The US merchandise-trade deficit shrank in June by more than expected, reflecting a broad decline in imports as the pre-tariff rush to secure goods unwinds.

The shortfall in goods trade narrowed 10.8% from the prior month to $86 billion…

Source: Bloomberg

This deficit was smaller than all economists’ forecasts…

Source: Bloomberg

Imports fell 4.2% to $264.2 billion, including the smallest value of inbound shipments of consumer goods since September 2020.

Imports of industrial supplies and motor vehicles also fell. US exports of merchandise decreased 0.6%.

Source: Bloomberg

In addition to the merchandise-trade data, the latest advance economic indicators report showed retail inventories rose 0.3% last month, the most since September and reflecting a surge at car dealers. Stockpiles at wholesalers climbed 0.2%.

More complete June trade figures that include the balance on the services account are due Aug. 5, but for now, this seems like a win for President Trump.

Submitted by Thomas Kolbe

On Sunday, the United States and the European Union agreed on a new framework for transatlantic trade. The outcome exposes Europe’s open flank – its dependency on foreign energy.

It was a home game for U.S. President Donald Trump, albeit on foreign soil, as he and European Commission President Ursula von der Leyen stepped in front of the cameras at Trump’s golf resort in Turnberry, Scotland. In a visibly upbeat mood, Trump announced what he called “the greatest trade deal ever” between the U.S. and the European Union.

America Reshapes Global Trade

The framework agreement—still pending ratification by EU member states and the European Parliament—imposes a 15% tariff on most EU exports to the United States. That’s half the originally threatened 30%, but still far above historic norms.

In return, the EU commits to energy imports worth $750 billion over the next three years—including liquefied natural gas (LNG) and petroleum products. And then there’s the MAGA component: investment in the American heartland. A whopping $600 billion is to be mobilized from European industries and invested in the United States, with a strong focus on defense manufacturing. The message from Trump is clear: if Europe wants to keep fighting its proxy war in Ukraine, it will now have to pay for American weapons. Nothing comes free—not even Europe’s newly rediscovered belligerence, which the U.S. appears increasingly reluctant to subsidize.

For selected strategic goods—aircraft components, key chemicals, semiconductor equipment, and generic pharmaceuticals—a “zero-for-zero” rule will apply.

Europe Without Leverage

This clause rounds out the package, which von der Leyen, visibly exhausted, praised as delivering “security and predictability” for both sides. Not exactly false—but the deal starkly reveals the EU’s geopolitical decline. Europe has now been forced into the energy orbit of the United States. In the end, Brussels looks like a student dutifully copying the dictation of its transatlantic teacher.

The EU is not the first to swallow Washington’s bitter pill. Recent deals with Japan and the UK suggest the new normal for tariffs is somewhere between 15% and 25%. The price of accessing the world’s largest consumer market has now been made explicit.

A Great Deal—for America

From a U.S. perspective, this is a great deal. Hundreds of billions in capital will flow from Europe to America. Some of it will help Europe paper over its self-inflicted wounds—its energy crisis being one, after cutting ties with Russian gas and shutting down German nuclear power.

Trump has secured two outcomes. First, U.S. tariff revenues will continue to rise. Second, the president has scored another PR win for American industry—following up on his Middle East tour a month ago, where he clinched multi-trillion-dollar investment commitments for U.S.-based projects.

EU-Europe Stays the Course Toward the Wall

Trump is doing what any rational realpolitik leader should do—pursuing national interest through trade leverage. His foreign policy is essentially trade policy. His domestic economy is made more competitive through deregulation, tax incentives, and aggressive promotion abroad. That, dear Chancellor Friedrich Merz, is what’s called location competition—a challenge Germany and the EU might embrace rather than resist. It could be a moment to reconsider failed policies and return to economic reason.

But that didn’t happen. During negotiations, the EU’s entrenched interests won out—at the expense of ordinary citizens. Brussels could have used the talks to scrap entire catalogs of non-tariff trade barriers. Instead, nothing was touched. Climate regulations, the Digital Services Act, harmonization rules that deter foreign investment—all remain intact.

The EU’s hidden protectionism, the true power base of Brussels’ corporatist ambitions, remains untouched.

Short-Term Relief, Long-Term Price

For Germany, the deal offers some short-term relief—especially for carmakers, chemical producers, and machine builders. Strategic industries benefit from zero tariffs on high-tech goods like aircraft parts and specialty chemicals. That helped avoid a trade escalation that would have devastated Germany’s export-heavy economy. Chancellor Merz called it a “desperately needed signal of economic pragmatism.”

