Budget battles

Daily update

Over the past few days, Canada and the US stopped talking about trade, and started talking about trade again. Unusually, this was not a unilateral retreat by the US—Canada surrendered its digital services tax. Markets, quite rightly, are ignoring all of this. US President Trump cut taxes on US consumers of UK cars—from today the tax goes to 10%.
The US Senate is trying to pass a budget. Markets expect this will keep the US fiscal position on an unsustainable path (ideas of deficit reduction generally rest on some very heroic assumptions about economic growth and tax revenue). As US debt levels grow, it is worth remembering that private sector wealth is at a record high. The US government may, in time, seek to mobilize that wealth to finance the growing deficit.
German flash June consumer price data is expected to be little changed. The UK offers “final” GDP for the first quarter, which probably still understates economic activity (structural change means that GDP may fail to capture activity in the modern economy).
Japan and South Korea both experienced weaker-than-expected industrial production in May. Aircraft parts weighed on Japan’s data. The Dallas Fed manufacturing survey’s comment section is due for release later today.