Oil Falls on Doubts Trump´s Russia Plan Will Reduce Supplies

Commodity

Russia-Ukraine Conflict

Summary:

Trump’s plan to pressure Russia into a ceasefire with Ukraine that was released Monday didn’t directly target energy infrastructure, a decision that brought some bears off of the sidelines.

Oil fell as the dollar strengthened and traders doubted US President Donald Trump’s plan to pressure Moscow would disrupt Russian exports.

West Texas Intermediate slid 0.7% to settle above $66, extending Monday’s losses. Trump told reporters the US will impose a 19% tariff on goods from Indonesia after teasing the deal earlier in the day. The dollar strengthened, making commodities priced in the currency less attractive.

Trump’s plan to pressure Russia into a ceasefire with Ukraine that was released Monday didn’t directly target energy infrastructure, a decision that brought some bears off of the sidelines. The administration intends to impose 100% tariffs on Russia only if the hostilities don’t end with a deal in 50 days, allaying fears of near-term supply tightness.

“Since the start of the Ukraine war, it has become evident that halting Russian oil trade by targeting Russian sellers or the numerous shippers and payment intermediaries is nearly impossible,” JPMorgan Chase & Co. analysts led by Natasha Kaneva wrote in a note.

Prices briefly popped on comments by US Energy Secretary Chris Wright that the US is considering creative ways to refill the Strategic Petroleum Reserve, before resuming their decline.

Futures also came under pressure as investors liquidated their positions in WTI’s so-called prompt spread ahead of the contract expiry. US crude’s prompt spread — the difference between its two nearest contracts — held steady at around $1.16 a barrel in backwardation. While that’s still a bullish pattern, with nearer-term prices above those further out, it’s notably lower than Monday’s peak of $1.49.

The gauge is set to be closely followed as the market’s focus shifts back to supply. The Organization of the Petroleum Exporting Countries partly pushed back against an International Energy Agency report that Saudi Arabia’ crude production surged in June. The cartel’s figures show Riyadh complied with its quota. The kingdom last week said excess production was put in storage and wasn’t delivered to the market.

US crude has lost about 7% this year, hurt by the fallout from Trump’s trade war and a drive by OPEC+ to restore curbed supplies. These headwinds have fanned concern output may run ahead of consumption, creating a glut, although current market metrics point to underlying support.

In Asia, traders assessed a relatively strong showing from crude processors in China, the world’s largest oil importer. Refining throughput rose to more than 15.2 million barrels a day in June, the strongest pace since September 2023, according to Bloomberg calculations based on government figures. A gauge of apparent demand also improved.

Still, “investors appear to be discounting China-related strength, viewing it as front-end loading ahead of potential tariffs rather than a sustainable demand signal,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “The overriding focus for crude remains the expected oversupply in the second half of the year.”

Source: Bloomberg

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Manuel

Economic

Central Bank

June's Consumer Price Index (CPI) report likely gives the Federal Reserve room to continue its wait-and-see approach to cutting rates amid uncertainty over how President Trump's tariffs will impact inflation.

On a "core" basis, which excludes volatile food and energy costs, CPI increased 0.2% from the previous month, slightly lower than economists' expectations but ahead of May's 0.1% gain.

Following the report, investors were placing a 97% probability on the Fed holding rates steady at its July meeting, up from 93% on Monday, according to the CME FedWatch Tool. Meanwhile, the chance of a September rate cut dropped sharply after the release, falling below 60% initially and inching closer to 50% as markets digested the data. June Inflation Data Reaffirms Fed Pause as Tariff Uncertainty Grows_1

June Inflation Data Reaffirms Fed Pause as Tariff Uncertainty Grows_1

"The Fed’s ability to cut rates was resting heavily on today’s inflation print," Seema Shah, chief global strategist at Principal Asset Management, wrote following Tuesday's release.

"With inflation coming in softer than expected for the fifth month in a row, it may initially seem like there is still little sign of the tariff-induced boost to inflation that the Fed has been expecting," she continued, referring to the slower-than-expected monthly gain in core prices. "However, with increases in categories like household furnishings, recreation, and apparel, import levies are slowly filtering through to core goods prices."

Indeed, apparel prices rose 0.4% in June, and footwear jumped 0.7% after several months of declines. Furniture and bedding prices also climbed 0.4%, reversing the 0.8% drop recorded in May, a potential indication that tariff-related cost pressures are beginning to reach consumers.

Shah noted that the full inflationary impact of tariffs will take time to materialize, particularly as many goods were front-loaded ahead of the latest rollouts.

"With higher tariffs being announced, it would be wise for the Fed to remain on the sidelines for a few more months at least," she added. June Inflation Data Reaffirms Fed Pause as Tariff Uncertainty Grows_2

June Inflation Data Reaffirms Fed Pause as Tariff Uncertainty Grows_2

Greg Daco, chief economist at EY, echoed that view, noting that the full effects of tariffs have yet to unveil themselves. He believes any resulting price increases will likely be short-lived.

