republicans in the 2024 election cycle, is calling for a “new political party” and says any supporters of the bill will “lose their primary next year if it is the last thing I do on this Earth.”
⚖️ Musk’s threats to unseat Republican backers of the bill could carry more weight in the House than the Senate, as House members face primary and general elections every two years, while senators have six-year terms. Musk’s vocal opposition and threats to primary challengers could complicate the Trump administration’s efforts to quickly pass the massive tax-and-spending legislation through Congress.
Geopolitics:
🌍 Controversial British investigative journalist Kit Klarenberg has published an incredible article speculating that the US technology company Palantir may have been involved in the war between Israel and Iran. Palantir’s software is said to have been used to track and target Iranian officials, scientists, and infrastructure as part of the U.S. government’s efforts to counter Iran’s nuclear program and regional influence. It alleges that Palantir’s work has contributed to the assassination of Iranian nuclear scientists, the sabotage of Iran’s infrastructure, and the monitoring of Iranian officials and entities. the article raises concerns about the lack of public oversight and accountability around Palantir’s activities.
Market View:
📊 Market optimism continues. The Mini S&P 500 and Nasdaq futures have reached new highs, currently trading at 6,240 points and 22,850 points, respectively. This is possibly driven by the “discount effect” caused by the weakening dollar, which continues to decline, with the DXY dollar index falling below 98 points and currently trading at 96.75.
💶 Currency pairs such as EUR/USD are rising sharply against the dollar, reaching 1.18 in recent hours before pulling back slightly.
📉 However, despite this, US bond yields continue to fall, which could indicate increased demand for bonds and, consequently, for dollars. In yesterday’s report, we explained that bearish hedging against the dollar for these types of assets might be driving the declines.
🛢️ The crude oil market remains static in support zones since Trump ordered a reduction in its price, with Brent crude currently trading at $67.90 per barrel.
🪙 Gold, which started the week in Asian markets dropping towards $3,250 per ounce, has rebounded to $3,340 in its futures contracts.
💻 Finally, Bitcoin has retreated from yesterday’s levels but remains above the $106,000 support level, currently trading close to $107,000.
