In this episode:
- US Tariff Policy and Market Implications
- Global Macro Outlook: China, Germany, Australia, Japan
- UK Macro: Data, Fiscal Policy, and the BoE
US Tariff Policy and Market Implications
- Tariff delay masks complexity ahead: While the July 9 tariff deadline passed quietly, the next milestone on August 1 could trigger greater market volatility, especially given the complex and politically driven nature of the US's tariff stance—Brazil being a key case study.
- Inflation and growth data take centre stage: With US CPI and PPI due next week, markets will assess the inflationary impact of tariffs, while Thursday’s retail sales will offer insight into growth resilience.
- Equities face tariff test in earnings season: Q2 earnings kick off with banks, where forward guidance and provisions may provide a read on how tariffs and macro pressures are being priced into equity sentiment.
Global Macro Outlook: China, Germany, Australia, Japan
- China data to gauge tariff impact: A full suite of June activity data plus Q2 GDP will offer crucial insight into the health of China’s economy and potential ripple effects from global trade policy.
- Germany watched for signs of fiscal lift: With the ZEW sentiment index out Tuesday, markets will look for evidence that Germany’s recent fiscal expansion is starting to show through after persistent data weakness.
- Japan and Australia caught in trade crosswinds: Australia’s jobs data follows an RBA surprise hold, while Japan’s CPI arrives against a backdrop of weak wage growth, US trade negotiations, and a key upper house election that may drive fiscal policy shifts.
UK Macro: Data, Fiscal Policy, and the BoE
- Inflation and employment in focus: UK CPI (Wednesday) and labour data (Thursday) will be key in assessing whether weakening demand and falling employment are starting to feed through into prices.
- Productivity revisions cloud fiscal path: The recent OBR downgrade to productivity expectations adds pressure to the Chancellor’s fiscal strategy—raising the risk of policy tightening into economic weakness.
- BoE tone under scrutiny: Governor Bailey’s Mansion House speech could reveal how fiscal constraints are shaping a more dovish Bank of England outlook, with potential implications for rates and FX not yet priced in.
Transcript (AI Generated)
Matt Jones
Welcome to "The Long & Short of the Week Ahead", a production of Eurizon SLJ Capital that takes a look at the macro-economic themes of the week ahead and has been recorded for professional investors.
My name is Matt, Head of Distribution for Eurizon SLJ Capital, and I'm joined by Neil Staines, Senior Portfolio Manager.
Welcome back, Neil. It's great to have you here with us again.
Neil Staines
Thank you very much Matt. It's great to be here.
Matt Jones
The Liberation Day tariff 90 day pause deadline came and went without much direct consequence this week. So how are we looking at the tariff debate from a US perspective into next week and beyond?
Neil Staines
Yeah, that's a good point, Matt. And a very important question for markets. Now, the July 9th tariff-delayed deadline passed, as you say, with little incident, this week certainly with little volatility, at least in part due to the fact that there has been a further delayed start to the newly imposed tariff levels. And even those are open to negotiation prior to the new August 1st deadline.
Brazil was an important case in point this week, as the Trump administration imposed a 50% forward-starting tariff on all goods. However, that does exclude copper, which attracts a 50% tariff; steel and aluminum, which attract a 50% tariff; autos, which attract a 25% tariff; and a pending tariff on pharmaceuticals, which we’re led to believe could be somewhere up to around 200%.
So, a very complicated issue for Brazil, being that the US motivation appears to be largely political, making compromise much more complex for Lula et al.
So whilst this week passed with little incident, there is certainly an increase in complexity going forward. We expect trade and tariff negotiations to remain a dominant focus for markets, and for volatility to rise into that August 1st deadline, as we see a smaller chance of any further extensions from here.
Now, it’s not just headlines and negotiations that have been the focus. Tariffs will be a big focus next week in the US data, as markets assess the tariff impact on both inflation, with CPI and PPI next week on Tuesday and Wednesday, and also on growth, as we get retail sales this Thursday.
And lastly, the impact of tariffs will be closely watched in the equity space with the start of Q2 earnings. Next week we kick off with the banks, with forward guidance and provisions likely key to the sentiment in the equity space going forward.
So, after a relatively quiet week, there is potentially more to drive volatility next week with tariff policy front and center.
Matt Jones
And how about globally? What are the key global macro focal points next week?
Neil Staines
Yeah, absolutely. On the global data front, it is also something of a step up from a quiet week this week. On Tuesday, we get China Q2 GDP data and the China suite of data for June. That's retail sales, industrial production, fixed asset investment, and unemployment.
Another important barometer for the Chinese economic trajectory and the impact of tariffs on exports and growth domestically will be very closely watched through this data. On Tuesday, we also get the German ZEW print for July. Recent German data has continued to disappoint, so we'll be looking for some signs that the fiscal expansion positivity is starting to take hold in Germany.
On Thursday, we get the Australian unemployment data for June. This comes after the RBA surprised the market this week by not cutting rates by 25 basis points, as the market had expected, preferring instead to wait for more data amid the trade uncertainty. And indeed, Governor Bullock stated that it was about timing and not direction. The employment data this week will thus add to the debate about future monetary urgency.
And then on Friday, we get Japanese CPI. Disappointing real wage growth this week weighed on yields and the yen, but it's increasingly clear that Japanese monetary policy is taking a backseat — firstly to the ongoing US and Japan trade negotiations and the economic impact that’s likely to have, and secondly to the important upper house election on July 20th, now fast approaching, and the resulting fiscal impulse as a result of that.
Overall, a very interesting and diverse week for global data.
Matt Jones
And after a relatively quiet data calendar for the UK of late next week looks a little busier. So how are we thinking about the UK next week?
Neil Staines
Yeah, absolutely. Thanks, Matt. It's potentially a very big week for the UK next week.
On the data front, we have the CPI for June on Wednesday. That's going to be a very important focus, looking for signs of any weaker demand in prices. We also get the employment report on Thursday. Employment has fallen in every month since the autumn budget increase in the national insurance contribution in the UK, and this data is likely to be very closely watched for any signs of stabilisation — or not.
Now, alongside the political debate that likely expands upon the OBR’s downward revision to productivity, which was highlighted this week, that will have further troubling consequences for the Chancellor's fiscal path. And this is something that we discuss a little bit further in this week's blog.
The UK looks like it may have to tighten fiscal policy into a growth slowdown, just as Europe is starting to do exactly the opposite. And also, perhaps a little bit more under the radar, we'll be closely watching Governor Bailey's Mansion House speech on Tuesday.
Pressure on the government’s finances is likely to imply a more dovish Bank of England reaction function in the second half of the year. That's certainly been our long-held view, and an important theme from our perspective — and one not yet priced by markets, in rates or in the FX space.
So, a big week for the UK and a big week for the Bank of England.
Matt Jones
Fantastic. Thank you for joining us once again and outlining your thoughts on the week ahead. I look forward to catching up with you again next time.
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