US CPI yet to be impacted by tariffs, as bank earnings steal the show

There are more signs that the US economy is continuing to show resilience in the face of a multitude of threats. The CPI report for June rose as expected, and the headline rate  jumped to 2.7% from 2.4%. This is the highest rate since February, and the core rate also rose a notch to 2.9% from 2.8% in May. Overall, this inflation report does not change the dial for Fed rate cuts, and it also eases fears about tariffs impacting price pressures.  

There is now a 59% chance of a rate cut in September, this is down a touch from the 60% chance of a cut expected on Monday. Likewise, Treasury yields are falling, and US stock indices have had a higher open today, as the market looks beyond inflation data.

Tariffs boost customs duties, but no sign of inflationary impact as yet

Interestingly, US customs revenues topped $100bn for the first time in June as a result of tariffs applied to most of the US’s largest trading partners, and chunky levies applied to metals imports and car imports, yet this is not impacting inflation. Added to this the US government ran a budget surplus for the month in June. This suggests two things: that tariffs are a lucrative source of revenue for the US, and secondly, that they are not causing too much havoc so far, as inflation remains relatively stable and the labour market continues to grow. US economic resilience is becoming a key theme as we move into the second half of this year.

The details of the CPI report also suggests that the bulk of increases in prices in the US are from core services, rather than imported goods. Energy prices fell, and core goods prices remain barely in positive territory at 0.15% for last month. For now, it appears that the Fed does not need to worry about inflation or price pressures emanating from tariffs, instead they may focus on employment as a key barometer for US economic strength.

EU plots revenge on the US

Elsewhere, although US and UK bond yields are falling, European yields are falling at a sharper rate, which is weighing on the euro. Although EUR/USD is clawing back some earlier losses on Tuesday, this pair is down 0.7% so far this week. The decline in yields could be due to reports that the EU has drawn up its list of countermeasures to target US imports to the EU if a trade agreement cannot be reached by August 1^st. The target list includes Boeing, cars and bourbon, which is a sign that tariff negotiations could escalate into a tit for tat trade war in the next few weeks.  Economists have predicted that this could knock 1.6% from Eurozone GDP next year, and the reaction in the bond market suggests that bond investors see this trade war as being more damaging to the EU than to the US economy, at this stage, possibly because the retaliatory measures from the EU targets only $72bn of US goods.

JP Morgan smashes estimates and defends Fed independence

Alongside the CPI report today, bank earnings were also released. Although JP Morgan smashed estimates, with a 7% increase in investment banking fee income last quarter, and JP Morgan stock traders having their second-best quarter ever after the tariff-induced volatility in April, the stock is only managing to eke out a small gain on Tuesday.

Revenues were $45.68bn, beating estimates of $43.9bn, the company announced a second dividend increase and a $7bn share buyback. The company also reported that net interest income was slightly lower than expected at $23.3bn vs. expectations of $23.59bn. JPM is forecasting stronger NII for the full year 2025, even though there are some expectations that NII could decline in 2026 due to expected Fed rate cuts. JP Morgan is the biggest lender in the US, so it is particularly sensitive to NII forecasts, and this may explain the muted response in the share price to the earnings report.

Delinquency rate is improving, as US economic resilience is a key theme in H2

This earnings report painted a resilient picture of the US consumer. Credit card delinquencies are down year on year, which is another sign that a strong labour market is a source of consumer strength. There was no update about Jamie Dimon’s future at the bank, and the CEO was more concerned about Jerome Powell’s job, saying that maintaining Fed independence was crucial.

Overall, the JPM stock price had a slow start after the earnings report, and after declining in the pre-market, is now higher. It is unclear why there was a delayed reaction, however an 8% gain in JPM’s share price in a month could explain the muted reaction.  

Citigroup is traders’ favourite

Citigroup also reported earnings today, and the market has reacted well to its better-than-expected report that was buoyed by record trading volumes in Q2. Citigroup’s share price is higher by more than 3% so far today, as investors plough into Citi rather than JPM. Citi’s share price is higher by 20% YTD, and it also has a slightly lower P/E ratio compared to JP Morgan, which may be boosting the share price.