Canada's Annual Inflation Rate Eases To 1.7% In July, Core Measures Stay Firm

U.S. Treasury Secretary Scott Bessent said on Tuesday that the status quo situation with China was "working pretty well" as the world's two biggest economies have in recent days extended a truce in their bitter trade dispute surrounding tariffs.

KEY QUOTES

"China is right now the biggest revenue line in the tariff income," Bessent said in an interview on Fox News' "The Ingraham Angle" show."We have had very good talks with China, I imagine we will be seeing them again before November," he added."I think right now the status quo is working pretty well."

WHY IT'S IMPORTANT

Last week, Washington and Beijing extended a tariff truce for another 90 days to November, staving off triple-digit duties on each other's goods.The two sides initially announced a truce in their trade dispute in May after talks in Geneva, agreeing to a 90-day period to allow further talks. They met again in Sweden in late July after which U.S. negotiators returned to Washington with a recommendation that President Donald Trump extend the deadline.

CONTEXT

Washington has also been urging Beijing to stop buying Russian oil to pressure Moscow over its war in Ukraine, but Trump said on Friday there were no imminent plans to impose retaliatory tariffs on China, in light of talks on ending the war.Trump held a summit with Russian President Vladimir Putin in Alaska on Friday and a meeting with Ukrainian President Volodymyr Zelenskiy, as well as NATO and European leaders, at the White House on Monday.

After those meetings, he said Zelenskiy and Putin will hold a bilateral meeting before a trilateral meeting that would also include Trump.Bessent was asked on Fox News about reporting that Budapest could be a possible city for the three-way talks. He said that "could be" the case but that the bilateral meeting needed to happen first.

Source: Yahoo Finance

Key Points:

Federal Reserve Likely to Accelerate Interest Rate Cuts

Monex USA reports suggest the Federal Reserve may quicken interest rate cuts after Jerome Powell's term, influencing traditional and crypto markets.Potential accelerated rate cuts could weaken the USD and boost equities and cryptocurrencies like BTC and ETH, amid increased market liquidity expectations.

Federal Reserve's Potential Rate Cuts

The Federal Reserve might soon accelerate interest rate cuts following Jerome Powell's term. This speculation, highlighted by Monex USA, comes amid growing market anticipation of monetary policy shifts. Investors are adjusting expectations of financial easing.Monex USA highlights the possibility of aggressive rate reductions. Jerome Powell, the current Chair, is integral to these discussions. No official statements on leadership succession have been reported; this analysis derives from market interpretations.

Market Reactions and Predictions

Immediate market reactions include a weaker USD and high S&P 500 levels. Investors anticipate financial easing as liquidity conditions may improve. Cryptocurrencies could see enhanced activity based on historical patterns linked to rate reductions.Treasury Secretary Scott Bessent noted, “We should see aggressive cuts in the near future while the Federal Reserve faces some scrutiny over its governance.”

Cryptocurrency Trends Amid Rate Cuts

Historically, swift rate cuts have spurred BTC and ETH rallies, benefiting DeFi protocols. Potential financial implications include increased TVL and decentralized inflows. Analysts monitor for further signals from the Federal Reserve amidst shifting economic landscapes.Raoul Pal, CEO of Real Vision, remarked, "Rate cuts and liquidity events drive crypto market cycles."

Source: CryptoSlate

President Donald Trump said on Tuesday that Federal Reserve Chair Jerome Powell is "hurting" the housing industry "very badly" and repeated his call for a big cut to U.S. interest rates.

"Could somebody please inform Jerome "Too Late" Powell that he is hurting the Housing Industry, very badly? People can't get a Mortgage because of him. There is no Inflation, and every sign is pointing to a major Rate Cut," Trump wrote on Truth Social.

Inflation is well off the highs seen during the pandemic, but some recent data has given a mixed picture and inflation continues to track above the Fed's 2% target range.

Trump's latest salvo against Powell comes ahead of the Fed chair's Friday speech at the annual Jackson Hole central banking symposium, where investors will cleave to his every word for hints on his economic outlook and the likelihood of a coming reduction to short-term borrowing costs.

