Hints at consequences

Daily update

Yesterday’s US data flurry gave hints about trade tax effects. Headline retail sales were weakened by poor auto sales. Some consumers bought cars early, anticipating trade taxes, and so did not show up at car dealerships in May. Import prices rose, suggesting that foreign companies were not absorbing trade taxes (so US companies and consumers will pay). Japan’s May trade data did show a 4.7% m/m drop in passenger car export prices, suggesting Japan’s automakers were absorbing some of the tariffs. Only auto prices showed this shift, which should appear in June’s US import price data.
The Federal Reserve meets. Every one of the 95 forecasts in the consensus expects rates to be unchanged. US President Trump advocates rate cuts, but this is a distinctly minority view. The trade tax increase is big, and the Fed wants greater certainty about its impact before changing policy.
UK May inflation data is free from Easter distortions and the weirdness of UK energy prices. Moderate disinflation is expected, ahead of tomorrow’s Bank of England policy decision.
Trump’s social media posts have suggested increased hostility toward Iran, raising the possibility of the US striking (presumably) Iranian nuclear facilities. Markets are still inclined to view this as a local conflict, with limited global economic consequences.