But this partial reprieve comes at a price. The punitive 50% tariffs on steel and aluminum remain—a crushing burden for German basic industries. This deal is no fair trade; it’s an asymmetric arrangement in which Washington selectively relieves and structurally dominates.

Lessons from the Deal

What’s being sold as a “trade deal” is, in truth, a geopolitical alignment. EU-Europe has maneuvered itself into a dead-end by burning its last diplomatic bridges with Moscow. Now, with 60% of its energy needs dependent on imports, Brussels finds itself tethered to U.S. energy dominance. And Trump has no intention of letting Europe’s green welfare utopia flourish at America’s expense. Energy comes at a cost—and Brussels is beginning to grasp the real price tag of its green transformation experiment.

That green experiment, like Europe’s resurgent militarism, will weigh heavily on public finances. It’s now up to the voters to push for a course correction—or sink ever deeper into the pit they’ve dug themselves.

The deal also has major implications for monetary policy. It forces the EU deeper into the energy-mercantilist world of the U.S., reinforcing the petrodollar system. The investment shift toward U.S. soil will help shore up the dollar’s role as king of fiat currencies. The dollar remains the unit of account. The euro wasn’t even mentioned.

* * * 

About the author: Thomas Kolbe, a German graduate economist, has worked for over 25 years as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination.

By Bas van Geffen, Senior Market Strategist at Rabobank

The ECB left the deposit rate at 2.00% yesterday. That had been widely expected, especially with little new clarity on the trade disputes with the US. Yet, the decision to hold wasn’t entirely driven by “fear” for US tariffs. President Lagarde noted that uncertainty remains unusually high, but she nonetheless seemed to express a little bit more confidence in the central bank’s medium-term outlook. 

Asked about the risks of undershooting the inflation target, the ECB president recalled that the central bank actually forecasts below-target inflation in 2026. But Lagarde added that this was due to all sorts of base effects, and she stressed that “we are not going to be moved by some minor deviation.” So, Lagarde seemed to indicate what we said prior to the meeting: Another rate cut requires a material deterioration of the medium-term outlook, or at the very least a substantial increase in the downside risks. 

And there is fresh hope that downside risks may actually lessen in the coming days. Earlier this week, European officials suggested that they are closing in on a trade deal with the US. Yesterday, President Trump also indicated that “talks with the EU are going pretty well.” 

Reportedly, a 15% tariff is now being discussed by both parties. That would be a somewhat higher rate than the ECB’s baseline scenario. However, compared to a 10% rate, a 15% tariff would not be extremely distortionary for the economy. However, a trade deal would substantially reduce the uncertainty about trade policy, and such an improvement in sentiment could actually outweigh the negative direct effects of a somewhat higher-than-expected tariff.  

In other words, don’t call the ECB’s decision to hold rates steady a pause; it may very well mark the end of the cutting cycle. Indeed, after the meeting, Bloomberg reported that a hold looks to be the baseline for September as well, and that “the onus is on those seeking further easing to justify their stance.” 

The shift in tone weighed on money market pricing. Euribor futures fell, and the €STR curve now prices less than 20% chance of a rate cut in September, down from 45% prior to the ECB’s press conference. In fact, the curve is no longer fully priced for another rate cut. 

Of course, another cut cannot be ruled out entirely. Next to a potential escalation of trade tensions, a substantial appreciation of the euro could still be a reason for the ECB to cut again. However, Lagarde did not sound as concerned by the recent strength of the currency as some of her colleagues. 

Reassuringly, that arguably also lessens the threat to central bank independence. Powell has so far resisted Trump’s continuing attacks, but our US strategist concludes that Trump has already gained a foothold in the FOMC. If the Fed were to follow President Trump’s directions and cut rates sharply, that could push EUR/USD higher – we still target 1.20 on a 12-month horizon. An ECB that is not overly sensitive to such exchange rate moves, lessens the risk that Trump could effectively capture part of ECB policy too.

Besides, with the ECB now on hold, the US president may need to find a new peer to compare the Fed to: he can no longer complain that the Fed leaves rates unchanged while the ECB cuts further. The Bank of Japan probably won’t be a great comparable either. The trade deal between Japan and the US allows the BoJ to cautiously consider another rate hike.

This probably will not stop Trump from attacking Fed Chair Powell. The US president paid a visit to the Federal Reserve building to observe the ongoing renovations that have been the latest ammunition for shots at Powell. 

During the tour, Trump surprised Powell with a higher cost estimate than the Fed’s own calculations – but that was the result of some creative accounting: the US president included a separate building, which was finished five years ago, into the total renovation bill. And, of course, the President reiterated his view that the Fed should lower rates.

Yet, despite his renewed attacks on Powell, Trump also repeated that he does not intend to fire the Fed Chair. 