The Fed's next policy meeting will be held on September 16-17.

Investors and economists are betting the Fed will cut rates by a quarter of a percentage point next month with perhaps another reduction of similar size to come later in the year, far less than the several percentage points that Trump has called for.

Trump's Treasury secretary, Scott Bessent, has promoted the idea of a half-point rate cut in September.

The U.S. central bank cut its policy rate half a percentage point last September, just before the presidential election, and trimmed it another half of a percentage point in the two months immediately following Trump's electoral victory, but has held it steady in the 4.25%-4.50% range for all of this year. Fed policymakers have worried that Trump's tariffs could reignite inflation and also felt the labor market was strong enough not to require a boost from lower borrowing costs.

MIXED INFLATION PICTURE

The Consumer Price Index rose 0.2% in July, with the 12-month rate through July at 2.7%, unchanged from June. Core CPI, which strips out the volatile food and energy components, increased 3.1% year-over-year in July. Based in part on that data, economists estimated the core Personal Consumption Expenditures Price Index rose 0.3% in July. That would raise the year-on-year increase to 3% in July. The PCE is a key measure tracked by the Fed against its own 2% inflation target.

And despite a moderate rise in overall consumer prices in July, producer and import prices jumped, a suggestion that higher consumer prices could be coming as sellers pass higher costs onto households. The inflation picture comes amid a picture of a possible cooling in the labor market, with declines in monthly job gains, although the unemployment rate, at 4.2%, remains low by historical standards.

Trump's online attacks on the Fed and Powell more typically focus on the cost that higher interest rates mean for U.S. government borrowing. High mortgage rates are a key pain point for potential homebuyers who are also facing high and rising home prices due to a dearth of housing supply.

Mortgage rates can be loosely tied to the Fed's overnight benchmark rate but more closely track the yield on the 10-year Treasury note, which typically rises and falls based on investors' expectations for economic growth and inflation. A Fed rate cut does not always mean lower long-term rates -- indeed after the Fed cut rates last September, mortgage rates -- which had been on the decline -- rose sharply.

In recent weeks the most popular rate - the 30-year fixed mortgage rate -- has drifted downward but -- at around 6.7% most recently -- is still much higher than it had been before inflation took off after the pandemic shock and the Fed began its rate-hike campaign in 2022.

Source: Reuters

Japan’s exports sustained their steepest drop in more than four years as US tariffs continued to weigh on global commerce, clouding the outlook for economic growth at a time when personal spending remains unsteady.Exports fell 2.6% in value in July from a year earlier, sliding more than the median forecast of a 2.1% decline, the Ministry of Finance reported Wednesday. The downturn, led by cars, auto parts and steel, was the biggest since February 2021. Export volumes rose by 1.2%, suggesting exporters are continuing to absorb US tariff costs by cutting selling prices to preserve market share.

Imports decreased 7.5% and the trade balance flipped to a deficit of ¥117.5 billion.The latest slide in exports may strengthen concerns over whether Japan’s economy can continue to expand as US President Donald Trump’s tariffs weigh on global trade. While the economy has so far managed to eke out growth in the last five quarters despite weakness in domestic consumption, further drops in exports could drag the economy into reverse.

Continued falls in exports may also encourage the Bank of Japan to adopt a cautious stance. The ability of the economy to show resilience in the face of the US duties is a factor in the calculus for the BOJ as it considers the best timing for its next interest rate hike. The BOJ is widely expected to stand pat when it next sets policy on Sept. 19.The report showed that exports to the US dropped by 10.1% last month from a year earlier, with shipments of vehicles and auto parts plunging 28.4% and 17.4%, respectively. Shipments to the US of semiconductor manufacturing equipment fell 31.3%.

