
US/China: Taking the Middle East stress in stride. President Donald Trump declared that the interim ceasefire agreement with Iran was over. However, he clarified that the US blockade applied strictly to Iranian ports, while Treasury Secretary Scott Bessent added that safe and secure oil should trade at a premium. Volatile headline risks remain. Trump subsequently pivoted, declaring that Iran wants to “make a deal badly”, which the market views as another calculated effort to gain leverage in future discussions. This followed his earlier comment at the NATO Summit that he did not expect the conflict to restart.
Although the futures market returned the odds of a September Fed hike above 50%, the FOMC minutes did not convey the same urgency among the divided Fed policymakers. Markets remain mindful that Fed Chair Kevin Warsh is unlikely to provide forward guidance at his congressional hearings, amid an expected softer US CPI print next week.
Following softer US ISM manufacturing and services prices-paid indices in June, consensus expects June CPI inflation, due on 14 Jul, to decelerate to 3.9% y/y from 4.2% in May. On the same day, Fed Chair Kevin Warsh is likely to reiterate to US lawmakers his remarks at the European Central Bank Forum in Sintra that “inflation risks have come down”.
Markets raised the probability of a September rate hike by the European Central Bank to 60-70%. Geopolitical anxieties expanded beyond the Middle East as President Trump’s fixation on Greenland re-emerged. With the USD/JPY elevated, the market was alert to the possibility of stealth FX interventions by Japan’s Ministry of Finance.
Separately, China’s consumer prices rose slower than expected, increasing 1% y/y in June vs. 1.2% y/y in May. Meanwhile, tepid domestic demand curbed overall inflation momentum. Retail sales recorded their first y/y contraction since the Covid-19 pandemic in May, while income prospects remained subdued. The still-weak property market continued to weigh on consumption sentiment. In contrast, China's producer inflation accelerated to 4.1% y/y in June, its highest since Jul 2022, indicating that cost pressures remained elevated for domestic producers.

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