1. Japan’s Exports Fall for Third Consecutive Month — Exports declined 2.6% from a year earlier, following a 0.5% drop in June, according to data released by the Ministry of Finance. Economists had forecast a 2.1% decline for last month, according to a median estimate from data provider LSEG. Shipments to the U.S. fell 10.1% from a year earlier due to weakness in automobiles. That compared with the 11.4% fall in June and marked the fourth straight month of decline.
Japanese automakers have cut prices to maintain their market share in the U.S., but economists warn that this strategy is unsustainable in the long term due to the damage it will cause to profitability.
2. S&P Affirms U.S. Credit Rating as Tariff Revenue Expected to Plug Fiscal Leaks — S&P Global Ratings has affirmed the credit ratings of the U.S., saying it expects robust revenues from the Trump administration’s newly instituted tariff regime to help offset the expected fiscal deterioration resulting from recent legislative changes. The sovereign credit ratings were held at AA+/A-1+, with the outlook remaining stable. The outlook was kept stable, reflecting expectation of continued resilience in the U.S. economy; credible, effective monetary policy execution; high, but not rising, fiscal deficits that underpin the increase in net general government debt; and the $5 trillion increase in the debt ceiling, it said.
3. July Home-Price Gains Were the Weakest Since 2023 — Prices for existing homes nationally inched up 0.2% from the year prior to a median sale price of $422,400 in July, according to National Association of Realtors data released Thursday. It was the weakest reading since existing-home prices fell 0.9% in June 2023. Some buyers are taking advantage, the data suggest. Home sales increased 2% from the previous month to a 4.01 million seasonally adjusted annual rate. While that is still slow, it is faster than the consensus call on FactSet, which called for a decline to an annual rate of 3.92 million from 3.93 million one month prior.
4. Powell Opens Door to Interest Rate Cut, Citing Labor Markets — Federal Reserve Chair Jerome Powell carefully opened the door to an interest-rate cut in September, pointing to rising risks for the labor market even as worries over inflation remain. “The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance,” Powell said in remarks prepared for the Fed’s annual conference in Jackson Hole, Wyoming on Friday. “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” The signal comes at a time when Fed officials are divided over how and when to adjust policy in the coming months. Some have pointed to the labor market’s resilience. Others warn that nascent signs of weakness in employment could metastasize into a more significant downturn.

The week ahead — Economic data from Econoday.com:

“Do more of what works and less of what doesn’t”. – Steve Clark

1. US Core CPI Picks Up on Services; Goods Inflation More Subdued — Consumer prices were up 2.7% in July from a year earlier, the Labor Department reported, unchanged from June’s gain of 2.7%. Prices excluding food and energy categories—the so-called core measure economists watch in an effort to better capture inflation’s underlying trend—rose 3.1% over the past 12 months, above forecasts for a 3% increase. Energy prices declined 1.1% compared with June, with gasoline down 2.2%. Oil prices have slipped this year, driven down by expectations of a slowing global economy. Groceries fell 0.1%. Rent returned to a more normal 0.3% increase after a period of big jumps, said Bank of America senior U.S. economist Stephen Juneau.
2. US Producer Prices Rise by Most in Three Years on Services — The producer price index increased 0.9% from a month earlier, the largest advance since consumer inflation peaked in June 2022, according to a Bureau of Labor Statistics report out Thursday. The PPI rose 3.3% from a year ago. Services costs increased 1.1% last month — the most since March 2022. Within services, margins at wholesalers and retailers jumped 2%, led by machinery and equipment wholesaling. Goods prices excluding food and energy rose 0.4%.
3. Consumer Sentiment Signals Caution After Solid US Retail Sales — The value of retail purchases, not adjusted for inflation, increased 0.5% after an upwardly revised 0.9% gain in June, Commerce Department data showed Friday. Excluding cars, sales climbed 0.3%. Friday’s report implies a much better start to consumer spending in the second half of the year after uncertainty around President Donald Trump’s policies — chief among them tariffs — took a toll on sentiment and kept many consumers on the sidelines in the preceding months. While the labor market is shifting into a lower gear, additional clarity on trade policy and a rebound in the stock market is giving some consumers more confidence about their spending power. Nine out of 13 categories posted increases, led by the biggest gain in motor vehicle sales since March. Sales at online retailers and general merchandise stores advanced, likely boosted by campaigns including Amazon.com Inc.’s extended Prime Day, Walmart Inc.’s weeklong “Deals” event and a similar promotion at Target Corp.
4. China’s Economy Shows Signs of Slowing, Raising Pressure on Beijing — Annual growth in retail sales and industrial production both slowed in July when compared with June, according to figures published Friday, an early sign that the second six months of the year are set to prove tougher for China’s economy than a solid first half. The economy expanded an annual 5.3% in the January to June period, China’s National Bureau of Statistics reported last month, but keeping that momentum going through the second half will be harder as U.S. tariffs bite into global trade, economists say. Support for Chinese exports from heavy frontloading by U.S. importers racing to get ahead of tariff deadlines is likely to fade now that many of Trump’s levies have taken effect.
The U.S. and China agreed to extend their trade truce for another 90 days earlier this week, but U.S. tariffs on Chinese imports are still painfully high and hitting direct trade between the two economies. An August report by Global Trade Alert, a Switzerland-based outfit that tracks trade policy, said U.S. imports from China face a tariff on average of around 43.5%, after accounting for wrinkles such as different rates applied to different products and exemptions for certain items.

The week ahead — Economic data from Econoday.com:

“The purpose of trading is not being right, the purpose is to make money, and I think that’s my number-one rule. Don’t get hung up on your current positions.” — Dana Allen.

1. U.S. Services-Sector Activity Slows — The Institute for Supply Management said that its purchasing managers’ index for services providers fell to 50.1 in July, from 50.8 in June, which was lower than the 51.2 expected by a consensus of economists polled by The Wall Street Journal. The reading just above 50 points to an expansion of activity, albeit slower than in June. May recorded the only month of contraction since July last year. Employment contracted for a second-straight month and there was a faster rise in prices index, both “worrisome developments,” Miller said.
2. Trump Names Miran to Fill Seat on Federal Reserve Board — The president said that Miran, who will need to be confirmed by the US Senate, would only serve the expiring term of Fed Governor Adriana Kugler, which ends in January. “In the meantime, we will continue to search for a permanent replacement,” Trump said. Miran, who holds a Ph.D. in economics from Harvard University, has echoed Trump’s call for lower interest rates. Miran has established a reputation for delivering his views in a more measured tone than many other Trump advisers. Nonetheless he has been a sharp Fed critic and proposed changes to the central bank that some would view as unorthodox.
3. Trump Eyes 100% Chips Tariff, Exempting Firms That Invest in US — Donald Trump declared plans for a 100% tariff on semiconductor imports while promising to exempt companies such as Apple Inc. that move production back to the US, triggering a scramble among trading partners and companies worldwide to make sense of the threat. Trump’s surprise declaration further upends a global electronics supply chain undergoing a seismic shift following decades of reliance on China. Apple joined a parade of companies from Taiwan Semiconductor Manufacturing Co. to Nvidia Corp. that have pledged to spend more than $1 trillion collectively since Trump’s ascension, seeking to assuage an administration keen to bring manufacturing back home. While much of the capital in those pledges represented prior commitments or longer-term plans, they appear to be working.
4. Trump Removes Billy Long as Head of IRS — Long is being replaced on an interim basis by Treasury Secretary Scott Bessent, a senior White House official said. Bessent is the latest leader of a federal bureau that has gone through a series of commissioners since the start of Trump’s second term. Long was sworn in as the commissioner in June. He was the sixth IRS commissioner this year—after several interim heads—and his term was set to expire in November 2027. His departure was earlier reported by the New York Times.

