RECAPPING LAST WEEK

U.S. equity indices wobbled but still stayed near all-time highs despite additional trade war and tariff escalations. The S&P500, Nasdaq Composite, and Russell 2000 indices all finished marginally lower for the week. Six of eleven S&P500 sectors lost ground, including technology which failed to close higher even as Nvidia became the first company to exceed a $4 trillion market capitalization.

In the commodity space, copper futures soared nearly 9% after President Trump proposed a 50% tariff on imports of the metal, which is a critical component of military hardware, electric vehicles, and many consumer goods. Gold futures rose more than 1% while silver prices spiked 5.5% to $39.15—their highest level since September 2011. Crude oil gained 2% after OPEC ministers and heads of western oil majors said that recent output boosts are not leading to higher inventories, which suggests an increase in global demand. Bitcoin jumped 7% to fresh record highs above $118,000. Auctions for 10- and 30-year Treasuries were met with solid demand but yields still pushed higher by week’s end. Aggressive tariff talk directed toward Japan, South Korea, Brazil, and Canada heightened inflationary concerns. The U.S. dollar also rose as currency traders speculated that tariffs may not damage the U.S. economy as much as initially feared and that interest rates could remain at or near current levels.

Turning to economic data, Americans’ inflation outlook was little changed last month while households grew more optimistic on their finances, according to the New York Fed Survey of Consumer Expectations. Small business confidence slipped slightly in June as firms fretted over excess inventories. Minutes from the most recent FOMC meeting revealed that expectations for how tariffs might impact inflation differed. New rate projections showed that 10 of 19 officials expect at least two rate cuts by year-end, seven members project no cuts, and two members expect only one. Overseas, Australia’s central bank chose to wait for more confirmation that inflation was easing before cutting rates, surprising market participants. Governor Bullock said the bank remained committed to loosening monetary policy provided that Q2 CPI is in-line with forecasts. China’s producer price index continued to tumble, falling 3.6% YoY in June. Consumer inflation edged slightly higher but domestic demand was still weak, adding pressure on policymakers to provide additional fiscal support. In Europe, the investor confidence index rose 4.4 points this month to reach its highest level since February 2022. Finally, Britain’s economy contracted for a second straight month in May, dashing hopes for Q2 GDP growth and adding to rate cut expectations.

THE WEEK AHEAD

Investors continue to shrug off the trade war drama, with the Cboe Volatility index falling to a five-month low of 15.70 last week. However, the recent rally in stocks will be tested this week by a slew of economic data, highlighted by U.S. inflation figures, retail sales, and corporate earnings announcements.

The forecast for Tuesday’s June U.S. CPI release is a 0.3% increase, up from the prior reading of 0.1%. Economists expect this report to be the first where inflationary effects from tariffs could show up, and any upside surprises could rankle markets. The producer price index will follow on Wednesday. The resilience of U.S. consumers has been impressive, and Thursday’s retail sales report is expected to show a rebound from the prior month’s drop. The large U.S. banks—most of which recently raised their dividends and announced new share repurchases after passing the Fed’s annual stress tests—will kick off earnings season this week. Netflix, Taiwan Semiconductor, Pepsico, and 3M are among other companies of note scheduled to report. The rest of the domestic calendar features Empire State and Philly Fed manufacturing indices, building permits and housing starts, and this month’s preliminary consumer sentiment reading.

On the international side, later tonight China will release GDP, industrial production, and retail sales data for June. The UK reports crucial inflation and employment figures, while economic sentiment surveys are on the docket for Germany and the wider Eurozone. Japan’s nationwide CPI rounds out the week ahead.

(Schwab)