New Deadlines, New Tariffs?
Chart of the Week:
Trump Escalates Tariff Game, Talks Extended into Overtime
Starting July 7, the U.S. began issuing tariff notices to countries that failed to reach trade agreements. While a few saw minor reductions, many faced higher rates than previously set, with most newly announced tariffs aligning with the April 2 levels. No country has yet met the lower 10% rate agreed upon by the U.S. and U.K.
Market Recap 1:
Tariff Extension Eases Market Jitters; Cyclicals Lead Gains
Trump issued tariff notices to countries without trade deals but extended the reciprocal tariff grace period to August 1. While global equities initially pulled back, the deadline extension eased concerns, and confidence in the “TACO” (Trump Always Chickens Out) trade drove a rebound.
Market Recap 2:
Tariff News Weighs on Asia Credit, Lifts Copper Prices; Yen Faces Near-Term Pressure
Although the extended tariff deadline reduced risk-off sentiment and pushed up the U.S. 10Y yield, strong demand in the latest 10Y and 30Y Treasury auctions and renewed Fed rate-cut expectations for September, driven by the June FOMC minutes, helped cap further yield increases. As a result, Treasuries and investment-grade credit saw only mild fluctuations. However, Asian credit came under pressure as most regional economies failed to secure lower tariffs, with rates aligning closer to the April 2 levels.
What’s Trending:
Record-High Money Supply May Support Gold in Coming Months
The Fed’s latest minutes showed broad support for rate cuts this year, though opinions vary on timing and pace. With signs of economic slowing and tariff-driven inflation pressures easing, rate futures now price in a strong chance of a 25 bps cut in September. Although balance sheet reduction is ongoing, the Fed already slowed QT in 1Q, signaling a dovish tilt.
In Focus 1:
Robust Consumption and Steeper Yield Curve Support Bank Stocks
Japan’s 1Q GDP contracted at an annualized rate of -0.2%, mainly due to negative net export contributions. With trade talks unresolved, external demand remains a drag on growth. However, the conclusion of the spring wage negotiations—with a 5.25% average increase—is expected to lift wage data from May onward. Key consumption metrics, including household spending and activity indices, have shown notable improvement, confirming that domestic demand is becoming the main driver of Japan’s economic recovery.
In Focus 2:
Attractive Valuations and Capital Inflows Fuel Outlook for Domestic Sectors, Led by Banks
After significant outflows earlier this year, foreign investors have returned to Japanese equities. Beyond the Buffett effect, Japan’s structural shift from decades of deflation to a reflationary environment—supported by rising wages, recovering consumption, and positive economic growth—has strengthened investor preference for domestic-oriented sectors and driven sustained capital inflows.