The week ahead — Economic data from Econoday.com:

1. US Economy Rebounds With 3% GDP Growth After Trade Reversal — Inflation-adjusted gross domestic product, which measures the value of goods and services produced in the US, increased an annualized 3% after shrinking at a 0.5% rate in the previous period, according to preliminary government reported. Beyond the recent tariff-related swings, second-quarter economic activity was more moderate. Consumer spending — which accounts for two-thirds of GDP — advanced 1.4%, marking the tamest growth in consecutive quarters since the pandemic. Business investment growth cooled. Because swings in trade and inventories have been distorting overall GDP this year, economists have been paying even more attention to final sales to private domestic purchasers, a narrower metric of demand. This measure rose at a 1.2% pace in the second quarter, the slowest since the end of 2022.
2. Trump Hits India With 25% Tariff, Threatens More Over Russia — President Donald Trump said he would impose a tariff rate of 25% on India’s exports to the US starting on Aug. 1 and suggested he would add an additional penalty over the country’s energy purchases from Russia. Trump’s announcement comes ahead of the Aug. 1 deadline he set for imposing new import taxes on dozens of trading partners. The levies dash New Delhi’s hopes of preferential treatment over its Asian peers, who have secured tariffs ranging from 15% to 20%. India had been among the first to engage Washington in talks, following Prime Minister Narendra Modi’s high-profile White House visit in February.
3. Fed Holds Rates Steady, but Two Officials Back a Cut — The Federal Reserve held rates steady for a fifth straight meeting Wednesday but faced rare dissents from two officials seeking an immediate cut. The decision followed a period of intense political pressure on Fed Chair Jerome Powell by the White House to lower interest rates. Officials maintained their benchmark policy rate in a range between 4.25% and 4.5% as they weighed how importers, retailers and consumers will split the costs of higher duties on imports. Powell said the Fed was committed to making sure any one-time increases in prices didn’t lead to more-persistent inflation. “We want to do that efficiently, though—efficiently,” Powell said. “If you move too soon, you wind up maybe not getting inflation all the way fixed and you have to come back [and raise rates]. That’s inefficient. If you move too late, you might do unnecessary damage to the labor market.”
Dissents from two Fed governors and Trump appointees, Michelle Bowman and Christopher Waller, offered limited insight into the Fed’s coming moves. Both favored reducing rates by a quarter-point on Wednesday. Bowman’s dissent marked a notable shift for someone who had been a leading advocate for tighter policy in recent years and who in September supported a smaller rate reduction than her colleagues.
4. Core PCE Inflation Runs a Touch Hot, Dimming Hopes for September Rate Cut — The core personal consumption expenditures price index, which strips out the cost of food and energy, rose 0.3% on the month and 2.8% from a year earlier, the Bureau of Economic Analysis said. That topped FactSet estimates for a 0.29% monthly and 2.7% annual gain. Headline PCE rose 0.3% on the month and 2.6% from a year earlier, leaving the annual metric at its highest level since February. Consensus estimates were for respective rates of 0.23% and 2.5%.
The stronger-than-expected result complicates the Fed’s path to rate cuts. When officials held interest rates steady this week, they said they wanted to see more evidence that inflation is sustainably moving toward the bank’s 2% target. This report could delay that.
5. US Notches Worst Three Months for Jobs Growth Since Pandemic — Payrolls increased 73,000 in July after the prior two months were revised down by nearly 260,000, according to a Bureau of Labor Statistics report out Friday. In the last three months, employment growth has averaged a paltry 35,000 — the worst since the pandemic. The report caps a week of high-profile data that show underlying economic momentum is cooling and inflation progress is stagnating, reasons why the Federal Reserve chose to keep interest rates unchanged again in a divided decision. Chair Jerome Powell maintained that the labor market is solid and the central bank needs to be wary of inflation risks — especially with President Donald Trump’s latest round of tariffs.

The week ahead — Economic data from Econoday.com: