Key Takeaways
- U.S. appeals court judges are questioning the President's authority to impose broad tariffs under emergency powers, a legal challenge that could significantly impact current trade policy.
- The Bank of America Institute reports that U.S. consumer spending on services like hotels, airfare, and dining has declined for three consecutive months, marking the first such downturn since 2008.
- Inflation in the U.S. ticked up in June, with the Fed's preferred gauge showing an increase, partly attributed to the impact of tariffs, potentially complicating future interest rate decisions.
- Bank of America analysts have identified Johnson Controls (JCI) as an under-the-radar opportunity in the AI data center sector, citing its strong position in cooling systems crucial for AI infrastructure.
- Globally, trade tensions remain high, with Brazil actively seeking to negotiate with the U.S. to resolve impending 50% tariffs on its imports, while the Kremlin asserts that BRICS is not an anti-American bloc despite U.S. tariff threats.
Tariff Troubles and Trade Tensions Escalate
The legality of President Donald Trump’s broad tariffs imposed under emergency powers is currently under review by a U.S. appeals court. A lower court had previously ruled that the President exceeded his authority with these sweeping levies. The U.S. Court of Appeals for the Federal Circuit is examining the “reciprocal” tariffs applied to various trading partners in April, as well as earlier tariffs against China, Canada, and Mexico. Challengers argue that the International Emergency Economic Powers Act (IEEPA), a 1977 law cited by the administration, does not grant such extensive tariff authority and that the U.S. Constitution assigns tariff power to Congress. The administration, however, maintains that the tariffs are necessary to address national security and economic threats, including the flow of fentanyl and persistent trade imbalances.
Meanwhile, the U.S. tariff policies are having tangible economic effects. The Fed’s preferred inflation gauge ticked up in June, with prices rising, partly due to the impact of tariffs. This increase in inflation could complicate the Federal Reserve's decisions regarding interest rate cuts.
Internationally, the U.S. tariff stance is prompting reactions. The UK Trade Secretary Jonathan Reynolds expressed optimism about securing a deal to remove the 25% U.S. tariffs on its steel sector. The UK is "ready to go" on implementing a trade deal that would see British tariffs on steel and automotive exports to the U.S. slashed in exchange for greater access to the UK for some American goods.
Brazil is also actively engaged in discussions to avert higher U.S. tariffs. Brazil’s Commerce Minister, Geraldo Alckmin, stated that Brazil needs to find new markets for coffee or negotiate with the U.S. to resolve tariff issues. He described U.S. tariffs as a "lose-lose situation," asserting that American consumers would ultimately bear the burden of higher prices. Brazil's President Luiz Inácio Lula da Silva indicated that attempts to negotiate with Washington regarding the threatened 50% tariffs on Brazilian imports have been largely ignored.
Adding to the complex global trade landscape, the Kremlin has reiterated that BRICS is not an anti-American alliance, despite U.S. President Donald Trump's threats of additional 10% tariffs on countries aligning with what he termed "anti-American policies." The Kremlin also noted that Russia-U.S. trade is "almost at zero," acknowledging Trump's recent threats of sanctions and tariffs on Moscow if a resolution to the Ukraine conflict is not reached within a shortened deadline.
U.S. Consumer Spending Weakens, AI Sector Shows Promise
Domestically, a significant shift in consumer behavior is emerging. The Bank of America Institute reported that U.S. spending on services—including hotels, airfare, and dining—has seen a decline for three consecutive months. This marks the first time such a sustained decrease has been observed since 2008, indicating a potential cooling in consumer demand for these discretionary categories.
Despite broader economic uncertainties, the AI sector continues to present investment opportunities. Bank of America analysts have highlighted Johnson Controls (JCI) as an under-the-radar play in the booming AI data center market. The firm estimates that Johnson Controls is a standout opportunity due to its integral role in providing infrastructure for data centers, particularly in thermal cooling systems essential for managing the immense heat generated by AI servers. Johnson Controls is projected to generate approximately $4 billion in revenue from the data center sector this year, accounting for about 14% of its total business.
Political Developments Beyond Economics
In U.S. domestic politics, Senate Democrats, led by Minority Leader Chuck Schumer ([D-N.Y.]), have invoked the rare "Rule of Five" to compel the Department of Justice to release all documents related to the Jeffrey Epstein case. This seldom-used federal statute allows five members of the Senate Committee on Homeland Security and Government Affairs to request information from a federal agency, aiming to uncover further details surrounding the high-profile case.
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.