After surging higher in May, on the back of huge Boeing aircraft orders, US durable goods orders were expected to tumble back to earth in preliminary June data… and they did.

Durable Goods Orders plunged 9.3% MoM (slightly better than the -10.7% MoM expected) – the biggest drop since the COVID lockdowns. But as the chart below shows, it is a wildly noisy time series, almost entirely due to the lumpiness of aircraft orders…

Source: Bloomberg

Thanks to a swing from a 230% MoM rise to a 50% MoM decline in non-defense aircraft orders…

Source: Bloomberg

Excluding the noise of Boeing orders, the data was actually solid with a 0.25% MoM increase (better than the 0.1% rise expected) in durable goods orders (ex-Transports), pushing YoY orders uo 2.23%

Source: Bloomberg

Adding to the confusion, the value of core capital goods orders, a proxy for investment in equipment excluding aircraft and military hardware, decreased 0.7% last month after an upwardly revised 2% gain in May

Capital goods shipments rose 0.4%, excluding defense and commercial aircraft, better than the +0.2% expected, adding to Q2 GDP growth hopes.

A very mixed picture from a generally considered ‘secondary’ economic indicator… and this the market reaction is muted to say the least.

As expected by pretty much everyone, the ECB kept its three key ECB interest rates unchanged this morning in a decision that was telegraphed well in advance. Inflation is currently at the 2% medium-term target. Data has been in line with earlier assessments of the inflation outlook, it said in the statement adding that “domestic price pressures have continued to ease, with wages growing more slowly”.

The economy has so far proven resilient overall in a challenging global environment. “At the same time, the environment remains exceptionally uncertain, especially because of trade disputes”. The ECB reinterated it is determined to ensure inflation stabilises at its 2% target in the medium term; it said it is not pre-committing to a particular rate path.

Here are the highlights from the statement:

• Incoming information is broadly in line with previous assessment of inflation outlook
• Domestic price pressures have continued to ease, with wages growing more slowly
• Economy has so far proven resilient overall in a challenging global environment
• Environment remains exceptionally uncertain, especially because of trade disputes

Policy Stance

• Will follow a data-dependent and meeting-by-meeting approach to determining appropriate monetary policy stance
• Rate decisions will be based on its assessment of inflation outlook and risks surrounding it, in light of incoming economic and financial data, as well as dynamics of underlying inflation and strength of monetary policy transmission
• Is not pre-committing to a particular rate path
• Looking at the market’s kneejerk reaction, there was no sustained moves in either EUR or EGBs, confirming once again how expected the announcement was. 

Futures ECB Pricing

• Sep -8.5bps (prev. -8.5bps)
• Oct -12.6bps (prev. -13.6bps)
• Dec -20.5bps (prev. -21,9bps)
• Mar’25 -25.7bps (prev. -26.8bps)
• Dec’26 -19.1bps (prev. -19.8bps)

Commenting on the decision, Newsquawk notes that as expected. ECB maintained policy settings, acknowledged the continued easing of domestic price pressures and slower wage growth, while highlighting that the environment is “exceptionally uncertain” given trade disputes. No mention of the EUR. Forward guidance is limited to the usual data-dependent and meeting-by-meeting approach, with assessments based on the inflation outlook, risks to it, the dynamics of underlying inflation, and the strength of policy transmission.

From Lagarde, any further forward guidance will be keenly sought, commentary heavily scrutinized, though she is unlikely to provide anything specific at this stage; particularly given the very fluid tariff situation, as evidenced by overnight developments. Elsewhere, any commentary on the EUR given its continued strength. As a reminder, any commentary on it would likely be to stem much more EUR strength (recall recent remarks from de Guindos around 1.20), and as such could be taken in a dovish fashion.

By Philip Marey, Senior US Strategist at Rabobank

Treasury Secretary Scott Bessent was busy giving Powell forward guidance about his retirement yesterday. On Fox Business, he said that he thinks that it should be up to Jerome Powell whether he serves his term as Fed Chair through May 2026. He said: “There’s nothing that tells me that he should step down right now … His term ends in May. If he wants to see that through, I think he should. If he wants to leave early, I think he should.” However, on Bloomberg Television, Bessent added that he thinks that Powell should not stay on the Board after his Chair term ends in May 2026. He said: “Traditionally, the Fed chair also steps down as a governor …  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’d be very confusing for the market for a former Fed chair to stay on also.” Note that Powell’s term on the Board lasts until the end of January 2028 and so far he has avoided giving an answer to the question whether he intends to remain on the Board after his term as Chair ends. Ironically, Bessent actually started this talk about a shadow chair in October last year, as an alternative plan to firing Powell. So now he uses it to argue for Powell’s resignation from the Board once his term as Chair expires.

