London midday: Stocks flat as investors mull inflation data, eye Fed

The latest economic data reveals a slight decrease in the number of initial jobless claims filed in the United States. The actual number of individuals who filed for unemployment insurance for the first time during the past week was 245,000.

This figure is notably lower than the forecasted 246,000 jobless claims predicted by economic analysts. The dip in initial jobless claims, although marginal, is seen as a positive sign, indicating a stronger labor market and a potentially more robust economy.

Comparing the actual number of initial jobless claims to the previous week’s data, there is a noticeable decrease. The previous week saw 250,000 individuals filing for unemployment insurance for the first time. This week’s figure of 245,000 represents a decrease of 5,000 claims, or 2% from the previous week.

Initial Jobless Claims is one of the earliest U.S. economic data indicators, providing insights into the health of the labor market. While the market impact of this data varies from week to week, a lower than expected reading is generally taken as positive or bullish for the USD. Conversely, a higher than expected reading is considered negative or bearish for the USD.

The slight decrease in initial jobless claims suggests that fewer people are losing their jobs, which could indicate improving business conditions. However, economists will be keeping a close eye on these figures in the coming weeks to determine if this is a one-off occurrence or part of a broader trend towards a strengthening labor market.

In conclusion, the actual number of initial jobless claims for this week came in lower than both the forecasted and previous week’s figures. This data, while only a single indicator, offers a cautiously optimistic outlook for the U.S. labor market and, by extension, the overall economy.

Source: Investing

Tuesday marked the 250th anniversary of the Battle of Bunker Hill, where an American officer ostensibly told the revolutionary forces not to fire against the British until the “whites of their eyes” were visible.

Something similar may be characterizing the Federal Reserve and its wait for confidence that tariff hikes won’t feed through to inflation. For the fourth straight policy meeting on Wednesday, Chair Jerome Powell and his colleagues are expected to hold fire on rate cuts.

While the hard data have, to the surprise of many, failed to show any broad upswing in prices from Trump’s jacked-up import duties, policymakers and private economists alike expect that to materialize at some point. The question then would be whether the impact would be transitory. After flubbing its call on transitory inflation in 2021, the Fed is naturally loath to make the same mistake twice.

“The wait-and-see approach has served them well up until this point,” said Brett Ryan, senior US economist at Deutsche Bank AG. “Why deviate from it now when there’s no pressing reason to do so and with still upside risk to the inflation outlook?”

Last week’s consumer price index report made, arguably, for a tough messaging assignment for Powell in his Wednesday press briefing. The core gauge, which excludes food and energy costs, rose by 0.1% — a figure entirely matching the Fed’s price-stability target. It was the fourth consecutive month that prices undershot forecasts and suggested policymakers had finally achieved the “soft landing.”

“At the moment, the key question is whether the lack of a powerful economic response so far to tariff increases means that the fallout will be less than expected or will simply hit a month or two later originally expected,” Stephen Stanley, chief economist at Santander US Capital Markets, wrote in a note. (He said he’s in the latter camp.)

The Fed’s key document to watch Wednesday will be the Summary of Economic Projections. That’ll contain the first update to Fed officials’ estimates for growth, inflation, unemployment and interest rates since Trump announced his “reciprocal” tariffs in April.

Last time, Fed policymakers penciled in two rate cuts by year-end, and investors will be on watch to see whether that median forecast gets pared back to just one.

With the conflict involving Iran putting about a fifth of global crude supply at risk, Bloomberg Economics has taken a look at the implications should the price of oil jump to $100 a barrel, after having crossed $70.

Crude prices have topped $100 for a sustained period once before, starting in 2011. Any such move now would prove less impactful than then, Jamie Rush, director of global economics, wrote Tuesday. There are at least two factors to consider. First, the oil intensity of GDP has dropped — taking the US as an example, it’s fallen by about about a quarter since 2011. Second, the relative cost of oil compared with everything else has gone down.

“The amount of oil burned to produce the goods and services we consume has fallen dramatically in recent decades,” Rush says. And on the second point, “what matters to businesses and consumers is not the dollar cost of oil, but what you have to give up to buy it,” he says. “If the general level of prices and energy usage had been the same in 2011 as they are now in the US, $100 oil would have felt more like $54 oil.”

Source: Bloomberg Europe

The U.S. and European Union are running out of time to strike a deal on trade tariffs — and analysts say several key sticking points could make an agreement impossible.

Negotiations have been slow since both the U.S. and EU temporarily cut duties on each other until July 9. If a deal is not agreed by then, full reciprocal import tariffs of 50% on EU goods, and the bloc's wide-spanning countermeasures are set to come into effect.

"We're talking, but I don't feel that they're offering a fair deal yet," U.S. President Donald Trump told reporters Tuesday, further dashing hopes of an imminent agreement.

So what's holding things up between the two sides, which had a relationship worth 1.68 trillion euros ($1.93 trillion) in 2024?

Big tech regulation

One bone of contention flagged by experts was the EU's regulation of especially Big Tech companies. The bloc has faced regular criticism from the U.S. after imposing landmark rules on tech giants regarding transparency, competition and moderation.

"Trump's administration actively seeks to use trade negotiations to force the EU to capitulate and weaken the regulatory environment," Alberto Rizzi, policy fellow at the European Council on Foreign Relations, told CNBC.

"However, to Europeans any interference into its domestic regulation of digital platforms is not acceptable and would run counter to its commitment to fight disinformation and hate speech," he added.

