OBBB, Trade Progress, Solid Data Send Stocks Higher

For the week ending 3 July 2025

As of midday Thursday, global equities moved further into record territory amid solid US economic data, the likely passage of the US budget reconciliation bill and some movement on the trade front. The yield on the US 10-year Treasury note rose 8 basis points from last Friday to 4.34% as odds of a near-term Fed rate cut diminished. The price of a barrel of West Texas Intermediate crude oil rose $1 to $66.60. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), declined to 18.1 from 18.7.

MACRO NEWS

US payrolls handily beat expectations

Economists had expected an uptick in the unemployment rate and a slower pace of job gains, but the US economy added more jobs than expected, gaining 147,000 in June, with upward revisions of 16,000 jobs over the prior two months, breaking a streak of downward revisions. The unemployment rate fell to 4.1%, the lowest since February, against expectations for a rise to 4.3%. Average hourly earnings were muted, gaining 3.7% year over year, down from 3.8% in May, and the average workweek declined 0.1% to 32.1 hours. Odds of Fed rate cuts fell immediately after the report to fewer than two cuts through year end from 2.6 cuts at Wednesday’s close.

Big Beautiful Bill looks headed for passage

Having passed in the Senate on Tuesday, the US budget reconciliation bill looks set to pass in the House of Representatives once House Minority leader Hakeem Jeffries finishes a marathon speech delaying the final vote. The legislation overcame a procedural hurdle early Thursday morning, paving the way for passage. Among the market-friendly provisions included in the bill are 100% bonus depreciation of domestic capital expenditures on manufacturing equipment and structures and the permanent, immediate expensing of research and development.

Trump announces trade deal with Vietnam

US President Donald Trump announced on Wednesday that a trade agreement with Vietnam has been reached. Exports to the US will be subject to a 20% tariff while goods transshipped from China will face 40% levies. The pact is seen as a potential template for other countries in the region with tariffs above the 10% baseline rate but below the high Liberation Day levels. Shoe, apparel and retail companies with exposure to imports from Vietnam rallied on the news. Early in the week, Trump threatened to impose high tariffs on Japan due to Japan’s refusal to import rice from the US, saying he doubts a deal can be reached. The president said Monday that he doesn’t think he’ll need to extend trade talks past July 9. European Commission President Ursula von der Leyen said Thursday that the European Union is aiming for an agreement in principle with the US on trade. Also on Thursday, US Treasury Secretary Scott Bessent warned countries to not drag out talks, saying tariffs could revert to April 2 levels. Bessent meets with negotiators from the EU on Thursday.

Powell: Can’t rule out July cut

Speaking at the annual ECB Forum on Central Banking in Sintra, Portugal on Tuesday, US Federal Reserve Chair Jerome Powell repeated that the central bank remains in wait-and-see mode as it anticipates an uptick in tariff-induced inflation this summer. However, he said he “can’t say” that it would be too soon to consider a rate cut in July. Powell said that he wouldn’t take any meeting off the table since the Fed is data-dependent. However, Thursday’s stronger-than-expected US labor data will likely keep the Fed sidelined through the summer.

QUICK HITS

Global purchasing managers’ indices crept up in June amid a lull in the trade war

Canada dropped its digital sales tax in an effort to revive trade talks with the US.

A US Supreme Court decision late last week limiting nationwide injunctions by lower federal courts is seen as easing the regulatory burden on corporations. Previously, a single federal judge could issue a nationwide injunction, effectively blocking a regulation or executive order for all corporations and individuals, regardless of their direct participation in the lawsuit.

Bloomberg reported this week that the European Union is willing to accept Trump’s 10% universal tariff but is seeking exemptions and wants the US to commit to lower rates on key sectors such as pharmaceuticals, alcohol, semiconductors and commercial aircraft.

The Tankan index, which measures business sentiment among large manufacturers, improved to 13 in Q2 from 12 in Q1.

Preliminary eurozone CPI rose to 2% in June from 1.9% in May, matching the European Central Bank’s target.

The US job openings rate unexpectedly rose in May to 4.6% from 4.4% in April.

An effort to trim £5 billion in welfare spending from the United Kingdom’s budget failed Tuesday, increasing pressure on the government to close a hole in the nation’s budget. Yields rose and the pound fell after Prime Minister Keir Starmer offered only tepid support for Chancellor Rachel Reeves on Wednesday morning.

Eurozone unemployment edged up to 6.3% in May from 6.2% from April.

The European Parliament will debate a no-confidence motion against European Commission President Ursula von der Leyen on Monday and vote on the motion Thursday. The effort is seen as having low odds of success.

Iran announced this week that it is suspending cooperation with the IAEA and will not allow international inspectors the opportunity to assess damage on its nuclear sites. Iran is a party to the Non-Proliferation Treaty, which obliges it to accept IAEA inspections.

Minutes of the June ECB meeting showed that policymakers are concerned that the strong euro could reinforce headwinds for European exporters. ECB officials echoed those concerns at its annual forum in Sintra this week.

The Wall Street Journal reported Thursday that the US has lifted some curbs on exports of chip-design software to China, according to three companies that say they are working to restore access to recently restricted products. Separate reports indicated that the US has okayed the resumption of ethane exports to China.

Treasury Secretary Bessent indicated this week that increasing sales of longer-term Treasuries with current high yields wouldn't make sense, and instead, the government may rely more on issuing bills. Wall Street had expected increased issuance of long-term debt.

THE WEEK AHEAD

Monday: Eurozone retail sales

Tuesday: Australia RBA rate decision; US NY Fed inflation expectations

Wednesday: US end of 90-day tariff pause, minutes of June FOMC meeting

Thursday: Eurozone CPI

Friday: UK GDP, industrial production, Canada unemployment rate

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