The Weekly Look at the Global Economy and Markets

We are coming off a week of fluctuating economic and market news, especially on the geopolitical and tech fronts, interspersed with FIFA-related controversies. The latter included officiating that was viewed by virtually everyone as consistently favoring Argentina in its game against Egypt. All this fueled quite a bit of debate and, with the exception of some Fed news, did little to clarify what lies ahead.

As tensions between the US and Iran mounted throughout the week, President Trump declared that “the ceasefire is over.” He also announced that the US would continue technical talks with Tehran, including meetings in Oman this weekend. The result was renewed volatility in oil prices, though it remained narrowly contained as markets continued to believe that, while skirmishes are likely to continue, neither side has an appetite for a return to widespread military confrontation. Consequently, oil prices rose only moderately, ending at $71 for WTI and $76 for Brent.

On the tech side, a rather wild week for Korean names spilled over to the US, causing index volatility that was just as notable as the swings seen in single names. On the bond side, Amazon’s new debt issue had a rather lackluster opening performance. Both developments suggest that the consequential questions extend beyond immediate market moves to whether this could translate into tighter overall funding conditions for the tech sector—and, ultimately, whether that impacts the broader economy.

The Fed also captured market attention with the publication of its minutes, the monetary policy report to Congress, and Thursday’s task force announcement. All three confirmed that the institution is reinvigorating under its new Chair, Kevin Warsh, including an institution finally willing to understand and correct the series of slippages of recent years. The membership of the new task forces was notable not only for the universally respected and qualified individuals named, but also for a collective depth that offers considerable diversity of experience and expertise, both domestic and international. This should pave the way for insightful recommendations and a relatively smooth internal and external buy-in process.

The Bottom Line on Economic Data

United States: The economic data front was largely supportive. America’s ISM non-manufacturing data confirmed that the services sector remains aligned with tech spending in driving overall economic activity. Meanwhile, the labor market remains solid, with weekly jobless claims coming in at 215,000.

Europe: The news was more mixed. Encouraging signs came from Germany, Europe’s largest economy, where manufacturing beat expectations after a long string of disappointments, while inflation was softer than many expected. By contrast, Eurozone retail sales remained muted, rising just 0.2% on the month.

China: The most notable development was the widening gap between CPI and PPI inflation. CPI inflation came in lower at 1.0% on an annual basis, while PPI inflation rose to over 4%. That said, monthly PPI inflation turned negative (-0.3%).

New Issuance

The South Korean tech firm Hynix was extremely well received in the US market. The stock surged 13% on its first day of trading after raising $26 billion, fueling speculation that more Korean companies will follow suit.

Other Notable Market Developments

UK’s “High Beta” Status: Further evidence has emerged of the UK’s high-beta sensitivity, particularly in how borrowing costs respond to oil price moves. Closing a volatile week, the yield on 10-year Gilts ended at 4.87%—illustrating the challenging initial conditions that Andy Burnham will inherit upon becoming Prime Minister.

Japan’s Capital Allocation: Japan’s Ministry of Finance suggested that domestic investors should allocate more capital to local instruments. This eased some pressure on the currency and rates, though not materially. The Yen ended the week at 161.69 per US dollar, and 10-year JGBs closed at 2.71%.

Market Snapshot: US yields rose, with the 10-year ending the week at 4.56%. Gold finished higher at $4,129 per ounce, as did Bitcoin at $64,098. The DXY dollar index closed at 100.95.

The Week Ahead

The World Cup quarter-finals (today) and semifinals (Wednesday and Thursday) aside, the upcoming week will provide an interesting set of data points—particularly for the US and China—as well as central bank commentaries. US data on consumer and producer prices and retail sales are part of a massive macro slate that will be closely scrutinized. Markets are looking for confirmation that the forward-looking disinflationary process remains on track without signaling a broader, more damaging economic slowdown or consumer exhaustion.

Key US data

CPI Inflation: Consensus forecasts look for annual headline CPI of 3.8% for June (down from 4.2% in May) and a core measure of 2.9% (unchanged). Underlying these forecasts are monthly inflation readings of -0.1% and 0.2%, respectively.

PPI Inflation: Monthly PPI is expected to moderate across all major measures, including a drop in headline from 1.1% to 0% and core from 0.8% to 0.3%. Divergent base effects are projected to result in lower annual headline (dropping from 6.4% to 6.2%) but higher core (rising from 4.9% to 5.2%).

Retail Sales: Spending is expected to moderate after May’s strong readings. Consensus forecasts look for monthly headline and “control group” readings of 0.3% (down from 0.9% in May) and 0.5% (down from 0.7%).

Additional US Data: The monthly budget balance, NFIB small business sentiment, Empire manufacturing, weekly jobless claims, industrial production, terms of trade, and the University of Michigan sentiment and price measures.

Central Bank Commentary

Look for plenty of Fedspeak beyond Chair Warsh’s first appearance before Congress for the semiannual monetary policy report. It will be particularly interesting to see whether other FOMC officials follow Governor Waller’s signal that he is open to Chair Warsh’s view on the limitations of the current approach to forward policy guidance. Markets will also be listening to gauge whether policymakers are ready to move away from excessive data dependence and to follow Warsh in his preference for a more strategic, forward-looking view.

Global Data Calendar

Eurozone: Trade and inflation data, industrial production, and employment.

Japan: Industrial production and net foreign purchases of securities.

UK: Industrial production, trade, and monthly GDP.

China: Trade data, GDP, retail sales, industrial production, and FDI.

India: Trade and inflation (CPI and PPI).

Argentina: Budget balance and CPI inflation.

Brazil: Retail sales and economic activity.

Mexico: Wages.

Corporate Earnings

On the corporate side, the banks launch a heavy week of quarterly releases, including Bank of America, Citigroup, JPMorgan Chase, Morgan Stanley, and Wells Fargo. They will be followed later in the week by several others, including GE Aerospace, Johnson & Johnson, and Netflix.