Key Takeaways
- U.S. Treasury Secretary Bessent indicated a strong belief that the Federal Reserve's policy rate should be 150 to 175 basis points lower than its current level, suggesting a potential for a "series of rate cuts" that could have begun earlier if data had been accurate.
- Bessent confirmed discussions at the G-7 summit regarding "200% secondary sanctions on China" and reiterated his view that China will "eat the tariffs," while also noting a unique revenue-sharing agreement with Nvidia (NVDA) related to China sales.
- Brazil's retail sales for June significantly missed expectations, with year-over-year growth at 0.3% against an estimated 2.7%, and a month-over-month decline of 0.1%.
- The Treasury Secretary also commented on the upcoming meeting between President Trump and Russia's Putin, stating that outcomes could range from increased to reduced sanctions or secondary tariffs, emphasizing the need for European allies to join U.S. sanctions.
- Bessent expressed optimism about the Fed's September meeting and highlighted that the entire U.S. yield curve could see a "parallel shift down," while urging Japan to control its inflation problem.
U.S. Treasury Secretary Bessent delivered a series of impactful statements today, providing insights into the administration's views on monetary policy, international trade, and geopolitical relations. His most notable comments revolved around the Federal Reserve, asserting that the current Fed rate should be significantly lower, potentially by 150 to 175 basis points. Bessent suggested that a "series of rate cuts" could be initiated, possibly starting with 50 basis points in September, and that earlier cuts in June or July might have occurred if economic data had been more accurate. He also expressed hopefulness regarding the Fed's upcoming September meeting.
On the trade front, particularly concerning China, Bessent confirmed that the topic of "200% secondary sanctions on China" was raised at the recent G-7 summit, noting a quiet reception from attendees. He maintained his long-standing view that China would ultimately absorb the impact of tariffs, stating, "My view is China will eat the tariffs." Furthermore, Bessent highlighted a "unique solution" involving Nvidia (NVDA) and China sales, where revenue from this arrangement would be used to pay down U.S. debt, suggesting similar agreements could emerge in the future. He also emphasized that the U.S. does not want the "world standard to be Chinese" in technology.
Addressing the upcoming meeting between President Trump and Russia's Putin, Bessent warned that if talks do not progress favorably, "sanctions or secondary tariffs could go up." He clarified that the outcome could lead to either increased or loosened sanctions, with potential timelines, and stressed the importance of European nations joining the U.S. in these sanctions.
In the bond market, Bessent observed "spikes in Germany" and noted that the U.S. 30-year yield had "dragged along," suggesting that the "entire US yield curve can have a parallel shift down." He linked current yields to the credibility of the Treasury and the Fed. The Secretary also mentioned speaking with Bank of Japan (BoJ) Governor Ueda and urged Japan to "get their inflation problem under control," citing "leakage from Japan" impacting bond markets. He added that the U.S. is "re-filling Treasury cash via bills" and does not believe the Fed needs to re-engage in large-scale asset purchases.
Meanwhile, economic data from Brazil presented a disappointing picture for June. Retail sales year-over-year grew by a mere 0.3%, significantly below the estimated 2.7% and a sharp decline from the previous 2.1% growth. Month-over-month, retail sales contracted by 0.1%, missing the estimated 0.8% growth and worsening slightly from the prior -0.2% decline. This suggests a softening in consumer spending in the Brazilian economy.
In other market news, BlackRock's (BLK) "Big Calls for August" were circulated, indicating the asset manager's latest investment outlook. While specific details of these calls were not immediately available, BlackRock's Investment Institute regularly provides market commentary and investment strategies, with recent updates touching on bond market volatility and the impact of tariffs.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.