"A lot of businesses are talking about rapidly passing on the higher tariff shock from these higher duties. So we're anticipating a rather swift pass-through," he told Yahoo Finance. "But if we are in an environment where there are staggered tariffs over the next year, then there is a risk of more inflation persistence. And I think that's the key risk for the US economy right now."

The Fed itself has appeared divided on when to lower interest rates. Minutes from its June policy meeting revealed a split committee, with "most" officials supporting at least one rate cut this year while "a couple" signaled they'd be open to moving as early as July. Others preferred to hold rates steady through year-end.

Meanwhile, President Trump has continued his public campaign for significantly lower rates, writing on Truth Social: "Fed should cut Rates by 3 Points. Very Low Inflation. One Trillion Dollars a year would be saved!!!"

The next major inflation test for the Fed comes Wednesday, with the release of the Producer Price Index (PPI), a measure of how much prices are changing for what businesses sell. Later this month, investors will shift focus to the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index.

But as Wall Street has consistently been reminded, the Fed’s cautious stance is being driven not just by recent inflation data but also by lingering uncertainty around President Trump's evolving tariff policy.

Ryan Sweet, chief US economist at Oxford Economics, said that if Trump's proposed Aug. 1 tariffs go into effect, the inflationary impact on goods prices could take several months to appear.

Sweet, who is currently forecasting the next rate cut in December, said this would likely keep the Fed on hold unless the labor market weakens significantly.

"The new tariffs, if implemented, could tilt the risks toward the next rate cut occurring later than in the baseline," the economist said. "The Fed could be comfortable waiting a little too long and then trying to catch up with more aggressive cuts because of the uncertainty around tariffs."

Source: Yahoo Finance

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Devin

Central Bank

U.S. Treasury Secretary Scott Bessent confirmed on Tuesday that a "formal process" is underway to find a potential successor to Federal Reserve Chairman Jerome Powell.

In an interview with Bloomberg Surveillance, Bessent remarked, "There are a lot of great candidates, and we’ll see how rapidly it progresses."

He also noted that it would be confusing for Powell to stay on at the Federal Reserve after his term as chair concludes.

Since last month President Donald Trump has intensified his criticism of Federal Reserve Chairman Jerome Powell, repeatedly accusing him of mismanaging monetary policy and calling for aggressive interest rate cuts.

Trump has argued that Powell is acting too slowly to respond to economic conditions and said, “Maybe I should go to the Fed… Am I allowed to appoint myself at the Fed? I'd do a much better job than these people.”

He has labeled Powell with a series of insults, calling him “stupid,” “too late,” “a numbskull,” and demanding the Fed slash rates by a full percentage point to stimulate the economy.

Trump’s attacks continued into July, growing even sharper. On July 8, he declared that Powell “should resign immediately.” A few days later, he criticized Powell over cost overruns tied to a $2.5 billion renovation project at the Federal Reserve, referring to him as a “knucklehead” and “stupid guy.”

Last week, Office of Management and Budget Director Russell Vought also criticized Federal Reserve Chair Jerome Powell for a renovation project he called “too lavish,” referring to it as “Versailles on the National Mall.”

On CNBC, Vought cited “fundamental mismanagement” at the Fed.

Meanwhile, National Economic Council Director Kevin Hassett, a potential successor to Powell, added, “If there is cause to fire Powell, Trump has the authority to do so.” The criticism appeared coordinated, with other figures like Fed candidate Kevin Warsh and Vice President J.D. Vance joining in.

Trump also reiterated his demand for rates to be cut to around 1%. Members of his team suggested they might review the renovation project as a possible justification to remove Powell “for cause.”

Source: Zero Hedge

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Damon

Economic

Commodity

The “major statement” on Russia that Trump earlier hyped up turned out to be a clumsy attempt to thread the needle between radically escalating US involvement in the Ukrainian Conflict and walking away from it. His new three-pronged approach includes:

1) the rapid dispatch of up to 17 Patriot missile systems to Ukraine;

2) more arms sales to NATO countries who’ll in turn transfer them to Ukraine; and

3) up to 100% secondary sanctions on Russia’s trading partners if a peace deal isn’t reached in 50 days.

In the order that they were mentioned, each corresponding move is aimed at:

1) bolstering Ukraine’s air defenses in order to decelerate the pace of Russia’s continual on-the-ground gains;

2) helping Ukraine reconquer some of its lost land; and

3) coercing China and India into pressuring Russia into a ceasefire.

The first two goals are self-explanatory, with the second being unrealistic given the failure of Ukraine’s much more heavily armed counteroffensive in summer 2023, while the third requires some elaboration.

China and India’s large-scale imports of discounted Russian oil have served as crucial valves from Western sanctions pressure by helping to stabilize the ruble and thus Russia’s economy in general. Even though these imports also help their own economies, Trump is wagering that they’ll at the very least curtail them in order to avoid his threatened 100% secondary sanctions. He might make an exception for the Europeans and Turks, who also purchase Russian resources, on the pretext of them arming Ukraine.

By focusing on Russia’s two largest energy importers, Trump is trying to greatly reduce the budgetary revenue that the Kremlin receives from these sales while sowing further divisions within the RIC core of BRICS and the SCO, expecting as he is that at least China or India will partially comply at minimum. Prior to his deadline, he envisages that their leaders – who are years-long close friends with Putin – will try to pressure him into the ceasefire that the West wants, though it’s unknown whether they’d succeed.

In any case, Trump is poised to place himself in a dilemma entirely of his own making if one of them doesn’t comply with his demand to stop trading with Russia, or if one or both only do so in part. He’d either have to delay the imposition of his threatened 100% secondary sanctions on all their imports, lower the level, or reduce the scale to only apply to their companies that still trade with Russia otherwise there could be serious blowback, especially if China is the one that doesn’t fully comply.

His preliminary trade agreement with China, which he described in early May as a “total reset” in their ties, could collapse and thus raise prices across the board for Americans. As regards India, their ongoing trade talks could collapse too, which could create an opening for advancing the nascent Sino-Indo rapprochement whose existence was cautiously confirmed by its top diplomat on Monday. Each case of blowback, let alone both of them at the same time, could be very detrimental to American interests.

Trump’s attempt to thread the needle therefore isn’t just clumsy, but it could also majorly backfire, thus raising the question of why he agreed to do so.

It looks like he was misled into thinking that Putin would agree to a ceasefire that doesn’t resolve the root security-related causes of the conflict in exchange for a resource-centric strategic partnership.

When Putin declined, Trump took it personally and imagined that Putin was playing him, which led to Trump’s advisors manipulating him into this escalation as vengeance.

Source: Zero Hedge

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Adam

Economic

JPMorgan Chase (JPM) CEO Jamie Dimon said Tuesday that the independence of the Federal Reserve is "absolutely critical” for Jerome Powell and whoever succeeds him as chairman of the central bank.

“Playing around with the Fed can often have adverse consequences,” Dimon told reporters after JPMorgan reported its first-quarter earnings, and can produce “the absolute opposite of what may be hoping for.”

Wall Street is paying close attention to the drama unfolding in Washington, D.C. as President Trump and other White House officials intensify their pressure on Powell to lower interest rates and conduct a search for his replacement. Powell’s term as chair ends in May.

Trump has hammered Powell for months over what Trump viewed as a refusal to ease monetary policy for political and personal reasons. At one point he mused publicly about removing him, before assuring that he wouldn’t do so.

Trump’s allies in recent weeks have also used another tactic to turn up the pressure on Powell: They have invoked a $2.5 billion renovation of the Fed’s headquarters as a way to question the chair’s management of the institution and whether he told Congress the truth about the project.

Different administration officials are sending mixed messages about how far they may be willing to go with Powell.

National Economic Council Director Kevin Hassett said Sunday on ABC News's "This Week" that whether the president has the legal authority to fire Powell before his term is up next May "is being looked into" and that "certainly, if there's cause, he does."

But Treasury Secretary Scott Bessent told Bloomberg Tuesday that the president “said numerous times he's not going to fire Jay Powell” and compared Trump’s public pressure to former college basketball coach Bobby Knight “working the refs.”

“President Trump seems to prefer the Bobby Knight school,” he said.

Bessent also said Tuesday central bank independence is important and noted that “there's a formal process that's already starting” to find Powell’s replacement and that he hopes Powell also decides to leave the Fed board when his term as chair is up.

"Traditionally, the Fed chair also steps down as a governor, and there's been a lot of talk of a shadow Fed chair causing confusion in advance of his or her nomination, and I can tell you I think it would be very confusing for the market for a former Fed chair to stay on also."

Bessent is considered among the possible successors to Powell, along with Hassett, former Fed governor Kevin Warsh, and Fed governor Christopher Waller.

“There are a lot of great candidates, and we'll see how rapidly it progresses,” Bessent said, without confirming if he was in fact under consideration. “It's President Trump's decision, and it will move at his speed."

As far as who the next pick will be, Dimon said "Let's just see who the president picks, and you'll be the judge of that when you see the choice…But I would say it is important they be independent."

Dimon also noted the president has said he “is not going to remove Jay Powell.”

Another big bank executive, Wells Fargo (WFC) CFO Mike Santomassimo, was also asked Tuesday about the market risk of recent Fed pressure.

He rebuffed concerns. "I think you haven't really seen that'd be a major factor at this point relative to what we're seeing from a risk perspective," Santomassimo told reporters.

Source: finance.yahoo

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Adam

Bond

U.S. Treasury yields will trade in a tight range over the coming months, with a strong majority of bond strategists surveyed by Reuters predicting demand for Treasuries lagging an expected deluge of new supply.

President Donald Trump's sweeping tax-cut and spending bill, which cleared its final hurdle in the U.S. Congress earlier this month, is expected to add $3.4 trillion to the nation's $36.2 trillion debt pile, according to the nonpartisan Congressional Budget Office.

Inflation risks from a renewed U.S.-led trade war, which includes Trump threatening a 30% tariff on imports from Mexico and the European Union starting August 1, has also pushed the U.S. "term premium" - the compensation investors demand for holding longer-term bonds - higher.

With net Treasury issuance expected to approach nearly half a trillion dollars this quarter a rising risk premium makes it considerably harder to finance those expenses at higher interest rates.

Nearly 77% of bond strategists, 23 of 30, responding to a July 10-15 Reuters survey said demand for U.S. Treasuries would lag supply slightly both this quarter and the next.

Those respondents generally held a higher yield view than the wider monthly panel of 71 bond yield forecasters. Most bond strategists in Reuters surveys over the past year have repeatedly overestimated declining yields.

"I think rates will over time structurally drift higher until either they're too restrictive in the real economy or the administration...has to rein in spending in order to right-size the budget," said Connor Fitzgerald, fixed income portfolio manager at Wellington Management.

"While the government will be fine financing all the supply they need it will, over time, come at a slightly higher risk premium or cost."

Sustained expectations the U.S. Federal Reserve will cut interest rates is one main reason strategists expect the benchmark 10-year Treasury yield , currently 4.42%, to roughly hold that level in coming months, falling a bit to 4.40% by end-September and 4.30% by year-end.

"We think we're going to be in a range-trade for the next few months, maybe a marginal drop by year-end - not a huge move. There's a limit to the sell-off in the long end, but then there's a limit to a rally and lower yields too," said Jason Williams, director of U.S. rates research at Citi.

"There are certainly risks the unemployment rate can go higher and though we haven't seen much tariff-led inflation yet there are definitely risks tariffs will cause a one-time price shift and that really complicates the Fed's reaction function."

U.S. consumer prices likely rose sharply in June, potentially signaling the start of a long-anticipated tariff-driven rise that could limit how much the Fed can cut rates.

That would further strain the already-tense relationship between Trump and Fed Chair Jerome Powell.

"A key risk is the impact inflation will have on consumer spending and the extent to which firms will pass that on. If firms are unable to absorb the cost pressures and pass them off to consumers...that would be a major factor in driving an economic slowdown," said Matthew Vegari, head of research at Clearwater Analytics.

The interest-rate-sensitive 2-year Treasury yield , currently 3.90%, will decline 27 basis points to 3.63% at year-end, survey medians showed.

If realized, that would steepen the yield curve, widening the spread with the 10-year yield to 67bps from around 50bps.

Source: Reuters

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Adam

Forex

The British pound has edged up higher on Tuesday. In the European session, GBP/USD is trading at 1.3453, up 0.21% on the day. Earlier, GBP/USD touched a low of 1.3416, its lowest level since June 23.

UK inflation expected at 3.4%

All eyes will be on the UK inflation report for June, which will be released on Wednesday. Headline CPI is expected to remain unchanged at 3.4% y/y, as is core CPI at 3.5%. Monthly, both the headline rates are expected to stay steady at 0.2%.

Has the BoE's battle to lower inflation stalled? The BoE was looking good in March, when inflation eased to 2.6%, but CPI has rebounded to 3.4%, well above the BoE's inflation target of 2%. Services data has been especially sticky, although it dropped to 4.7% in May, down from 5.4% a month earlier.

At 3.4%, inflation is stuck at its highest level since February 2024 and that will complicate plans at the BoE to renew interest rate cuts in order to kick-start the weak UK economy. The central bank has lowered rates twice this year and would like to continue trimming the current cash rate of 4.25%. The Bank meets next on Aug. 7 and Wednesday's inflation data could be a significant factor in the rate decision.

US CPI expected to accelerate

In the US, if June inflation data rises as is expected, fingers will quickly point to President Trump's tariffs as finally having an impact. Recent inflation reports have not shown a significant spike higher due to the tariffs, which were first imposed in April. However, the tariffs may have needed time to filter throughout the economy and could be felt for the first time in the June inflation reading.

The Fed meets next on July 30, with the markets pricing in a 95% chance of a hold, according to CME's FedWatch. For September, the odds of a rate cut stand at 59%. Today's inflation report could cause a shift in these numbers.