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A stronger-than-expected U.S. jobs report has effectively ruled out an interest rate cut later this month. Traders are now pricing in a September cut. That doesn't mean the pressure is off Fed Chair Jerome Powell. Treasury Secretary Scott Bessent says the administration is considering using the next expected Fed board vacancy in early 2026 for appointing Powell's successor – a scenario that fills investors with dread. A UBS survey this week showed two in three reserve managers fear Fed independence is at risk and nearly half think the rule of law in the U.S. may deteriorate enough to influence their asset allocation significantly.
The U.S. House of Representatives appears to be on track to pass President Trump's tax and spending bill ahead of his self-imposed July 4 deadline. Markets seem unbothered but that muted reaction may not last. Benchmark 10-year Treasuries are currently yielding 4.3%, but they're up from around 3.6% last September. The damage to 30-year notes has been even more severe. Thirty-year yields, the benchmark for mortgage rates, have risen to 4.8%, from below 4% in the same timeframe.
Short-term Treasuries are expected to get a boost from regulatory changes underway in the United States The GENIUS Act seeks to bring dollar-backed stablecoins into the mainstream, triggering buying of U.S. government bonds at a time when Washington is grappling with a gaping budget deficit. But top central bankers aren't impressed with the stablecoin craze. You can hear why on this week's episode of Reuters Econ World podcast. Listen here.
Big investors are mobilising to trade through weeks packed with wild-card events that may shatter the calm in stock markets and drive big swings for assets they see as exposed to both positive or negative surprises, from gold to corporate credit.
As the July 9 tariff deadline approaches, trade deals, or rather the outlines of deals are starting to trickle in. Despite the lack of detail, one thing is clear. The Trump administration is targeting China and the loopholes it has deployed in its agreements with other countries. The 40% levy DC is putting on so-called trans-shipments through Vietnam from other countries is a case in point. It's aimed at preventing Chinese exports from being re-routed through Vietnam to avoid U.S. tariffs. How it works out in practice remains to be seen - in particular, defining what is "made in Vietnam" and what is deemed to be passing through. A broad application of the 40% tariff will be bad for China, Vietnam and U.S. consumers and even though China has options to re-route through other countries in Southeast Asia, the U.S. may look to block those too.
Canadian Prime Minister Mark Carney's cancellation of a tax on U.S. technology companies was designed to keep trade talks with DC alive. Politically speaking, that was an easy move for Carney. If Trump homes in on Canada's dairy tariffs, that will be harder for the ex-central banker to negotiate around. Last month, the Canadian parliament amended legislation to prevent its protections for the dairy industry being put on the table during trade talks, with unanimous support from all political parties. The industry is particularly influential in Ottawa, with the majority of Canada's dairy farms located in Quebec and Ontario, populous provinces seen as essential to winning any federal election.
British finance minister Rachel Reeves says she is determined to get on with her job a day after she appeared in parliament in tears, sparking fears about her role and triggering a market selloff. That came after a string of policy U-turns blew a hole in her budget plans. The extreme moves – UK gilts suffered their biggest one-day selloff since April's tariff turmoil – laid bare the vulnerability of bonds to fiscal unease. It also suggests the best days for sterling, which had been sailing at 3-1/2-year highs against the dollar, may be in the past.
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