The trade narrative is back in full swing now Trump’s bill got approved

Markets

Hate him or love him, but US president Trump often gets things done. He wanted the OBBBA on his desk to be signed into law by July 4th, and he’s going to get it. The US House of Representatives greenlighted the Senate‐ amended version in a 218‐214 vote after some arm‐twisting (and probably backdoor sweeteners) yesterday. The price tag is huge: $3.4tn in additional federal deficits through 2034. This compares to a $1.8tn deficit, or well over 6% of GDP, in 2024. The debt ceiling will be raised by a whopping $5tn, which according to USTS Bessent “should get us well into 2027”. The House passage came after US trading hours (early close ahead of Independence Day) so a first real market reaction isn’t due until Monday. US rates nevertheless finished the day higher with net daily changes varying between 6 (30‐yr) and almost 10 bps (2‐yr). The bear flattening came in the wake of the payrolls report. Job growth and the unemployment rate came in better than expected but not for reasons tied to a strong economy per se. Local and state government jobs contributed to half of the net growth while people dropping out of the labour market resulted in the lower unemployment rate. The headline print nevertheless wrongfooted a more softly positioned market. The US non‐manufacturing ISM released afterwards marginally topped consensus estimates as well and kept rates near the intraday highs. The headline number rose from 49.9 to 50.8 (50.5 expected) thanks to a rebound in new orders (51.3), general business activity (54.2). Employment was the weak link. The subindex dropped from 50.7 to 47.2. The US job report only temporarily interrupted the grind lower in European yield markets. Swap rates closed up to 4 bps lower, the belly of the curve outperforming the wings. The greenback’s performance given the rates divergence was poor. EUR/USD eased from 1.18 to 1.176 while DXY (97.18) continues to struggle near the lows. Part of the dollar gains are already being undone during the Asian session. The pound recovered somewhat of Wednesday’s hit along with long‐term gilts but we’re wary for a sustained comeback. The fiscal debate is casting a shadow over UK assets.

The trade narrative is back in full swing now Trump’s bill got approved. The US president said he’ll start sending letters today in which he’ll set the tariff level unilaterally going into the July 9 deadline. Trump floated a rate between 10 and 70%. Countries that dodge the bullet with a trade deal so far are the UK and Vietnam. The US‐Sino trade truce runs through mid‐August. Talks with Japan have been frustrating Trump lately while those with the EU are running in the background and scheduled to continue over the weekend. An extension to the deadline is not being considered, Trump said, so the stakes are high. We could therefore see markets err to the side of caution, be it in thinned volumes due to the absence of US investors.

News and views

National Bank of Poland President Glapinski yesterday labeled Wednesday’s unexpected 25 bps rate cut from 5.25% to 5% as a “cautious adjustment” and not the start of an easing cycle. The NBP lowered its policy rate with the backing of lower CPI projections, especially for this year, with inflation expected to fall within the 1%‐point tolerance band around the 2.5% inflation target in coming months. The tone of the policy statement opened the door for a sequence of rate cut, but Glapinski closed that with his hawkish comments. He highlighted inflation risks coming from loose fiscal spending, energy prices and trade tensions. The zloty profited from the conflicting U‐turn and erased all of Wednesday’s losses, ending the day at EUR/PLN 4.24 from 4.2650. A rebound in Polish swap rates was short‐lived as Glapinski nevertheless offered a path to a September rate cut. The curve bull steepened again with daily losses of up to 8 bps at the front end of the curve (19 bps 2‐day cumulative).

UK Chancellor Reeves is expected to announce a shake‐up of UK pensions in her Mansion House speech on July 15 including plans to look at the amount companies and their staff set aside for retirement, according to reporting by the Financial Times. The review was initially expected by the end of 2024 but delayed after an angry backlash over the £25bn increase in National Insurance contributions announced in last year’s autumn Budget.

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