The coming week is a macro data heavy week for US. It has FOMC (Wed.), jobs (JOLTS, Tues.; Payrolls, Fri.), inflation (PCE deflator, Thurs.), Treasury supply (quarterly refunding announcement, Wed.), GDP (Wed.), consumer confidence (Tues.), and trade policy (Aug. 1st expiration of the pause on reciprocal tariffs). We expect the Fed to hold rates steady for the fifth straight meeting and largely maintain existing signals about the policy outlook. This decision is unlikely to be unanimous, however, as we expect two governors to dissent for the first time since 1993. In US macro data, we expect real GDP growth (data due on Wednesday) rebounded in Q2 and rose to 2.4% q-o-q ar following -0.5% in Q1. For July NFP data on Friday we expect a headline no of 100k with UR at 4.2%. Core PCE we expect to rise by .29% MoM in June. There is also 183 BN USD supply in total across 2,5 & 7 year USTs on Monday & Tuesday respectively. On tariff front, US customs collection for June were at 27 BN USD. Tariff-revenue based effective tariff rate was 9.8% in June (only 0.1pp up from 9.7% in May), well below a hypothetical level of 18.1% based on announced tariff rates and 2024 imports. Wider-than-expected tariff exemptions for Mexico and Canada and a sharp drop in Chinese imports, which face the highest tariff rate among US major trading partners, likely continued to keep the effective tariff rate from rising sharply. Going forward, the Trump administration will likely raise reciprocal tariff rates and introduce new Section 232 tariffs, and we expect the effective tariff rate to settle around 19%. But we expect it to be divided equally amongst exporters, intermediaries & end consumers. By the end of this week, we might have more sense of employment data as well as any possibility of Fed Chair Powell being amenable to a Sep cut. From a demand supply perspective, long end USTs have found near term tops at 4.55% in 10yr UST & 5.10% in 30-year USTs. But we are more comfortable on short end USTs where we like to receive 2yr UST & 1yr-1yr SOFR at current levels of 3.92% & 3.28 respectively. Markets are pricing in only 94 bps of cut till July’26 where as we expect 125 bps of cuts. In RoW events, last week's ECB meeting turned out to be more hawkish than our expectations. ECB Chair Lagarde was more hawkish at the ECB press conference than in June and appeared to materially raise the bar for further rate cuts. However, should the US and EU not achieve a trade deal, or the deal has a tariff rate higher than 15%, we believe this could force the ECB to resume cuts. Hence, we continue to expect at least 1 rate cut in either Sep or Dec’25 bringing the terminal rate to 1.75%. This is a change from our previous expected 50 bps cut in REMCY25. In BOC rate decision on 30th July, we expect status quo with a possibility of cuts in Q4CY25 if US Canada trade deal does not fructify. In BOJ meeting on 31st July, we expect increase in CPI estimates and status quo on growth estimates. We expect the current monetary policy stance to be maintained. The strength of the underlying inflation trend is increasing the need for an early interest rate hike by the BoJ. Furthermore, the agreement in tariff negotiations with the U.S. also increases the likelihood of an early rate hike by reducing tariff uncertainty. We expect the next rate hike to occur in October 2025, followed by subsequent hikes in January and July 2026, bringing the policy interest rate to 1.25%. This implies a return to the original pace of interest rate hikes, which had been delayed by U.S. tariff policies. Markets are predicting only 19bps of hike by end CY25 which we believe is a complacent view of BOJ monetary policy.
