The markets may not care about tariffs, but US companies and consumers should care

Today the main release is the usual Thursday jobless claims and the main event is a speech by dovish Fed member Waller.

We are starting to see the downturn in the 10-year yield. One contributor was the strong demand at yesterday’s auction of $39 billion.  The Treasury offers $22 billion n 30-years today.

We also got the minutes of the last Fed meeting, where the vote to stay on hold was unanimous. But the discussion was not. While most Feds thought a cut would be okay on the grounds that the tariff effect will be a one-time thing. But a few said we can’t know that, and a couple also thought a July cut would be okay. That “couple” is probably Bowman and Waller; Waller speaks later today and his comments are a hot item for the day. The WSJ notes that “A sizable minority doesn’t expect to cut at all this year.”

At a guess, we think Trump will name his replacement candidate for Powell ahead of the July 30 meeting, so the minutes may not be useful today. The next day, of course, the tariffs actually hit. The Fed takes a huge reputation risk with a July 30 cut and wouldn’t normally do it.

The old saw has it that the stock market is not the economy, but we can impute to the stock market a judgment on non-financial current events. The Nasdaq just hit another record high and the S&P is up 6% year-to-date—with utter disregard and disdain for whatever Trump is doing.

Reuters points out VIX hit a 5-month low yesterday and the bond market equivalent MOVE is near its lowest for the year.

Trump doesn’t get it that the financial markets think he is a jackass and lacks the ability to cause them real harm. They are going on their merry way, ignoring his shenanigans. This is because of the TACO thing, to be sure, but it’s also total disrespect. That’s the part he doesn’t see—yet.  He is sure to retaliate in some way, some day.

The markets may not care about tariffs, but US companies and consumers should care. The Yale Budget Lab estimates “consumers face an effective U.S. tariff rate of 17.6%, up from 15.8% previously and the highest in nine decades,” according to Reuters.

CNN has a report from an outfit named Dataweave that tracks the prices of some 200,000 goods. As of June, home and furniture prices were up 1.9% from January, toy prices were up 0.4%, and apparel and footwear were up 0.7%. Next week’s CPI may not be a tipping point because we still have pre-tariff buying and shrinkflation (we notice it’s already highly visible in cosmetics and packaged food).

But it’s coming, it’s coming. Wells Fargo foresees peak CPI at .29% this year, not too bad because services prices are falling. We haven’t been hearing much about stagflation or recession of late, mostly because the labor market remains on the strong rise—fading a bit, but not catastrophically. That means if we get s about of weakness in pretty much any of the top indicators, the market will be shocked, shocked, to discover there has been an orange gremlin wrecking the economy.

Forecast

We are starting to see the turnaround in some indicators on the daily charts (MACD, RSI, stochastic) that suggest the dollar upswing is ending, albeit without any convincing momentum.

This has more to do with positioning than with economic data but the timing may have something to do with the out-of-control Trump. Case in point: Australia is a significant copper producer and the AUD is stronger than most others.

Trump got the budget he wanted and thinks he is on a roll. The copper and Brazil tariffs in particular are threatening. Bloomberg’s Authers writes “The president might ‘chicken out,’ but it will need a market dive or bad economic data to force him into it. As Brazil will find it hard to concede to Trump’s demands, the threat of a drawn-out conflict is real.” One scary outcome may be to push Brazil closer to China, something the WSJ joins the wires to highlight today.  

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