
US: Stronger-than-expected labour data faded hopes of the Fed’s earlier rate cut. US nonfarm payroll came in at 147k in June, surpassing both May’s upwardly revised figure of 144k and market expectations of 106k. Unemployment rate declined to 4.1% in June from 4.2% in May, defying consensus forecast that anticipated a rise to 4.3%. We believe the stronger-than-expected labour report has diminished the likelihood of the Fed’s earlier rate cut.
During the European Central Bank’s annual forum in Sintra, Portugal on 1 Jul, Fed Chair Jerome Powell appeared to have softened his stance about an earlier July cut. However, Powell has maintained the view that US inflation would be higher in the coming months because of tariffs. Hence, the CPI data on 15 Jul will also be important. According to median expectations, headline and core inflation are expected to increase to 0.3% m/m in June from 0.1% in May. Before that, the New York Fed’s inflation expectation gauges, due on 8 Jul, will be key in reassuring that the inflationary impact of the tariffs will be one-off.
Given the US-Vietnam trade deal on 2 Jul and the looming 9 Jul deadline for the reciprocal tariff pause, markets are also alert to similar trade announcements with India and the European Union. Negotiations are progressing with South Korea, Canada, and Thailand but they may need extensions.
The House of Representatives passed Trump’s “One Big Beautiful Bill” by a vote of 218 to 214 on 3 Jul, just in time for the 4 Jul deadline that he set. The legislation extends Trump’s 2017 tax cuts and delivers new tax breaks that he promised during his 2024 presidential campaign (e.g. boosting military spending and funding a mass migrant deportation drive). It also cuts health and food safety net programs and reverses much of Biden’s green energy incentives. With fiscal deficit set to widen, we believe this outcome could lead to fiscal deficit financing worries.

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