📉 Market Report.
📊 Federal Reserve Chair Jerome Powell admitted that the Fed would have eased monetary policy by now if not for President Trump’s tariff plan, which caused inflation forecasts to rise.
📈 Powell said the Fed essentially went on hold when it saw the size of the tariffs announced by the Trump administration, and that the central bank is now going “meeting by meeting” on interest rate decisions. In response, Trump says Jerome Powell is a “moron” and he already has options to replace him.
💶 European Central Bank (ECB) officials are starting to worry that a rapid appreciation of the euro could undermine their efforts to keep inflation at the 2% target. The euro has risen about 14% against the dollar this year, helping curb inflation that now precisely matches the ECB’s goal. However, the ECB fears the euro could rise to levels that cause inflation to undershoot the target. In other words, excessively low inflation, not due to the ECB’s actions, but rather to a decline in consumption in Europe and a greater marginal propensity to save, given the bleak outlook for France and Germany.
⚠️ ECB Vice President Luis de Guindos warned that a move past $1.20 per euro would be “much more complicated” and problematic for the ECB. Some ECB policymakers, like Latvian central bank Governor Martins Kazaks, have suggested the strong euro could tilt the balance toward another interest rate cut to support inflation.
🤝 The European Union is willing to accept a trade arrangement with the U.S. that includes a 10% universal tariff on many of the bloc’s exports, but wants the U.S. to commit to lower tariff rates in key sectors like pharmaceuticals, alcohol, semiconductors, and commercial aircraft. The EU is also pushing for quotas and exemptions to effectively lower the U.S. 25% tariff on automobiles and car parts, as well as the 50% tariff on steel and aluminum.
📢 European bureaucrats view this arrangement as slightly favoring the U.S. but still something it could agree to, as it faces a July 9 deadline before tariffs on nearly all of its exports to the U.S. jump to 50%, but They are also preparing potential countermeasures, including tariffs on $21 billion of U.S. goods and an additional list of tariffs on $95 billion of American products, in case the negotiations yield an unsatisfactory outcome.
📉 Meanwhile, European manufacturing PMIs are finally improving, and although they remain in contraction, they rose to their highest level in 34 months. European inflation figures published yesterday remain in line with expectations and slightly higher than in the previous period, rising from 1.9% to 2%.
🗳️ Yesterday, the Senate passed President Trump’s megabill in a 51-50 vote, with Vice President JD Vance casting the tie-breaking vote. The bill now heads to the House, where it faces an uncertain future as some GOP lawmakers have expressed continued concerns over the bill’s impact on the deficit. The nonpartisan Congressional Budget Office projects the bill will add at least $3 trillion to the federal deficit over the next decade. The megabill still faces an uphill battle in the House, despite the Senate’s passage, as Republican lawmakers continue to express concerns over the legislation’s fiscal impact and its political implications.
🚀 Musk’s threats, which we mentioned yesterday, to launch a crusade against senators who support Trump’s tax reform have been met with a response from Trump. Shares of Tesla were under pressure after President Donald Trump said the federal government should look into cutting subsidies for Elon Musk’s companies, including Tesla, SpaceX, and Starlink.
😡 Trump claimed that Musk gets more subsidies than any other person and that without these subsidies, Musk would have to “close up shop and head back home to South Africa.” Tesla’s stock closed down 5.3% on Tuesday following Trump’s comments, as some of Musk’s ventures are heavily reliant on government policy decisions.
🔎 Trump reiterated that the Department of Government Efficiency (DOGE) should “look at Musk” to save the government money. It is breathtakingly ironic. Trump has threatened to use DOGE, the Department of Government Efficiency, which Musk founded and oversaw, as a weapon against its inventor.
⚡ Musk has responded with his usual audacity, which might change the game. Instead of backing down, he is threatening to demolish the political system as a whole. Musk told his 221 million Twitter followers, “The America Party will be formed the next day if this insane spending bill passes.” “Our country needs an alternative to the Democrat-Republican uniparty so that the people actually have a VOICE.”
📈 According to BlackRock’s Rick Rieder, the high levels of income in the bond market right now represent a “generational opportunity” for investors, as bond yields have risen after years of low interest rates. Rieder says the ability to get consistently high coupons from bonds can serve as a “bulwark against equity market drawdowns,” as bond duration is no longer a reliable hedge. Rieder favors the front and belly of the yield curve, as well as European credit and peripheral sovereign bonds like Spain and Italy, which offer attractive yields for dollar investors.
📉 He believes that, the biggest risk facing fixed-income investors is the rising federal deficit, which is fueling volatility in the bond market and making long-end interest rates extremely sensitive to inflation.
✈️ Once again, green policies end up failing due to low competitiveness. Sweden is reversing its 6-year-old tax on air travel, effective July 1, in an effort to revive the country’s ailing commercial aviation industry. The move comes as a shift from the growing public support for environmental activism popularized by Greta Thunberg (who travels in a private jet to climate summits), as Sweden has seen a steady erosion of air traffic, particularly to smaller airports. Domestic flights in Sweden have faced a steeper decline of about 35% since 2018, compared to a 13-23% drop in neighboring countries like Denmark and Finland.
🛫 Low-cost airlines like Ryanair and EasyJet have welcomed the tax abolition, with Ryanair planning to add new aircraft and routes in Sweden, while pulling out of airports in Denmark that are introducing an aviation tax.
🌍 Geopolitics:
📞 French President Emmanuel Macron and Russian President Vladimir Putin agreed to coordinate their approach on Iran in their first phone call since 2022, marking a rare overture from a European head to the Russian leader. Paris informed allies including Ukraine’s President Zelenskyy about the conversation. Macron aims to burnish his credentials as a global player, and plans to engage with all permanent Security Council members to discuss their positions on Iran’s nuclear program. Russia and France both have an interest in persuading Iran to give up its uranium enrichment program, as they can handle uranium enrichment for Iran themselves.
📊 Market View:
📉 More moderate and subdued rises in the United States markets, but the Mini S&P 500 and Nasdaq futures remain firm, trading at 6,270 and 22,770, respectively.
💵 The US Dollar Index (DXY) remains weak, having lost 96.40 points during yesterday’s session, before rebounding to the current 96.85. This led the EUR/USD pair to momentarily trade above 1.18, from where it has fallen to the current 1.1780.
📈 Now, US bond yields are aligning with the dollar’s weakness. The 2-year bond yield has climbed to nearly 3.80%, a scenario that is starting to raise concerns.
📉 In Europe, yesterday’s session failed to gain traction and has declined compared to Monday’s levels. DAX 40 futures are now trading at 23,885 points, while Eurostoxx 50 futures stand at 5,325.
🛢️ For another day, crude oil prices remain static, with Brent crude stuck at $67.91 per barrel, barely moving within the $68 range.
🥇 Gold has dropped $20 per ounce in futures contracts following yesterday’s initial rise, now trading at $3,340.
💻 Bitcoin, which lost the $106,000 support level during yesterday’s session, has rebounded and is currently trading above $107,000 and climbing.
