Tariff Talk Retakes Center Stage 

For the week ending 11 July 2025

As of midday Friday, global equities were slightly lower on the week, but not before the S&P 500 posted an all-time high on Thursday. The yield on the US 10-year Treasury note rose 7 basis points on the week to 4.41% and the price of a barrel of West Texas Intermediate crude oil rose $0.90 to $67.50. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 17.5 from 18.1.

MACRO NEWS

Trump delays tariff hikes until August 1

The 90-day pause on the Liberation Day tariffs ended Wednesday, but US President Donald Trump set a fresh deadline of August 1, giving negotiators from the United States’ largest trading partners to work toward interim agreements. That deadline will not be extended, Trump said. The president turned up the heat on some of the US’s largest trading partners such as Japan and South Korea, threatening to raise tariffs close to the Liberation Day levels of 25%. Tariffs on goods from Canada that are not compliant with the USMCA agreement will be subject to 35% levies, Trump said Thursday, while suggesting the universal baseline tariff may be raised to either 15% or 20%. Trump also sent letters to almost two dozen smaller countries laying out August 1 tariff rates of between 24% and 50% if they are unable to reach agreement with the US in the coming weeks. Neither the European Union nor China received letters, suggesting that good faith negotiations remain ongoing. Trump also threatened members of the BRICS countries with additional 10% tariffs above the US-specified rate if they align themselves with what Trump called the group’s anti-American policies. Markets took the fresh flurry of trade news mostly in stride in anticipation of agreements being reached with the largest exports to the US in the coming weeks. However, sectoral tariffs continue to be rolled out, with Trump announcing a 50% tariff on copper to come into effect in coming weeks while threatening 200% pharma tariffs over the next 12 to 18 months (giving companies time to reshore drug production in the US).

Long-term bond auctions go smoothly

A poor 20-year US Treasury bond auction in late May, along with hiccups in Japan and the United Kingdom around the same time, has increased market focus on the results of long-term bond sales. Three this week, 10s and 30s in the US and a 20-year bond sale in Japan, all went smoothly. The uneventful auctions soothed fears that the market had lost its appetite for long-dated sovereign debt and allayed fear of ever-steepening yield curves in the most indebted countries. 

QUICK HITS

US Treasury Secretary Scott Bessent said this week he expects to meet with his Chinese counterpart in the coming weeks to discuss trade and other issues. Bessent and Commerce Secretary Howard Lutnick will travel to Tokyo next week for trade talks.

Israeli Prime Minister Benjamin Netanyahu said Thursday that Israel will give 60 days for US diplomacy to remove the Iranian nuclear threat. If negotiations fail, the objective will be met through other means, he said.

OPEC+ will increase production by 548,000 barrels per day in August, up from previously announced 411,000 bpd increase.

Amid ongoing trade strife, US imports from China fell 28.3% in June.

The Reserve Bank of Australia unexpectedly left its policy rate unchanged at 3.85% this week amid global uncertainty.

Goldman Sachs raised its 12-month S&P 500 forecast to 6,900, a gain of about 11% from current levels. The firm expects earlier and deeper Fed rate cuts and lower bond yields and continued fundamental strength from the largest stocks.

A Federal Reserve Bank of New York survey showed that one-year inflation expectations have fallen back to 3%, their pre-tariffs level.

President Trump said that Fed Chair Jerome Powell should resign if he misled Congress about $2.5 billion in renovations to the central bank’s Washington, DC headquarters. Office of Management and Budget Director Ross Vought said that mismanagement of the Fed was evident with the project resembling the Palace of Versailles. However, on Friday morning, Trump ruled out firing Powell.

This week, AI chipmaker Nvidia became the first company to achieve a $4 trillion market capitalization.

Minutes of the June FOMC meeting showed that policymakers remained content to wait and see how tariff passthrough will impact inflation. Most participants said that some reduction in the funds rate would be appropriate this year.

Concentration in the S&P 500 has returned to extreme levels, with the top 10 companies accounting for 40% of the index’s market capitalization and a record-high share of earnings, according to Apollo Global.

Bloomberg reported Thursday that the export price index for Japanese vehicles shipped to North America plunged 19.4% from a year earlier, suggesting that automakers are absorbing US tariffs.

German companies are the most optimistic about the economy since early 2022 and, for the first time in two years, plan to boost investments, according to a report by S&P Global Market Intelligence. Firms highlighted that the upcoming ramp up in public spending, alongside technological advancements, are expected to support a broader economic upturn over the next 12 months.

Producers prices in China fell 3.6% year over year in June, the thirty-third monthly drop in a row.

Canada’s economy gained 83,000 jobs in June, belying the consensus forecast for zero growth. The country’s unemployment rate fell to 6.9% from 7%, though wage growth slowed. 

THE WEEK AHEAD

Monday: Japan industrial production

Tuesday: Eurozone ZEW expectations survey and industrial production; US and Canada CPI

Wednesday: UK CPI; US PPI and industrial production

Thursday: Japan trade balance; UK unemployment; eurozone CPI; US retail sales

Friday: US housing starts, University of Michigan survey

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.