“U.S. GDP Fuels Fed Cut Bets, Dollar Slides; Global Markets Eye Tariff Deals

This global macroeconomic update reviews key economic indicators, central bank moves, and trade dynamics shaping markets worldwide. From steady inflation in the US to easing measures in Europe and mixed signals in Asia, investors are recalibrating expectations as tariffs and cost pressures persist.

Global Macroeconomic Update: US Spending & Inflation Trends

• Consumer Spending & Inflation: Consumer spending declined by 0.1% in May, following a 0.2% increase in April. PCE inflation was up 0.1% MoM and 2.3% YoY. Core PCE rose 0.2% MoM and 2.7% YoY. These figures suggest inflation remains steady rather than softening or accelerating sharply.
• Fed Commentary: Richmond Fed President Barkin warned that tariffs are beginning to feed into inflation, as businesses pass on higher input costs. This adds to inflationary pressure even if the full effect hasn’t materialized yet.

Europe and UK: ECB Easing Amid Trade Tensions

• ECB & Inflation:
  • The ECB lowered rates to 2% earlier in June, continuing its easing cycle.
  • Eurozone inflation dropped to 1.9% in May; core inflation slowed to 2.3%.
  • ECB Vice President de Guindos affirmed inflation is on track to the 2% goal, but trade tensions present a policy risk.
  • At the Sintra forum, ECB researchers proposed reconsidering the traditional 2% inflation target in favor of metrics focused on discretionary spending.
  • ECB’s Schnabel highlighted U.S. tariffs as a possible new inflation source for the euro area via higher production costs.
• UK Developments:
  • UK grocery price inflation surged to 4.7% in June—highest since early 2024.
  • The Bank of England held rates at 4.25% on June 19, citing a weakening labor market; gradual cuts are anticipated.
  • UK vehicle production plunged 32.8% YoY in May, hurt by U.S. tariffs and weak demand from both the U.S. and EU.

Asia: Mixed Signals from China and Japan

• China:
  • Industrial profits in May fell sharply by 9.1% YoY, after two months of growth. Ongoing factory deflation and tepid demand persist as structural challenges.
• Japan:
  • Tokyo’s core CPI eased to 3.1% in June from 3.6% in May, still above the BoJ’s 2% target.
  • The BoJ emphasized that “underlying inflation” (driven by wages and demand) remains subdued, complicating policy direction.
  • Manufacturer sentiment slipped in June (diffusion index fell to +6 from +8), reflecting uncertainty tied to tariffs and weak Chinese demand.
• Asia Markets:
  • Asia-Pacific equities reached their highest level since November 2021; Japan’s Nikkei crossed 40,000.

EMEA (Emerging Markets, Middle East, Africa)

• Investment Flows:
  • Global equity funds saw $20.9B in outflows this week, the second consecutive weekly decline.
  • Conversely, precious metals and energy funds recorded notable inflows, especially amid volatility in currency markets.
• Gold & Sentiment:
  • Gold prices dropped ~2% this week, now near $3,261/oz, reflecting decreased demand for safe-haven assets as geopolitical tensions eased.

Global Macroeconomic Update: Commodities and Sentiment Shift

• Gold: Down ~2% this week as risk appetite rose and geopolitical stress declined.
• Energy: Continued interest in energy funds amid oil market stability.
• Crypto: Stable with low volatility, awaiting direction from macro data.

Key Takeaways

1. U.S.: Mixed data—spending weak, inflation stable, and tariffs posing new risks. Fed likely to stay cautious near-term.
2. Euro Area: ECB dovish but watching global trade risks; inflation nearing target, but tariff pass-through is a concern.
3. UK: Cost pressures persist; industrial activity hit by tariffs.
4. China/Japan: Industrial softness in China; Japan grappling with mixed inflation signals.
5. Global: Shift toward commodities; equity sentiment pressured by trade uncertainty and rate path ambiguity.