In April the US imposed a 25% tariff on imports of Japanese cars and auto parts and a 10% duty on most other goods. A levy on imports of steel was doubled to 50% in early June.The levies on cars and broad-based goods will be assessed at 15% under a trade deal reached in late July, although it may take some time for that deal to be implemented. Written documentation on the trade deals agreed to with Japan and South Korea are “weeks away,” US Commerce Secretary Howard Lutnick said Tuesday in an interview with CNBC.

Beyond the US, exports to China fell 3.5%, while shipments to Europe declined by 3.4%. The yen averaged 145.56 per the dollar in July, 8.9% stronger than a year earlier, according to the Finance Ministry.

Source: Bloomberg Europe

The dollar got off on the front foot on Wednesday following two days of gains as traders awaited the Federal Reserve's Jackson Hole annual symposium later this week for clues on the path for monetary policy.

A speech on Friday by Fed Chair Jerome Powell is the main focus, with the market watching for any push back against market pricing of a rate reduction next month.

Traders currently place 84% odds on a cut next month, and expect around 54 basis points of reductions by year-end.

The dollar index , which measures the currency against six major counterparts, edged up to 98.393 early on Wednesday, the highest since August 12. It had gained about 0.4% in the first two days of this week.

"Given the relatively high bar for Powell to meet, there's a bit of risk being baked into the markets that he leans to the hawkish side and the proverbial rug gets pulled from beneath investors," said Kyle Rodda, an analyst at Capital.com.

In Asian hours, the Reserve Bank of New Zealand sets policy later in the day, with a large majority of economists predicting a quarter-point cut to the cash rate.

The New Zealand dollar drooped close to Tuesday's nearly two-week low, last changing hands at $0.5895.

"There's little reason for RBNZ to keep rates on hold," said Rodda.

"Inflation is within its target band, and although it is no longer mandated to target the labour market, the unemployment rate is at a post-COVID high."

For the Fed, traders ramped up bets for a cut on September 17 after a surprisingly weak payrolls report at the start of this month, and were further encouraged after consumer price data showed limited upward pressure from tariffs.

However, a hotter-than-expected producer price reading last week complicated the policy picture.

Powell has said he is reluctant to cut rates due to expected tariff-driven price pressures this summer.

The Fed will release minutes from its July 29-30 meeting later on Wednesday, when the central bank held rates steady, although they may offer limited insight as the meeting came before the weak jobs numbers.

Source: Reuters

Japan's exports dropped 2.6% year over year in July, their steepest drop since February 2021.

The fall was sharper than the 2.1% contraction expected by economists polled by Reuters and compared to the 0.5% drop seen in June.

Imports to the world's fourth-largest economy sank 7.5%, compared to the 10.4% fall expected by the Reuters poll.

Exports to the U.S. also continued to fall, dropping 10.1% in July and slightly softer than June's decline of 11.4%.

Japan reached a deal with Washington on July 22 that saw its so-called "reciprocal tariff" lowered to 15% from the 25% threatened by U.S. President Donald Trump earlier that month.

The trade readings come after Japan reported its second-quarter GDP figures, which saw the country beat expectations as net exports drove growth.

Japan's economy grew by 0.3% quarter over quarter and 1.2% on a yearly basis in the second quarter as exports remained resilient, even as imports fell.

Hirofumi Suzuki, Chief FX Strategist at Sumitomo Mitsui Banking Corporation, told CNBC after the GDP release that while exports have been volatile, there was a higher level of automobile shipments in April to June.

This may be due to an increase in catch-up shipments after production recovered from an accident at an automobile parts manufacturer in March, Suzuki said.

Tariffs on automobiles were cut from 25% to 15% as part of Japan's trade deal. Autos are one of Japan's largest exports, and make up its largest export to the U.S. in 2024.

The value of auto exports — which includes cars, buses and trucks — to the U.S. plunged 28.4% year over year in July, a steeper fall compared to the 26.7% decline in June.

While the effects of the 15% tariffs will not show up until the August data, analysts have warned about their impact on the Japanese economy.

Senior economist Masato Koike at Sompo Institute Plus said in an Aug 14 note that there was a possibility that Japan could enter a recession, depending on the magnitude of the impact of tariffs.

Source: CNBC