- The US Senate passed Trump’s bill on tax cuts and spending on Tuesday.
- Investors are worried about a looming reciprocal tariff deadline.
- Data revealed that the US economy created 147,000 new jobs.
Interest futures steadied on Friday after dropping most of the week due to a drop in overseas demand. The passing of Trump’s tax bill hurt demand for US Treasuries. At the same time, concerns about higher inflation due to tariffs boosted Treasury yields, weighing on interest futures.
Since Tuesday, interest futures have trended lower. The US Senate passed Trump’s bill on tax cuts and spending on Tuesday. The bill has raised concerns about the country’s fiscal health. Experts believe it will significantly add to the country’s debt in the coming years. As a result, demand for US Treasuries dropped.
Since Trump took office, he has made several major policy moves that have led to a decline in confidence in US assets. Notably, investors are worried about a looming reciprocal tariff deadline.
In April, Trump introduced the reciprocal tariff that affected most of the US’s trading partners. However, he suspended the tariffs for 90 days to allow for trade negotiations. So far, several countries, including China and the UK, have signed deals. This week, the US signed a deal with Vietnam, which briefly boosted investor sentiment.
However, many other major partners, such as the Eurozone and Japan, are still not there. By July 9th, Trump promised to send these countries letters informing them of an increase in tariffs. Such a move would reignite trade tensions. Moreover, it could trigger responses that would lead to trade wars.
Furthermore, higher import costs could lead to higher inflation in the US, which would necessitate the Fed keeping interest rates high.
Recently, market participants have been optimistic about a more dovish tone from Powell. As a result, rate cut bets went up, with traders almost entirely pricing a cut in September. However, this changed slightly on Thursday after the US released upbeat employment figures.
US jobs (Source: Bureau of Labor Statistics)
Data revealed that the economy created 147,000 new jobs. This was above the forecast of 111,000. At the same time, the unemployment rate came in at 4.1%, missing estimates of 4.3%. The resilient labor data eased pressure on the Fed to lower borrowing costs. All eyes will now turn to upcoming inflation figures for more clues on policy moves.