With Adriana Kugler’s term as a Governor expiring at the end of January 2026, that would leave two slots on the Board to be filled by President Trump. As we argued in As the Fed turns, that could give Trump-loyalists a majority in the Board of Governors, after Waller and Bowman have turned recently. This is why we now expect the FOMC to step up the pace of rate cuts in 2026, after almost coming to a standstill this year: we expect only one rate cut this year, most likely in September. Regarding Powell’s successor, Bessent said that “There’s a formal process that’s already starting” and “There are a lot of good candidates inside and outside the Federal Reserve.” Asked whether Trump has asked Bessent himself to serve as Fed chair, he said, “I am part of the decision-making process.”

Meanwhile, at an event with the president of the Philippines, after reaching a trade deal that includes a 19% US tariff on imports from the South East Asian country, President Trump accused Powell of being “political” for not cutting rates this year and ignoring his demands to reduce the policy rate by around three percentage points. He said: “Our economy is so strong now, we’re blowing through everything, we’re setting records … People aren’t able to buy a house because this guy is a numbskull, he keeps the rates too high, and probably is doing it for political reasons.” Trump claimed that Mr. Powell had cut rates “just before the election to try to help Kamala, or whoever he was trying to help, he probably didn’t know.” Asked on Tuesday if the Fed chair should resign, Trump said he thought Powell had done a “bad job, but he’s going to be out pretty soon anyway.”

Ironically, in an interview on CNBC, Governor Bowman was paying lip service to Fed independence. She said that “It’s very important that we maintain our independence with respect to monetary policy, I think that’s very clear. But with that independence comes an obligation for transparency and accountability.” Perhaps she could give us some transparency and accountability about her remarkable conversion from überhawk in September last year, when she voted against a 50 bps rate cut because of inflation concerns, to ultra-dove now, pursuing an early rate cut in July. Does last month’s promotion to Vice Chair for Supervision by President Trump have anything to do with it?

Meanwhile in Europe, the ECB’s Bank Lending Survey indicated that the passthrough of monetary easing continues, albeit at different rates to firms’ and households’ behaviours. Our ECB watcher Bas van Geffen noted that firms’ loan demand improved somewhat, but remains weak. Uncertainty about the economic (trade) outlook remains the main cause cited. By contrast, demand for housing loans continued to increase strongly. Households’ loan demand is partially boosted by consumer confidence, but mostly by the decline in borrowing costs. The muted demand from firm’s is not entirely a story of weakness. Yes, the actual loan demand from companies was a bit lower in the previous quarter than banks had expected, but this partly seems to be driven by an increase in alternative financing – including more debt issuance. With that in mind, it’s not surprising that loan demand from larger companies lagged borrowing by smaller & medium-sized firms. That said, the Bank Lending Survey does support the conclusions from Monday’s Survey on Access to Finance of Enterprises: both indicate that fixed investment has been muted in the recent months, but companies remain optimistic about future investment. Turning to banks’ willingness to lend, Bas noted that there was a marginal tightening of credit standards for firms – despite monetary easing. This largely has to do with the uncertain economic outlook; funding costs and (fewer) balance sheet constraints helped to ease standards.  This was also reflected in the actual terms and conditions for corporate loans: these eased further. Overall, non-interest charges and margins on loans declined substantially, but the margins on riskier loans did increase somewhat.

In trade negotiations, the US and Japan reached a deal that would include a 15% reciprocal tariff rate imposed by the US on Japanese imports, which is lower than the 25% in Trump’s recent letter to Japan. Japan will also invest $550 billion in the US. Japan will also open to trade, including cars and trucks, rice and other agricultural products. Our energy strategist Florence Schmit notes that one of the beneficiaries of the US-Japan trade deal could be the $44bn Alaska LNG project which has been proposed in various forms for decades but made a comeback this year as the US tries to unleash even tighter energy dominance. Japan is the world’s second largest LNG buyer and has taken a hit from some Russian LNG sanctions already. Next week’s China-US negotiations might also discuss China’s demand for Iranian and Russian oil according to Bloomberg. Overall a muted reaction on energy so far today, crude still pretty rangebound in the high 60s and TTF is back above €33/MWh after the short drop to 32 yesterday.

As discussed earlier, this week is pretty quiet in terms of planned economic and macro events… although as Jim Reid notes, this year has been as busy as he can remember outside of a crisis in terms of unplanned events so the first part of this sentence will likely be proved to be meaningless. 

