The taxation burden descends

Daily update

The global economy is reverberating with the dull thud of the yoke of taxation dropping onto the shoulders of US consumers. These taxes do not show up in consumer baskets with full force until January next year—the question is whether the courts will overturn these taxes before then. If they do (forcing the government to return tax revenues to the US supply chain), it is possible US consumers will never fully appreciate the costs.
Yesterday’s US personal consumer expenditure deflator did hint at some of the April tax increases working through into consumer spending. Consumer spending is weakening a bit, but US consumers do have savings and credit access to smooth consumption.
Today’s US employment report is important—US rate cuts are likely to be contingent on labor market weakness. Policy uncertainty (around trade taxes and other policies) means that firms have been reluctant to hire. The problem is that labor market data is less reliable than it used to be, and a rogue number may change the willingness of a “data dependent” Fed to change rates.
Eurozone July consumer inflation is not a huge focus for investors, who are comfortable assuming disinflationary tendencies. European business sentiment polls are, of course, not worth bothering with.