2025.07.07 Weekly

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As announced last week, Weekly notes will be migrating over to Ghost.io as it becomes integrated into our new platform. I am proud to announce that it has gone live today making this post on Medium the last.

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Same views — USD comeback, Equities pullback

There isn’t anything much to add to my ongoing views but I do however want to highlight a piece by Apollo titled “The US is still exceptional” where they, contrary to the widely-held belief that the first half of 2025 was all about a major exodus from US-denominated assets, conclude that the likely reason for the Dollars rapid decline earlier this year was hedging activity:

“TIC data, combined with the strength of the US equity market and tight credit spreads in IG and HY, indicate that the dollar decline in the first half of 2025 was not driven by foreign selling of US assets. Instead, the decline in the dollar was likely driven by hedging activity, as foreign investors, after decades of not hedging their US investments, began hedging some of their dollar exposures. With Section 899 behind us, and the Fed keeping interest rates higher for longer, dollar hedging activity is likely to slow down.”

You almost get the sense they are bullish on the Dollar from here.
Full chart deck can be found here.

TACO don’t think so

Tarrifs are back in focus and Trump is clearly growing impatient on the lack of progress on trade negotiations. For now, it appears that the tariff (taking effect) deadline has shifted to August 1st judging by comments made by Scott Bessent, while the July 9th deadline is now the cutoff date for negotiations.

• Trump says tariff letters to 12 countries signed, going out Monday — Trump says letters better than complicated negotiations, Talks with EU, India have not resulted in agreements thus far, Only Britain, Vietnam reached trade deals (RTS)
• Nations Chase US Trade Deals as Bessent Hints at Extension — Treasury Secretary Scott Bessent says some countries without an agreement by the July 9 deadline will have the option of a three-week extension to negotiate. Bessent signals that these letters aren’t the final word on countries’ immediate tariff rates, with tariffs set to kick in on August 1.
  Multiple countries, including Japan, South Korea, India, and others, are scrambling to secure trade deals or extensions to avoid tariffs, with some making last-minute concessions and others threatening retaliation (BBG).

Trump issued formal ultimatums to major trading partners that would result in tariff rates reverting to rates originally announced on Liberation day, should countries reject it or fail to reach a deal. There is notably a high degree of complacency when it comes to the topic of tariffs, many claiming it won’t matter as TACO… Definitely not the time to taking that stance in my opinion given how markets are shaping up, as reviewed below.

MACRO DATA

Nonfarm payrolls printed 147k for June, beating expectations of 111k, and a prior month upwardly from 139k to 144k in May. While a surge in government jobs was responsible for half the monthly jobs gains amid a wider trend of a slowdown in the major service industries, there has been a pick up in industries that have seen weaker job growth.

Encouraging news for underlying inflation pressures — wage growth is back on the softening trend seen since late last year. It now sits at 3.15% from being at 4% at the beginning of the year on a 3-month annualised basis.

Unemployment has dropped to 4.1% alongside a consecutive drop in the participation rate. This looks encouraging on the face of it while it isn’t quite clear that the decreasing proportion of active job seekers should be taken as a sign of actual weakness.

The growing weakness implied by the claims data since April has stalled out with initial claims dropping for a 6th consecutive week and continuing claims holding steady. While the state of the labour market remains relatively healthy still –job growth (ignoring the surge in government jobs) is holding steady, unemployment trend has cooled slightly — trends (gradually rising continuing claims and indeed job postings index continuing to fall) continue to point towards gradual deterioration the July period that has tended to be a slow month for the labour market.

ISM PMIs improved in June — Services PMI exceeded expectations of 50.5 to print 50.8 in June from 49.9 in May, Manufacturing improved slightly more than the 48.8 expected to 49.0 in June from 48.5.

The good news is that services activity saw a strong rebound with new orders rebounding back into expansion, and manufacturing production expanded slightly though new orders remains in a slump. The bad news is that employment deteriorated while prices remain at very high levels in both sectors.

Zooming out, global economic data surprise index turned up over the last 2-weeks but is largely owing to better than expected US data when contrasting with the softening trend in fixed-weight indices.

EQUTIIES

It’s all about chasing into new ATHs in US equities while RoW is far from showing the same level of exuberance. As I mentioned just earlier, it does look and feel like complacency at this point.

COMMODITIES

Commodities generally quite weak which would be consistent with global economic surprises turning weaker and the Iran conflict fading fading into the background. Bloomberg Industrial and Precious metals index (the middle 2 charts) is hinting a larger breakdown while the USD is beginning to find some support.

Could be some pain ahead in Gold considering the market has long been anticipating another leg higher. Upside breaks have not been sustained and now sinking below the short-term averages since the bearish engulfing print firmly rejected the trendline and 20dma last Thursday. Looking at the indexed version of Gold (right) as way to remove the USD effect on the chart, the technical bias is clearly down with price below the 20 and 50dmas and those MA’s converging.

RATES & FX

There is a risk that the disinflationary trend we’ve seen for the 1st 6-months of the year that have helped yields lower may come to an end over the coming months. Sentiment towards prices remains very strong, tariff impacts have yet to filter through into the hard data despite PMI prices surging, and economic data continues to be resilient enough for the Fed not needing to rush into cuts.

I did think we would have seen some of those price risks materialize sooner, but given that we’re getting very close to the September meeting (where the next cut is widely expected and Jackson Hole being the likely setup-event in August), I think the risk increasingly moving towards 1cut by year-end rather than the 2 expected.

The G10 USD (fixed-weight) index put in a weekly reversal bar last week and has already begun the current week recovering into last month’s consolidation range. We’ve seen a large move higher in yields last week in response to the stronger than expected data, and with rate differentials moving signficantly in favour of the USD, there is a strong possibility we have seen the swing lows.

Based on the last week’s performance, commodity currencies exhibits the strongest downside momentum followed by GBP.

I’ve noted my strong preference for GBPUSD last week as a new long USD expression on top of USDJPY longs. With rate expectations shifting towards the potential for 1 or not cuts this year and risk increasingly vulnerable to a correction, I don’t think it will take very much GBP to start behaving like a Peso again.

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Good luck trading!