Deadlines, offers, and delays: Is the 1 August tariff ultimatum actually any completely different from what’s come and gone earlier than? Possibly not. However tariffs are nonetheless extra more likely to go up than down, argues James Smith, regardless of the flurry of commerce offers within the works. It’s a large week for the US economic system. That is how we expect issues will unfold.
Deal or delay? We’ve danced to this tune earlier than
Hey ChatGPT, take the opposite 394 week-ahead articles it looks like I’ve written on tariffs this yr, transfer the phrases round, insert just a few pithy jokes, and change any references to 9 July to 1 August. No person will ever know…
Positive, says ChatGPT, however in customary AI style, let me begin by providing some grand-but-bland platitudes on the the Aristocracy of your current articles, and permit me to supply my utmost however not-at-all real congratulations on presenting me with such a groundbreaking thought… (why does AI do that, by the way in which?)
Clearly, I didn’t truly ask AI to jot down this (it could say that, although, wouldn’t it?). However the level is that after three tariff delays, is there any doubt that we are going to get a fourth subsequent Friday?
Granted, this time does look somewhat completely different. President Trump has begun to formalise offers with key buying and selling companions. And on the time of writing, the important thing query is whether or not the EU can safe a deal alongside the strains of Japan’s, the place carmakers get a partial reprieve on the present 25% levy. AI instructed me the chance of that taking place was 65% – make of that what you’ll.
However deal or delay, is there a lot distinction? What these offers basically do is formalise the prevailing established order, albeit with a barely greater baseline tariff. For the US, it bakes within the movement of tariff income, whereas protecting the specter of retaliation at bay. And its buying and selling companions hope that by eradicating the rolling risk of escalation, it will possibly present its firms and shoppers with a extra secure financial surroundings.
How true that’s relies on how lengthy these offers final, and that’s clearly debatable. And because the UK has found, the offers nonetheless go away many unanswered questions. Mainly, what occurs if (when?) the US imposes its long-threatened pharmaceutical tariffs? Bear in mind, for the EU, that is 20% of what it exports to America. If this occurs, the chance of retaliation from American buying and selling companions certainly goes up. And with it, the chance of an extra escalation from President Trump.
So the purpose I’ve been banging on about for weeks hasn’t modified: tariffs are unlikely to go down and will effectively go up. And that’s one of many central causes we nonetheless suppose the European Central Financial institution will minimize charges once more in September.
True, President Lagarde’s press convention wasn’t precisely a glowing endorsement of that view. However the near-term dangers on inflation and progress are downwards. And that in all probability deserves a bit of additional easing. Additional euro energy, if it comes, would solely cement that view.
That’s all a bit educational, although, isn’t it? An additional charge minimize right here or there isn’t transferring the needle of historical past. What would possibly, nevertheless, is when – and the way far – the ECB is pressured to hike charges. And Carsten Brzeski instructed our reside webinar this week that this might doubtlessly come earlier than the tip of 2026. That – unsurprisingly – is predicated on the view that Germany’s defence and infrastructure spending would revitalise progress subsequent yr.
Allowing for that Carsten is nearly probably the most cynical German I do know, this caught me off guard. Talking as an equally cynical Brit – from a spot the place capital tasks have a tendency to finish up wildly not on time – certainly the chance is that the financial impression comes a lot later than many at present suppose? His reply was no. And he even went so far as saying that Germany may outperform the broader European economic system subsequent yr.
Again to tariffs, and maybe a part of the rationale why the US administration feels emboldened to ratchet up tariffs subsequent week, no less than in the case of , is that to date, the macro impression has been remarkably benign.
The roles market seems stable, although the foundations are somewhat shakier if you dig beneath the floor. And keep in mind, we’re gearing up for some chunky downward revisions to previous payroll figures later this summer time. Nonetheless, after we get new figures subsequent week, there’s unlikely to be a lot that screams a necessity for the to start out chopping charges once more. And definitely no one is anticipating that to occur subsequent week.
Markets are nonetheless favouring the primary 25 foundation factors in September, however as James Knightley writes under, this depends on this summer time’s inflation information remaining remarkably benign. And we don’t suppose that would be the case, even when the broader story is trying higher.
Don’t overlook that June’s core CPI information did present additional indicators of tariff passthrough – you solely want take a look at audio gear and family home equipment to see prices taking off. However that was masked by large falls in new and used vehicles, a pattern that certainly can’t proceed given the tariffs clouding the sector.
Backside line – no till December. However when the cuts do come, they may come thick and quick.
Earlier than I am going, a reminder that we’re conducting an electrifying webinar on copper tariffs subsequent week, your probability to remain updated with the present developments. And listen to jokes like “why did the copper wire refuse to pay the tariff? It didn’t need to get charged twice!”
Okay, possibly AI did write that bit…
THINK Forward in Developed Markets
United States
- (Thur): The Fed’s favoured measure of inflation – the – is more likely to are available in somewhat hotter at 0.3% MoM than the 0.2% enhance recorded by due primarily to the weightings of key elements. Nonetheless, we count on to listen to Fed Chair Jerome Powell go away the door open for cuts later within the yr.