Philip Luck, director of the economics program at the Center for Strategic and International Studies (CSIS), echoed the concerns, but said the EU could potentially surrender some ground without undermining their principles.

But the parties "haven't gotten down to that level of conversation yet," he said.

Taxation

Taxes are another major area of disagreement between the U.S. and the EU, Rizzi said, noting that Trump sees tariffs as accounting for supposedly unfair taxes placed on U.S. companies and goods by European countries.

That includes so-called value-added taxes, or VAT, which are levied on each stage of the supply chain as a product's value changes. While very common globally, the U.S. doesn't operate VAT, and Trump has billed it as a trade barrier — and a justification for tariffs.

"However, the EU value-added tax treats domestic and foreign goods exactly in the same way and in Europeans' eyes, taxation is a purely domestic issue that should not be part of any trade discussion," Rizzi said. "Taxation is a red line for the EU in trade discussions."

Mismatched worldviews

A much broader issue between Washington and Brussels appears to be a fundamental lack of trust and alignment on negotiations and their goal.

Jacob Kirkegaard, non-resident senior fellow with the Peterson Institute for International Economics, went as far as saying that "there's only really one sticking point, which is that Trump wants tariffs on the EU, and the EU is not having it."

CSIS's Luck struck a similar tone, flagging that, philosophically, the U.S. and EU have starkly different views going into the talks.

"This [U.S.] administration views these negotiations through a lens of how partners can concede to concessions to help us. They do not view this as a traditional reciprocal trade conversation, where we give something and they give something," he explained.

The EU has a much more traditional view, he said, as demonstrated by its zero-for-zero tariffs suggestion — which faced pushback from the White House.

European politicians are "proud people who think of themselves as being on a equal footing to the United States" who can't make "constant" concessions, nor do they feel like they should have to, Luck said.

Will there be a deal?

The U.S. appears unlikely to accept a zero-for-zero agreement or one where tariffs are lowered for both parties, Luck said.

It's also doubtful the EU can secure a deal like the U.K., which agreed to certain quotas and tariffs on some critical sectors.

That's because firstly, the bloc would likely not accept similar conditions to the U.K., Luck added, but also "because this [U.S.] administration has much bigger, sort of fundamental complaints about European policy."

He does, however, see a scenario where the EU may agree to a lower tariff, such as the 10% currently in place — but only because it has to.

Rizzi also suggested that perhaps a "limited deal that scales back or freezes tariffs on specific sectors" could happen. But, he noted, this does not mean a broad agreement is imminent.

"I'm very skeptical that a deal will happen," Kirkegaard, who is also a senior fellow at Bruegel, said.

"I think it is much more likely that there's no deal, the EU then retaliates, and then we'll have to see whether Trump does with what he did with China: that he retaliates again, and maybe the EU retaliates again."

He warned that de-escalation — and a deal — might only be possible when a certain, very high, threshold of economic pain is met.

Source: CNBC

Iran’s Supreme Leader Ayatollah Ali Khamenei rejected U.S. President Donald Trump’s demands for unconditional surrender in a statement read by a television presenter on Wednesday.

This marks Khamenei’s first public comments since Friday, when he delivered a speech after Israel began bombarding Iran.

"Intelligent people who know Iran, the Iranian nation, and its history will never speak to this nation in threatening language because the Iranian nation will not surrender," Khamenei stated.

The Supreme Leader emphasized that neither peace nor war could be imposed on the Islamic Republic, adding a direct warning to the United States.

"The Americans should know that any U.S. military intervention will undoubtedly be accompanied by irreparable damage," he said.

According to a Reuters report on Wednesday, President Trump and his team are evaluating several options, including potentially joining Israel in strikes against Iranian nuclear facilities.

Source: Investing

Federal Reserve to Keep Rates Unchanged in June 2025

The Federal Reserve is expected to leave interest rates unchanged during its June 2025 meeting, with a 98% probability according to Polymarket.

Economic stability hinges on the Federal Reserve's rate decision, affecting traditional and cryptocurrency markets. Market consensus anticipates no immediate changes, aligning with the broader economic outlook.

The Federal Reserve's Federal Open Market Committee, chaired by Jerome Powell, is expected to keep the fed funds rate stable between 4.25%–4.50%. This forecast is supported by prediction markets and bond futures, which suggest minimal volatility in both crypto and traditional markets. Key players in the financial industry express that this predictable decision reflects ongoing economic stability efforts.

Maintaining current rates has immediate effects on markets. Crypto tokens like Bitcoin and Ethereum generally remain stable in the absence of significant Fed surprises. Bond traders are gearing up for potential rate cuts later in the year, particularly around September 2025. Stability in cryptocurrency and traditional markets is likely amid consistent Federal Reserve policies. This pause in rate adjustments aligns with historical precedents where crypto markets see minimal disruption unless unexpected changes occur.

Cryptocurrency experts and market analysts have largely integrated these expectations into their forecasts. Lindsay Rosner of Goldman Sachs emphasized proximity to economic targets for 2025. These views underscore maintained regulatory stances with minimal adjustments anticipated in the rate context. Official Federal Reserve updates will be released soon after the current meeting, detailing economic outlooks and policies heading into the third quarter of 2025.

While stability is currently expected across both types of markets, any deviation from this prediction could result in immediate ripples affecting financial assets worldwide. As the Federal Committee convenes, stakeholders remain alert to the nuances that could shift economic dynamics and market trajectories. Experts highlight that consistent policies could pave the way for potential technological and financial innovation in the near future.

Source: CryptoSlate