Today's video perspective: Tariffs Return: 90-Day Pause Ends - What Markets Need to Know
July 10 – Stock futures came under modest pressure overnight as Wall Street contemplates the implications of a 50% tariff on Brazil, in addition to a new 50% tariff on copper imports. Yet, the VIX traded at four-month lows below 16 overnight, while the dollar index trades near 97.6. Yields on 10-year Treasuries are trading near 4.35%, while yields on 2-year Treasuries are trading near 3.87%. Crude oil prices are 2% lower this morning, while the grain and oilseed sector is mixed, with corn and soybean prices resuming their downward trend on big crop ideas, while wheat prices bounce on ideas that Russian yields aren’t doing as well as expected, and on some China wheat buying rumors.
First-time claims for unemployment benefits fell to 227K in the week ending July 5, down from 232K the previous week, and below analyst expectations that they would rise to 238K. The four-week moving average dropped to 235.5K claims, down from 241.25K the previous week. Continuing claims for the week ending June 28 rose by another 10K to 1.965 million, which is its highest level since November 13, 2021. This is after the previous week’s number was revised down by 9K, so in essence a 1K net gain. The four-week moving average for continuing claims rose by 3.5K to 1.955 million, which is at its highest level since November 20, 2021. Initial claims filed by former Federal civilian workers in the week ending June 28 totaled 438, down another 15 from the previous week. Continuing claims filed by former Federal civilian workers in the week ending June 21 totaled 6,949, down 154 from the previous week.
Tensions remain high with China. I don’t see it bowing to the demands of President Trump any time soon, although it has given in some areas to receive necessary items needed to sustain its economic and military objectives. For example, it is widely believed that it agreed to a six-month window for shipping rare earth minerals and magnets to the U.S. auto industry in exchange for receiving highly coveted chip products from the United States for its industry and military use. Its economy is hurting, but China is taking a long-view approach to the current conflict, knowing that Trump will be out of office at some point.
China’s consumer price index rose 0.1% year-on-year in June, reversing a 0.1% decline posted over the three previous months. While miniscule, it is the first sign of inflation seen since January, largely driven by e-commerce shopping festivals and expanded subsidies for consumer goods. Housing rose 0.1% on the year, while clothing rose 1.6%, healthcare added 0.4%, and education rose 1.0%. Those increases were largely offset by a decline in transportation costs that fell 3.7% on the year. Food prices dropped for the fifth consecutive month in June, although the pace of decline slowed to 0.3% deflation rate. Core inflation that excludes the more volatile food and energy sectors rose by 0.7% year-on-year, posting its largest growth pace in 14 months. The CPI actually fell 0.1% though on a monthly basis, marking the fourth consecutive month of declines, and reflecting a struggling economy. China’s producer price index dropped by 3.6% year-on-year. It’s been in the red now since September 2022, making this the 33rd consecutive month of contracting prices at the wholesale level. This provides a significant indicator on the lack of health in China’s economy.
President Trump added a number of countries to his list of reciprocal tariffs on Wednesday, including a 50% tariff on products coming from Brazil. This comes after Brazil was critical of the United States when it hosted the BRICS meeting last week, which may have biased President Trump’s decision. Trump also appears to be angry about President Luiz Inacio Lula da Silva imprisonment of former President Jair Bolsonaro, long considered to be a friend of Trump. The tariff is set to go into effect on August 1, so we may see an agreement to roll back the tariff before then. Don’t be surprised if the U.S. food industry lobbies the White House for a waiver on beef. Protein supplies are tight in the United States, necessitating record imports to fill the demand. Year-to-date imports of Brazilian beef through May total 666 million pounds, or 27% of this year’s import total. That accounts for roughly 4% of U.S. beef consumption, but 4% is big at a time when total U.S. protein supplies remain tight. Add to this the fact that the U.S. border with Mexico was again closed this week after a New World Screwworm was identified just 370 miles south of the U.S. border, further tightening the beef supply. The United States is the largest consumer of coffee in the world, with 34% of its imports originating in Brazil. Coffee prices were already registering a year-on-year inflation pace of 32.4% in May, due to climate issues that had curtailed supplies, whereas this will add to that price pressure. Other coffee suppliers to the United States face new tariffs as well, including 10% on Columbia, 20% on Vietnam, and 32% on Indonesia. This looks to make coffee one of the products most impacted by the tariffs, along with steel, aluminum, and copper.
