In US macro data this week, the latest batch of June inflation reports will be the main focus. Tuesday’s CPI and Wednesday’s PPI releases will be heavily scrutinized by both investors and Fed officials for signs of tariff impacts. Core CPI inflation likely rebounded modestly to 0.24% in June. We expect few signs of broad-based price increases due to tariffs in the CPI print; however, we think some tariff-sensitive goods prices rose. Core PCE inflation will likely pick up in June to .29% MoM due to an increase in portfolio management and investment advice prices. The retail sales data for June is likely to be mute. Headline retail sales likely rose 0.3% m-o-m in June following a 0.9% decline in May. We expect nominal control retail sales likely grew 0.2% m-o-m, following a 0.4% increase in May. Market participants need not wait long for monetary policymakers’ reactions to the latest inflation data as nearly all speakers will come after Tuesday’s CPI. It is a heavy week for Fed speak with Williams speaking on Wednesday & Waller speaking on Thursday. US tariff picture remains muddled as ever. The announced rates have generally been close to liberation day levels, a hawkish surprise relative to our expectation that most trade partners would maintain rates close to the 10% across-the-board level currently in effect. Also Trump's increased appetite to use tariffs for political, rather than economic, reasons (Brazil & BRICS) take such policy into relatively uncharted territory (although not entirely unprecedented). As per our estimates, in the worse case scenario, trade weighted effective tariff can go to as high as 20% against the current 11%. But we believe a reasonable scenario will be 14-15% level after all the negotiations is over by 1st Aug. We continue to believe final tariff rates prediction is a tough task considering the ever-changing levels. Instead, we focus on if tariffs can lead to a large change in inflation expectations. We believe that the fact that producers, intermediaries & end consumers together will share the cost of tariffs. Hence, we expect the inflation fear of Fed Chair Powell misplaced. We continue to believe that Fed might cut rates by 50 bps in REMCY25, one 25 bps in Sep and another 25 bps in Dec. We also believe that NFP/UR won’t meaningfully move the needle for Fed to decide in favour of cuts as due to strict immigration controls, these data points won’t indicate the weak employment internals. Better indicators to look out will be loan delinquencies, credit off take, retail sales & consumer confidence. There is no dated UST supply this week. In RoW data, we expect a stronger than market estimate CPI for UK on Wednesday because recent food prices as well as BRC shop price index has been in an upswing. The UK labor data due on Thursday might remain subdued like last month's reading but wont deteriorate further. For EU, Trump's 30% tariffs implies further weakening & higher probability of rate cuts. The ECB will likely cut rates below neutral, and we forecast a terminal depo rate of 1.50%, with 25bp cuts in September and December. In Canada June CPI data due on Tuesday, headline CPI inflation likely slowed to less than 0.2% MoM in June.
