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Daily Economic Update
29.06.2025US: Progress on trade with China, but escalation with Canada as White House describes July 9 deadline as “not critical”. The US and Chinese authorities confirmed the trade framework that was initially agreed in their bilateral talks in Geneva. The confirmation should allow for easing restrictions on the flow of rare earth elements from China, a key flashpoint, but details were still few at this stage. The talks between the EU and the US were also said to be progressing well and an initial deal could be reached before the July 9 deadline, with US Secretary of Commerce Lutnick expressing hopes on an agreement soon. President Trump stated that a trade deal, a “very big one”, maybe with India, could also be signed soon. Lutnick also mentioned that there were plans to reach agreements with a total of 10 trading partners in the next two weeks. Treasury Secretary Bessent meanwhile hinted that the timeline could be extended for certain important partners seeking deals, which he hoped to have “wrapped up by Labor Day” (September 1). Importantly, White House Press Secretary Karoline Leavitt told reporters that the July 9 deadline for re-instating the reciprocal tariffs is “not critical” and “perhaps it could be extended, but that’s a decision for the president to make”. Meanwhile, Trump retaliated against Canada’s plans to retroactively impose 3% digital taxes on the revenues of US tech companies operating in the country by halting all trade discussions with the country and vowed to announce a tariff rate on Canada in the next seven days. Additionally, for the third time in the last two months, Trump stated that the US administration would send out letters to trading partners specifying tariff levels in the next 10-day period. Amid these developments, uncertainty remains high about the upcoming July 9 deadline, when currently paused reciprocal tariffs should be reinstated. For now, US equity markets have shrugged off such confusion on trade policies, with the S&P500 hitting a new record high on Friday, closing up 0.5% d/d.
US: Trump seeks lower interest rates from new Fed Chair, while G7 agrees to drop OECD minimum global tax on US companies. Renewing his criticism of Fed Chair Powell for not reducing policy interest rates fast enough, President Trump mentioned that he would only pick a Fed Chair nominee that cuts rates, but news outlets highlighted that a decision on the next Chair was not imminent. Previously, on Thursday, it was reported that Trump would soon announce a Fed Chair from a shortlist of three or four candidates that would work as a shadow Chair during Powell’s remaining term, which ends in May 2026. Markets initially perceived this as a move to undermine the Fed’s independence and anticipated early rate cuts, which pushed the USD down sharply against major global currencies – the Dollar Index (DXY) fell over 1% at one point on Thursday. However, the role or influence of the so-called shadow chair is not straightforward given that the FOMC decisions are based on its 12 voting members. Finally, in another significant development, Bessent called Congress to drop the proposed ‘revenge tax’ on foreign investors from countries deemed to be imposing “unfair” taxes on US companies. Previously, the House version of the draft ‘Big Beautiful Bill’ had proposed 20% taxes in phases on investors of US assets from such countries that had spooked the financial markets. Following this, the other six members of the G7 agreed to exempt US companies from paying the OECD-related global minimum tax (15%) in their respective jurisdictions. However, details are unclear on how this would be implemented and how other OECD members would react to this.
US: PCE inflation mixed but consumer spending weakens further. PCE inflation in May inched up to 2.3% y/y from an upwardly revised 2.2% in April, with the core rate increasing to 2.7% from 2.6% earlier. On a monthly basis, too, core prices rose at the fastest pace in three months (0.2%, versus 0.1% in April), though overall price rises were steady (0.1% m/m). However, personal consumption spending dropped for the first time in four months, by 0.1% m/m, after a rise of 0.2% in April as uncertainties surrounding higher tariffs and other government policies severely dent consumer sentiment and take a toll on household spending. Meanwhile, amid weaker-than-previously estimated personal outlays, GDP in Q1 2025 contracted by a sharper 0.5% q/q (annualized) than initially reported (-0.2%) and an abrupt reversal from the 2.4% expansion recorded in the previous quarter (Q4 24). This primarily reflected an imports-driven deterioration in the trade deficit, while the negative variance compared to the Q1 initial estimate was due mainly to a sharp downward revision in consumer spending growth to 0.5% from 1.2% in previous estimates, led by weak spending on recreational services. A series of poor consumer expenditure readings further underscore the underlying economic weakness beyond the outsized trade imbalances that have distorted the headline GDP figures. Although GDP growth in Q2 will likely show a sharp rebound on a better contribution from external trade, more signs of developing fatigue in household spending do not bode well for the trajectory in H2. Finally, the goods trade deficit worsened to $97 billion in May from April’s 19-month low of $87 billion as importers may have advanced shipments during the current pause on ‘reciprocal tariffs’ that ends early next month.
Japan: Tokyo’s consumer price inflation eases in June, but underlying price pressures persist. Headline inflation for the Ku-area of Tokyo showed signs of cooling to 3.1% y/y in June from May’s 3.4%, with core inflation (excl. fresh food) slowing to 3.1% y/y, down from 3.6% previously. Moreover, a narrow measure, which excludes both fresh food and energy and serves as a key gauge of underlying demand-driven pressures, also eased to 3.1% (3.3% in May). Slower inflation came mainly due to the resumption of fuel subsidies and cuts to water bills, which provided some reprieve for households. However, non-fresh food continued to accelerate for the 11th month in a row, rising by over 7% y/y, underscoring continued cost-push pressures in non-energy sectors. While this slowdown provides some temporary relief for the Bank of Japan (BoJ), policy makers continue to closely monitor whether inflation proves sticky in the coming months as the BoJ board members start to diverge, with some calling for decisive rate hikes.
Saudi Arabia: Trade surplus narrowed in April on weaker oil exports, but non-oil exports strengthen. The merchandise trade surplus narrowed in April to SR14.2 billion (-62% y/y) from SR17 billion the previous month. This is the lowest reading since December 2024 and reflects a sharp decline in the kingdom’s oil export revenues (-21% y/y) to a seven-month low, coupled with a jump in imports (18%), mostly from machinery/mechanical appliances (25%) and vehicles & aircraft (64%). On the other hand, non-oil exports continued to see strong growth (20% y/y), with re-exports expanding by 72% y/y, the fastest pace in five months. Machinery and vehicles contributed the most to non-oil export growth, tying into the steep imports and re-export growth, with the UAE, India, and China the main non-oil export partners.