In terms of the known highlights, we have the global flash PMIs on Thursday alongside what is universally accepted to be an ECB on hold meeting. With the Fed on their blackout ahead of next week’s FOMC, the only noise will come from how hard Trump wants to continue to push on with criticizing Powell (on a daily basis). Powell does open a regulatory conference tomorrow but won’t discuss monetary policy given the blackout. 

The key US data are some regional manufacturing surveys tomorrow, existing home sales on Wednesday, new home sales, jobless claims and the Chicago Fed survey on Thursday, and then durable goods on Friday. 

In Europe, the key to the ECB meeting this Thursday is how long they’re expected to pause. The central bank will also release its bank lending survey tomorrow.

In terms of economic data, other sentiment indicators out in the region will include consumer confidence in Germany (Thursday), the UK, France and Italy (Friday). The German Ifo survey is out on Friday.

It’s certainly busier on the earnings side as we start to see Q2 earnings get fleshed out a little more this week with 135 S&P 500 and 189 Stoxx 600 companies reporting. Two of the Magnificent 7, Alphabet and Tesla, will report on Wednesday. Other tech firms releasing results this week include IBM, ServiceNow and Intel. Defence firms including RTX, Lockheed Martin and Northrop Grumman also report.

In Europe, earnings will be due from the region’s largest company, SAP tomorrow. Three others from the top 10 by market cap – LVMH, Roche and Nestle – also report, along with several European banks. See the full day-by-day calendar of events as usual at the end 

Courtesy of DB, here is a day-by-day calendar of events

Monday July 21

• Data: US June leading index, China 1-yr and 5-yr loan prime rates, Canada June industrial product price index, raw materials price index
• Central banks: BoC Q2 business outlook survey
• Earnings: Verizon, Roper, NXP Semiconductors, Ryanair, Domino’s Pizza

Tuesday July 22

• Data: US July Philadelphia Fed non-manufacturing activity, Richmond Fed manufacturing index, Richmond Fed business conditions, UK June public finances, France June retail sales
• Central banks: Fed’s Powell speaks, ECB’s bank lending survey, BoE’s Bailey speaks, RBA minutes of the July meeting
• Earnings: SAP, Coca-Cola, RTX, Texas Instruments, Intuitive Surgical, Danaher, Capital One Financial, Chubb,
• Lockheed Martin, Sherwin-Williams, Northrop Grumman, General Motors, MSCI, Givaudan, EQT, Equifax, Halliburton, Sartorius

Wednesday July 23

• Data: US June existing home sales, Eurozone July consumer confidence
• Central banks: BoJ’s Uchida speaks
• Earnings: Alphabet, Tesla, IBM, T-Mobile US, ServiceNow, AT&T, Thermo Fisher Scientific, NextEra Energy, Boston Scientific, GE Vernova, Amphenol, Iberdrola, UniCredit, Fiserv, Chipotle Mexican Grill, Equinor, Hilton, Freeport-McMoRan, CSX, Thales, Moncler 
• Auctions: US 20-yr Bond (reopening, $13bn)

Thursday July 24

• Data: US, UK, Japan, Germany, France and the Eurozone flash July PMIs, US June Chicago Fed national activity index, new home sales, July Kansas City Fed manufacturing activity, initial jobless claims, Germany August GfK consumer confidence, France July business confidence, EU27 June new car registrations, Canada May retail sales
• Central banks: ECB decision
• Earnings: LVMH, Roche, Nestle, Blackstone, SK Hynix, Honeywell, TotalEnergies, Union Pacific, Intel, BNP Paribas, Newmont, Lloyds, Digital Realty Trust, Deutsche Boerse, Dassault Systemes, L3Harris, Keurig Dr Pepper, Galderma, Nokia, BT, MTU Aero Engines, Southwest Airlines, Dow, Sabadell, Repsol, Deckers Outdoor, Carrefour, American Airlines, Wizz Air
• Auctions: US 10-yr TIPS ($21bn)

Friday July 25

• Data: US June durable goods orders, July Kansas City Fed services activity, UK July GfK consumer confidence, June retail sales, Japan July Tokyo CPI, June PPI services, Germany July Ifo survey, France July consumer confidence, Italy July consumer and manufacturing confidence, Eurozone June M3
• Central banks: ECB’s survey of professional forecasters
• Earnings: HCA Healthcare, Charter Communications, Volkswagen, NatWest, Eni

Looking at just the US, the major economic data release this week is the durable goods report on Friday. Fed officials are not expected to comment on monetary policy this week, reflecting the blackout period ahead of the July FOMC meeting. 

Monday, July 21 

• There are no major economic data releases scheduled. 

Tuesday, July 22 

• There are no major economic data releases scheduled.

