Summary of Recent Economic Developments
On July 11, 2025, U.S. President Donald Trump announced a significant increase in tariffs on Canadian imports, setting a rate of 35% that is scheduled to take effect on August 1. This decision follows a recent extension of the trade deadline for all countries to the same date. Canada, being the second-largest trading partner of the U.S., accounts for 13% of total U.S. trade, which has led to an immediate 0.5% decline in the Canadian dollar (CAD) against the U.S. dollar (USD), although it partially recovered by the end of the trading day.
In a related interview, Trump indicated plans to impose blanket tariffs ranging from 15% to 20% on other trading partners, including the European Union (EU), which could significantly impact the euro (EUR) as markets had previously anticipated a more favorable trade agreement. Additionally, Trump threatened a staggering 50% tariff on Brazilian imports, citing legal issues surrounding former President Jair Bolsonaro. Brazilian President Luiz Inácio Lula da Silva responded by asserting that Brazil could manage without U.S. trade, as it constitutes only 1.7% of Brazil’s GDP.
Macro Economic Indicators
In the macroeconomic landscape, U.S. weekly jobless claims decreased to 227,000 for the week ending July 5, down from a revised 232,000 the previous week, and below the market estimate of 236,000. However, continuing jobless claims rose by 10,000 to 1.965 million, marking the highest level since late 2021. This indicates that while initial claims are softening, the pace of rehiring is slowing, suggesting that those unemployed are taking longer to find new jobs. This follows an unexpected drop in unemployment to 4.1% in June, with non-farm payrolls increasing by 147,000, largely driven by government job gains.
Furthermore, the UK reported a contraction in GDP of 0.1% for May, contrary to market expectations of a 0.1% gain, marking two consecutive months of economic decline. Canadian jobs data is also anticipated, with expectations of a slight increase in the unemployment rate to 7.1% from 7.0% in May.
Market Reactions
As the European trading session commenced, major indices opened lower, with the DAX 40 down 0.3% and the STOXX Europe 600 down 0.2%, indicating a risk-off sentiment. In the U.S., the S&P 500 reached a record high of 6,290, while the Dow Jones also saw gains. Notably, tech giant Nvidia (NVDA) continued its upward trajectory, hitting all-time highs.
In the bond market, U.S. Treasury yields showed a bear flattening trend, with the 10-year yield slightly increasing to 4.35%. The U.S. dollar ended the previous session up by 0.1%, although analysts caution that proposed tariffs could significantly impact global growth and demand for the USD. If trade deals are reached within Trump's timeline, it may alleviate inflationary pressures, potentially allowing the Federal Reserve to lower interest rates, which could further influence the dollar's performance.
Overall, the trade situation remains dynamic, with ongoing tariff threats and economic indicators suggesting a complex interplay between domestic and international markets.