Five bullet points, no more!

… a series to track the global macro cycle and asset allocation (#14)

A last post before some days off …

China’s full July data has been released: factory gate deflation (negative PPI) deepened, while CPI returned to positive territory. The government is supporting demand through household incentives, but retail sales growth slumped. Credit demand stays weak, offset only by government bond issuance. Industrial production is slowing—consistent with US import trends—and housing prices continue to decline year-on-year, though at a slower pace in recent months. Also noticeable are reports that indicate that Chinese authorities have questioned domestic firms like Tencent and ByteDance about their purchases of Nvidia’s H20 chips, citing concerns over information risks. China suffers but always looks to reinforces its autonomy. It progresses fast on the supply side, less so on demand.

Sources: LSEG, SARIM

The equity markets rallied on US inflation data, and the probability of a 25bp Fed rate cut on September 17th now exceeds 90%. The 10y2y curve bear steepened by a few basis points, with each segment contributing roughly equally. While not dramatic, the core CPI measure accelerated on a monthly basis, now at a 3.7% annualized pace, and the year-on-year figure remains well above target. Durable goods prices continue to rise, and our preferred gauge—the cost of a haircut—is still climbing at 3.8% (see graph below). From a purely macro perspective, rates should not be cut. Following a robust PPI report, the University of Michigan survey this afternoon will reveal household inflation expectations. For further reading, here’s a rigorous NBER working paper on identifying CPI turning points (link). The upward trend in CPI is not yet over.

Sources: BLS, SARIM

Trump has extended the delay on tariffs against China, possibly to avoid opening a new front ahead of his weekend negotiations with Putin—potentially covering topics beyond Ukraine. Notably, despite additional tariff revenue, the US deficit hit a new record in July at $291 billion, bringing the fiscal year-to-date total to over $1.6 trillion.

Sources: U.S. Treasury, SARIM

European growth was slightly positive in Q2, in line with expectations. While substitution effects and the details of the US-EU agreement remain unclear, consensus suggests a negative impact to come from tariffs of 0.4 to 0.5 percentage points on European GDP. US-bound exports account for just 3% of the EU’s GDP, and higher tariffs elsewhere could boost the relative competitiveness of European products. Although the USD has lost over 10% against the euro, the dollar has also weakened against most other currencies, even giving the Euro a relative advantage in relative terms. Sectoral effects, however, could be significant. But who would complain if the price of certain wines drops by a few euros? 😊

Two key follow-ups: The BoJ, which is behind the curve, laid the groundwork at its last meeting for further rate hikes, explicitly warning of second-round inflation effects for the first time. It also adopted a less pessimistic view of US tariffs’ impact. This morning’s growth data underscores the need for additional BoJ tightening. Oil prices look definitely capped. OPEC+ (including Russia) agreed to increase production by 548,000 bpd in September, following a modest 138,000 bpd hike in April and larger-than-planned increases of 411,000 bpd in May, June, and July, and 548,000 bpd in August. India will continue importing Russian oil. The Trump-Putin summit might change the oil game, but we do not think so, the supply glut is there to stay.