Wednesday, July 23 

• 10:00 AM Existing home sales, June (GS +2.0%, consensus -0.7%, last +0.8%)

Thursday, July 24 

• 08:30 AM Initial jobless claims, week ended July 19 (GS 231k, consensus 230k, last 221k); Continuing jobless claims, week ended July 12 (consensus 1,960k, last 1,956k)
• 09:45 AM S&P Global US manufacturing PMI, July preliminary (consensus 52.7, last 52.9): S&P Global US services PMI, July preliminary (consensus 53.1, last 52.9)
• 10:00 AM New home sales, June (GS +3.1%, consensus +4.3%, last -13.7%)

Friday, July 25 

• 08:30 AM Durable goods orders, June preliminary (GS -9.0%, consensus -10.8%, last +16.4%); Durable goods orders ex-transportation, June preliminary (GS -0.1%, consensus +0.1%, last +0.5%); Core capital goods orders, June preliminary (GS -0.2%, consensus +0.2%, last +1.7%); Core capital goods shipments, June preliminary (GS +0.3%, consensus +0.2%, last +0.4%): We estimate that durable goods orders retrenched 9% in the preliminary June report (month-over-month, seasonally adjusted), reflecting a partial normalization in commercial aircraft orders after last month’s spike. We forecast a 0.2% decline in core capital goods orders—reflecting contractionary new orders readings for manufacturing surveys in June and payback for the prior month’s outsized increase—and a 0.3% increase in core capital goods shipments—reflecting the increase in orders over the prior month.

Source: DB, Goldman

By Peter Tchir of Academy Securities

Can We Just Skip to Next Week?

Last week felt a bit “boring” despite some headlines on the future of the Fed, banks kicking off earnings season, and company after company associated with AI/Data Centers/High-End Chips having positive headlines. It might explain why the Dow and Russell 2000 did almost nothing, the S&P inched higher by 0.5%, and the Nasdaq 100 led the way – up over 1%.

Despite the statements directed at the FOMC, 2-year bond yields moved less than 2 bps lower, while the 10-year moved less than 1 bp higher.

Expect more Fed headlines, since as we wrote on Thursday, we should expect to see more Out of the Box Thinking from the administration on how to reshape the Fed. It is not the path that I would choose, but it would surprise me if we didn’t start hearing about yield curve control or other “extraordinary” measures being recommended to the Fed. Recommended TO the Fed, not recommended BY the Fed, being a key distinction.

With much of the T-Report team spread across the country (even more so than usual), we will keep this report short. The data flow also helps keep it short. We might get interesting earnings results, or “unexpected” headlines (though the market seems to treat everything as expected these days), but not really looking for much to move markets next week (famous last words).

We will be looking to the U.S. Treasury Deposits Customs & Certain Excise Taxes data this week. Last month, the “big day” (there is one day that apparently captures most of the month’s tariffs) was $20 billion. It will be interesting to see how high that number comes in this month. There has been so little discussion about the Budget Surplus in June. While there were some potential “one-time” items, like June 1st not being a business day, pushing some spending into May, the tariff revenue is real. Also, the potential cumulative effects of tariffs are more likely to affect forthcoming economic data, than the headline numbers.

The following week we get:

• Jobs Data. Last month delivered a healthy surprise (though much of it was tied to seasonals on government hiring). We don’t expect that to continue, but we didn’t think last month would be as strong as it was.

• The Powell Press Conference (let’s be honest, that has the potential to be quite a show). Yes, we get the FOMC decision, but the presser should be illuminating.

• The August 1st tariff “deadline.” The “deadline” that no one seems to believe will be an actual deadline as explored in last weekend’s Fool Me Once. If we don’t start getting deals (with tariffs meaningfully lower than the rates set out in various letters), the market could start to get more nervous, unless there are clear signs that extensions are on the way. This is the one area where the market seems to be underpricing risk, but there are so many positives that this might be the appropriate positioning. We continue to like being overweight companies and sectors that can benefit from deregulation and a further push to National Production for National Security.

It seems clear that the week after next has a lot more potential to be “exciting” than next week.

Disruption

What did stand out last week was the performance of “disruption” (using ARKK as a proxy) which was up over 7% on the week! Up 16% in a month, and 72% in 3 months!

The outperformance of “disruption” makes sense as crypto enjoyed another very successful week!

The Genius Act was signed into law. For many administrations, this would likely be the culmination of their efforts on cryptocurrency, but we expect this administration to continue to push the envelope and encourage the development of a U.S.-dominated crypto world – with USD-based stablecoins becoming a critical part of that effort.

