“As you go through life, you’ve got to see the valleys as well as the peaks” Neil Young

Ahead of earnings this week and some notable economic data, including US Consumer Inflation, which is expected to show some reacceleration. The market was reminded last week that the tariff threat has not entirely disappeared. President Donald Trump has once again focused on trade policy, threatening to resurrect higher reciprocal tariffs on many countries in the coming weeks. As a result, US stocks paused for breath, ending a three-week winning streak. 

The minutes of the last Fed meeting showed that the committee is divided on interest rate policy, with most remaining cautious about potential rate changes; however, there was a general consensus for a cut at some point, and the disagreement was mainly over the timing. Treasury yields gradually increased towards the end of the week following tariff announcements. Overall, it seems that markets continue to support the view that Trump often backs down. Powell’s position as Fed chair remains under scrutiny after reports last week suggested he misled Congress about the costs of renovations to the Fed’s headquarters.

After last week’s disappointing, but probably not entirely surprising, weak GDP report, Rachael Reeves delivers her Mansion House speech this week, where she will attempt to convince the City that she has a grip on the economy and will not let borrowing get out of control. She will also announce a relaxation of rules to make the UK more competitive, including reforms to the senior managers regime. Her main goal will be to persuade the market that the economic death spiral of spending, borrowing, and taxing can be halted.

The 2nd quarter earnings season begins this week, with the major banks leading the way, starting with JP Morgan. They are closely followed by Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. On Wednesday, Johnson & Johnson reports, and Thursday looks to be busy with General Electric, Pepsi, and Netflix likely making headlines.

On the macro front, we receive a batch of Chinese economic data on Tuesday, including GDP figures, retail sales, and industrial production. We also get the monthly estimate for US inflation, which is expected to rise slightly from 2.4% to 2.6% year on year. On Wednesday, we receive the equivalent indicators for the UK economy, likely showing little change in the year-over-year rate at 3.4%. Then on Thursday, the UK’s monthly employment data are due, with the unemployment rate expected to remain at 4.6%, while average earnings are anticipated to fall slightly. There is also a raft of economic reports from the US on Thursday, with highlights potentially being monthly retail sales data and jobless claims. Finally, on Friday, we will see Michigan Consumer Confidence and inflation expectations.

European markets are indicating a slight decline at the open, likewise the US futures.

Finally, I have to put in a word for Neil Young, who was amazing performing at Hyde Park on Friday night. Hopefully, those who were at Glastonbury, who did not appreciate his performance, will one day come to understand what a privilege it is to see a performer of his skill live. I certainly did, as did all those who went on Friday. On the same bill were Cat Stevens and Van Morrison; they don’t make ’em like that anymore.