- 2Q (Wed): This might are available in hotter than the market is anticipating (3.3% versus the consensus 2.5%) because of a powerful contribution from internet commerce, given the collapse in imports publish and an honest funding efficiency. This merely reverses the 1Q surge in imports as corporations tried to herald as a lot inventory as attainable from abroad forward of the April 2 Liberation Day tariff bulletins. As such, it’s in all probability finest to take a mean of Q1 and Q2 headline GDP numbers when decoding the figures, but additionally watch the patron spending numbers. These have been the expansion engine for the US economic system for the reason that pandemic, however they’ve stalled since late 2024 as warning over tariffs, jobs, and sharp swings in equity-related wealth deterred households from spending so aggressively.
- (Fri): That is more likely to present that the economic system continues to be including jobs, albeit in comparatively modest numbers of round 100-120k, with the more likely to tick as much as 4.2% after the shock dip to 4.1% in June.
- (Thur): The cooling in hiring helps to dampen wage pressures, which is more likely to be highlighted by the Employment Value Index, one more key metric the Fed follows. It’s anticipated to sluggish to 0.8percentQoQ from 0.9%. We even have the ISM index and the report.
- (Wed): Placing that altogether and we count on the story to be one whereby the US economic system is cooling however not collapsing and, with lingering uncertainty over the inflationary impression from tariffs, the Fed received’t really feel snug chopping charges regardless of political stress. The market is tentatively favouring a September minimize (16bp of a 25bp minimize is at present priced), however we aren’t so positive given the July and August inflation information will nonetheless be working fairly sizzling from tariffs. Nevertheless, come the early fourth quarter, we expect the inflation scenario might be higher. We forecast a 50bp minimize in December as the primary and solely Fed transfer of 2025.
Eurozone
- Flash 2Q (Wed): Whereas European workplaces are clearing out for summer time, an enormous week for eurozone information continues to be arising. GDP is more likely to face a actuality verify after a powerful 1Q determine on the again of US front-loading. April information confirmed a dip in manufacturing and exports, though that was adopted by one other surge in – particularly prescribed drugs – manufacturing in Could. General although, the impression of US developments on eurozone GDP will doubtless have been unfavourable in comparison with the primary quarter. The service sector additionally seemingly had just a few weak months, judging from survey information, which can add to the weak spot.
- Inflation (Fri): Lagarde emphasised a ton of instances that they’re in an excellent place in the intervening time. Inflation below management, the economic system rising, what’s to not like outdoors of all of the uncertainties and dangers? The benign inflation surroundings is more likely to be mirrored within the July studying, however for the ECB, will probably be way more related what’s going to occur to the US-EU commerce relationship because the 1 August deadline approaches.
THINK Forward in Central and Japanese Europe
Poland
Flash CPI (Thu): Markets might be intently watching the July flash CPI launch, which is anticipated to strengthen expectations of additional charge cuts by the Nationwide Financial institution of Poland (NBP). We estimate that headline inflation in July eased barely to simply under 3% year-on-year, down from 4.1% within the earlier month. In July 2024, family power costs had been partially unfrozen, which had boosted annual CPI progress over the previous 12 months.
With this base impact now dropping out of the annual comparability, inflation ought to decline considerably. Though the electrical energy capability payment has been reinstated this July, the power regulator has authorized new tariffs which might be anticipated to cut back the typical gasoline invoice by round 10%.
General, we anticipate CPI inflation will stay near the NBP’s goal of two.5% year-on-year (±1 proportion level) within the coming months. This supplies policymakers with ample room to proceed easing. We forecast a 50-basis-point charge minimize in September, adopted by an extra 25-basis-point minimize, on prime of the 50bp delivered in Could and 25bp in July.
Hungary
GDP (Wed): The primary occasion for Hungary is the preliminary launch of second-quarter financial efficiency information. With each the Ministry for Nationwide Economic system and the Nationwide Financial institution of Hungary having shared their nowcasts, which present stagnation for Q2, we don’t have to make wild guesses. We agree with this evaluation, that means that Hungary will in all probability keep away from one other technical recession, albeit narrowly.
Nevertheless, because of the working day impact, the uncooked year-on-year determine might be unfavourable, and the seasonally adjusted determine will present stagnation (one thing between ±0.1%). The economic system was held again by trade and agriculture because of world demand and native climate points, respectively. Nevertheless, providers and building will counterbalance these negatives, leading to flat financial efficiency.
Czech Republic
PMI (Fri): The economic system doubtless carried on in a stable progress mode in 2Q25, supported by vivid shopper spending, booming building, and a gradual bottoming out of the trade. The import and export half is likely to be difficult because of the tariff-induced wave of front-loading. We count on the economic PMI to stay within the expansionary territory, but not removed from the 50-point borderline, suggesting a gradual restoration in manufacturing.
Key Occasions in Developed Markets Subsequent Week
Supply: Refinitiv, ING
Key Occasions in EMEA Subsequent Week
Supply: Refinitiv, ING
Watch Again: Stress-Testing Our Name for the ECB and Market Charges
On this reside webinar, which got here only a day earlier than the ECB’s July assembly, economist James Smith sat down with Carsten Brzeski and Michiel Tukker to speak by their key requires the eurozone and euro market charges – and, crucially, the dangers that would show them fallacious.
Disclaimer: This publication has been ready by ING solely for info functions no matter a selected consumer’s means, monetary scenario or funding aims. The knowledge doesn’t represent funding advice, and neither is it funding, authorized or tax recommendation or a suggestion or solicitation to buy or promote any monetary instrument. Learn extra
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