No sign of a summer slump

So far, two topics have been the focus of attention this week: US tariff and trade policy and US inflation data.

At the end of last week, US President Trump announced import tariffs of 50 per cent on goods from Brazil, 35 per cent on goods from Canada and, on Saturday, 30 per cent on goods from the EU and Mexico that are not covered by the US-Mexico-Canada trade agreement. While the 30 per cent tariffs on EU goods came as a relative shock when trading started on Monday, the markets remained convinced that the last word had not been spoken and that a trade agreement between the US and EU would be reached, preventing the tariffs from coming into force.

Markets keep close eye on tariffs and US consumer price data

Market tension could again increase around 1 August if no agreements have been reached by then. 

The focus here is, amongst others, currently on Japan, which will face tariffs of 25 per cent from 1 August. The upcoming weekend will see elections to Japan’s upper house, which could delay decision-making and negotiations.  

US consumer price data for June was published on Tuesday. As expected, inflation pressure increased in June, with consumer prices rising 0.3 per cent month on month, up 2.7 per cent (previous month: 2.4 per cent) against the same month last year. Core inflation, adjusted for energy and food prices, rose by ‘only’ 0.23 per cent against the previous month, falling below the market consensus of 0.3 per cent for the fifth consecutive time. However, if used cars and trucks had not depreciated .7 per cent month over month, monthly core inflation would have risen as sharply as it did in February 2023. In addition, the initial effects of tariffs are gradually seeping into goods such as furnishings and household appliances, where prices rose significantly.

US dollar weakens 

This potential inflation iceberg beneath the harmless surface alarmed some market players after a short delay. Yields on 30-year US Treasury bonds climbed back above the 5.0 per cent mark. In contrast to recent weeks’ market movements, this gave the US dollar a brief boost. It rose yesterday to its highest level against the euro since 24 June. This development also temporarily weighed down gold prices. Following reports yesterday afternoon that US President Trump had again sought legal advice on whether he could dismiss Fed Governor Jerome Powell, the US dollar quickly dropped 1.5 cents against the euro, which in turn supported gold prices.

Slight weekly gain for gold investors

Gold prices overall thus saw a slight rise. Last Thursday morning, the precious metal traded at 3,325 US$ per ounce and had risen steadily to 3,375 by Monday morning. Due to the strong US dollar and continued positive mood across stock markets (presumably due to a declining hunger for safe havens), it had dropped to around 3,320 US$ per ounce by 16:00 yesterday. Shortly afterwards, several media reports suggested that the US government was considering dismissing Powell, causing the gold price to jump by more than 50 US$ per ounce to 3,377 within a few minutes. Gold started trading today at around 3,340 US$ per ounce.

The Xetra-Gold price also saw some volatility and ultimately gained ground, rising from 91.10 € per gram last Thursday morning to 92.95 early Monday. After a setback to 91.95, it bounced back to 92.95 yesterday in the wake of the Trump-Powell rumors and reports. If the price at 8:00 holds fast until the start of trading, Xetra-Gold will kick off the day at around 92.35 € per gram this morning.

This week, we have seen that in addition to monetary policy (ECB meeting next week, Fed meeting a week later), the issue of tariffs (important: the increased tariffs are set to come into force on 1 August) and (geo)policy will likely remain the focus of market players’ attention – rendering a summer slump unlikely. Please note that the next report will be published in early August.

Until then, I wish all readers a great summer.