Much of this was already priced into Bitcoin which finished the week basically unchanged (though it is up around 10% on the month). Altcoins outperformed Bitcoin (the disruption of disruption seems fitting) but we continue to like Ethereum. It surged almost 20% on the week and will likely be an even more important part of the crypto ecosystem as the industry moves to take advantage of the new legislation. ETHA, an Ethereum ETF, has seen its shares outstanding double since late May. The ETFs focused on Ethereum seem particularly inefficient, as they do not pass through any of the income that can be made by staking Ethereum. That is less of a concern for Bitcoin ETFs and is something that should lead to more product innovation to offer investors an alternative to participate in the total return of ETH, not just the price return.

With this major push behind us, it opens the door for more discussion on the sovereign wealth fund that was prominent early on, but seems to have faded in terms of headlines. That would help our National Production for National Security theory.

Bottom Line

As the week goes on, there will be more focus on tariffs and the August 1st “deadline.” A series of deals could alleviate the issue altogether (in addition to the fact that many people believe the administration has pivoted away from high levels of tariffs and will offer extensions to important trading partners). Finally, and maybe most importantly, the Liberation Day tariffs were actually implemented then retroactively retracted, so there might not even be a major reaction from markets if the tariffs stated in the letters go ahead. Having said that, the markets did seem to force the administration’s hand last time, causing it to reverse course to something in the range of what the market thought “reciprocal” tariffs meant. Without the markets pressuring the admin, why would they pull back? Seems a bit of a chicken and egg sort of issue, but nothing in the past week has changed our view that the market is so worried about Fool Me Once (and Not Getting Fooled Again), that we are setting ourselves up for precisely that.

Expecting a quiet, almost boring summer week, even accounting for some “unexpected” headlines.

Probably means that we will get some really crazy moves, disrupting people’s vacations, etc., but that seems far more likely to occur the week after next.

Saw my first game ever at Wrigley, have to admit, that was a cool experience!

Have a great (and likely quiet) week as we gear up for some potentially big moves the following week

Authored by Lance Roberts via RealInvestmentAdvice.com,

Few are as candid and historically accurate as hedge fund manager Kyle Bass when identifying structural breaks in the global economy. In a recent interview, Bass painted a grim but telling picture of China’s economic condition, warning:

“We are witnessing the largest macroeconomic imbalances the world has ever seen, and they are all coming to a head in China.”

While China has long been touted as the next great economic superpower, its recent trajectory reveals a far different story, one marked by policy missteps, systemic financial rot, and a rapidly eroding growth engine.

Bass didn’t mince words either:

“China’s economy is spiraling with no end in sight.”

China’s GDP deflator, the broadest measure of prices across goods and services, continues to decline as economic activity erodes.

For investors around the globe, this isn’t just a regional concern; it’s a seismic macroeconomic event that will ripple through capital markets. The implications are significant for U.S. investors because when global economies falter, especially one as large and interconnected as China’s, capital doesn’t just vanish. It moves. That movement will significantly impact U.S. assets as flows transfer back into U.S. dollars and Treasury bonds. This global repositioning of capital isn’t merely a symptom of market volatility; it reflects a profound reevaluation of risk in the face of deteriorating confidence in China’s financial system.

China’s Backstory

We must examine what’s breaking in China to understand why this matters so profoundly. Bass emphasized that the issue’s core lies in the real estate sector, which accounts for roughly 30% of China’s GDP. This massive share of economic activity is under severe strain, with property developers defaulting, sales volumes collapsing, and home prices declining across major cities. However, this should be unsurprising as, after the financial crisis, we wrote many times about the mass overbuilding of “ghost cities” that were responsible for China’s growth at the time. However, the “bullwhip” effect of that massive overbuilding was inevitable.

“They’re sitting on 60 to 70 million vacant homes. It’s a Ponzi scheme that is finally collapsing.” – Kyle Bass

This particular real estate bubble, which is unprecedented in magnitude, is bursting. This creates deflationary pressures and undermines the value of collateral supporting large portions of China’s shadow banking system.

Adding to the concern is the Chinese Communist Party’s refusal to implement reforms that would bring greater transparency, capital discipline, and market-based corrections. Rather than allow markets to clear, Beijing is opting for control through capital restrictions, state intervention, and increased surveillance of financial activity.

“China is experiencing a slow-motion banking crisis, and capital is doing everything it can to escape.” – Kyle Bass.

That capital flight is inevitable and, as noted, will significantly impact the U.S. economy and financial markets.

Capital in Search of Safety

This exodus of domestic and foreign capital will reshape the global macro landscape. We recently discussed that the “Death of the Dollar” narrative was vastly exaggerated. While that post goes into more detail, there are five primary reasons why the dollar will remain the reserve currency of the world:

1. Lack of a viable alternative currency

2. Strength of the U.S. economy

3. Network effects and global financial inertia

4. Limited scope of de-dollarization efforts

5. Resilience amid policy changes.

Most importantly, the dollar dominates the composition of global currency transactions.

China’s economic collapse only exacerbates the world’s dependence on the U.S. dollar for trade and storing reserve assets to support that trade.

In times of crisis, investors don’t seek yield; they seek safety. Despite the U.S. running its fiscal imbalances and maintaining high levels of debt, the U.S. dollar and Treasury bonds remain the world’s premier safe havens. There is no alternative with the same depth, liquidity, and perceived security.

The Dollar Is Set To Rise

As capital flees China and other riskier markets, the U.S. dollar strengthens. This is not just a theoretical concept; it’s an observable pattern in every major crisis over the last several decades. The Global Financial Crisis, the Eurozone debt crisis, the COVID-19 pandemic, and the Russia/Ukraine conflict all prompted a sharp rally in the dollar as investors sought the perceived stability of the U.S. financial system.

The mechanics of this are straightforward. When global capital flows into dollars, it often flows directly into U.S. Treasuries. Treasury securities remain the world’s deepest and most liquid sovereign debt market. As discussed in that same article, global Central Banks are cutting rates at one of the fastest paces on record. To wit:

“The ECB has been aggressively cutting rates, eight times in this recent cycle, while the U.S. Federal Reserve remains on hold. The result is a divergence that is developing between U.S. Treasury bond yields and, for example, the German Bund.”

It is crucial to understand why this is so vital for investors.

1. Higher yields attract capital inflows.

2. Treasuries remain the preferred store of foreign reserves, and:

3. Yield differentials drive dollar appreciation.

In other words, as the demand for Treasuries increases, bond prices push up and yields decline. Even when the U.S. is running record deficits and issuing vast amounts of new debt to fund government spending, foreign demand can offset the downward pressure this supply might otherwise have on prices.

In a stable global environment, one would expect rising Treasury issuance to push yields higher. But in a world where the second-largest economy is in decline and trust in its financial system is evaporating, Treasury bonds find buyers not because they offer high returns, but because they provide a guaranteed return of capital. That distinction is critical. Investors are not allocating capital for growth but reallocating it for preservation. That behavioral shift has enormous implications for markets.

China’s Deflationary Impact on the U.S.

It also has consequences for the U.S. economy. The United States has benefited tremendously from China’s rise over the last 20 years. During that period, the U.S., through its corporations, could “export inflation” and “import deflation” via China’s cheap labor, rising middle class, and voracious demand for commodities and goods. From industrial machinery to high-end consumer brands, China was a reliable marginal buyer for U.S. exports and a production partner for U.S. supply chains. As that engine falters, U.S. multinational earnings will increasingly come under pressure.

A structurally weakened China means less global trade, less demand for U.S. goods and services, and slower investment flows from international corporations. The knock-on effect will be lower nominal GDP growth in the U.S., even if domestic consumption remains resilient. As such, markets will begin to price in a lower terminal growth rate for the U.S. economy, particularly in sectors exposed to international demand.

Moreover, China’s descent into deflation could export disinflationary pressures globally. That risk will likely exacerbate the risk that the Fed is making a “Transitory Mistake.”

“This link between the economy and inflation is evident from the Economic Composite Index, which comprises nearly 100 hard and soft data points. Following the spike in economic activity post-pandemic, economic growth continues to decline. Given that inflation is solely a function of economic supply and demand, it is unsurprising that it continues to cool.”

Understanding that the U.S. imports deflation from China, the risk of a sharper disinflationary impact from China on the U.S. will become evident in the economic data. As Bass noted:

“They’re not just dealing with a cyclical downturn. This is a permanent shift toward zero or negative real growth.”

That assessment has profound consequences for China and how policymakers and investors think about global growth in the decade ahead.

Conclusion

In this environment, the traditional drivers of market performance, earnings growth, productivity gains, and capital investment, will take a back seat to macro stability and risk management. Investors should shift their analysis from “Where can I grow my capital?” to “Where can I protect it?”

For now, the answer appears to be the U.S. Treasury market. Ironically, even with sticky fiscal deficits and political gridlock, capital prefers the U.S. over every alternative. That should tell us something.

As we’ve written many times before:

“Capital doesn’t care about ideology—it cares about trust, liquidity, and rule of law.”

When trust in a significant economic power like China evaporates, the resulting capital flows don’t walk, they run.

Investors would be wise to pay attention. The shift underway isn’t temporary. It reflects a deeper reordering of global economic leadership and risk tolerance. While the U.S. faces plenty of its structural challenges, it is still, for now, the cleanest shirt in a very dirty laundry pile.

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