US Manufacturing Activity Contracted in June for a Fourth Month

The Institute for Supply Management’s manufacturing index edged up 0.5 point last month to 49, according to data released Tuesday. Readings below 50 indicate contraction. A measure of prices paid for raw materials showed slightly faster inflation.

Bookings contracted by the most in three months and have been shrinking for the past five months, likely a reflection of higher tariffs and a general slowdown in the economy. An index of order backlogs fell 2.8 points, the most in a year, to 44.3. Backlogs have contracted a record 33 straight months. (…)

Tepid demand and shrinking order backlogs help explain a faster rate of decline in factory employment. The ISM gauge dropped to a three-month low. It’s also contracted five straight months. (…)

According to the report, for every comment on hiring, there were 3.2 indications of employment cutbacks. That is one of the widest ratios since the ISM began tracking employment comments and shows companies are focused on accelerating headcount reductions due to a lack of clarity on demand.

Nine manufacturing industries reported overall growth in June, led by apparel, petroleum and nonmetallic minerals products. Six contracted, led by textiles and wood products.

Select ISM Industry Comments

“Business has notably slowed in last four to six weeks. Customers do not want to make commitments in the wake of massive tariff uncertainty.” — Fabricated Metals

“The biopharmaceutical space is starting to see more pronounced headwinds: Stock prices have significantly eroded, companies are facing hiring freezes, and so on.” — Chemical Products

“The tariff mess has utterly stopped sales globally and domestically. Everyone is on pause. Orders have collapsed.” — Machinery

“Tariff volatility has impacted machinery, steel and specialized components. Also, potential shortages of skilled labor for construction, maintenance and installation.” — Food, Beverage & Tobacco Products

“Tariffs continue to cause confusion and uncertainty for long-term procurement decisions. The situation remains too volatile to firmly put such plans into place.” — Computer & Electronic Products

“Tariffs, chaos, sluggish economy, rising prices, Ukraine, Iran, geopolitical unrest around the world — all make for a landscape that is hellacious, and fatigue is setting in due to dealing with these issues across the spectrum.” — Primary Metals

“The word that best describes the current market outlook is ‘uncertainty.’ The erratic trade policy with on-again/off-again tariffs has led to price uncertainty for customers, who appear to be prepared to hold off large capital purchases until stability returns. This has resulted in further reductions in customer demand and softening sales for the balance of 2025.” — Transportation Equipment

Meanwhile, higher materials costs remain an issue for producers, the ISM survey indicated. The group’s price measure ticked up to 69.7, near the highest level since June 2022.

The import and export measures also contracted but at a slower pace. The import gauge jumped 7.5 points, the most in five years, after tumbling a month earlier.

S&P Global’s own Manufacturing PMI has different vibes:

The headline index from the report, the seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI^®), improved to 52.9 in June, from 52.0 in May. The latest reading was the highest since May 2022, and indicative of a solid rate of expansion. It was also the sixth successive month in which the PMI has posted above the critical 50.0 no-change mark.

Manufacturers recorded a first rise in production for four months. Growth was the second-steepest since March 2024, surpassed only by February’s near three-year record.

Firms often linked the rise in production to higher volumes of new orders at their plants, which rose in June as they have done throughout the year to date. Improved domestic demand was noted, with some success in securing new work linked to positive marketing campaigns. International sales also strengthened, with new export orders up modestly and for a second successive month, although growth was partly limited by tariffs.

Tariffs also impacted purchasing and prices during June. Some manufacturers noted that tariff uncertainty had encouraged the building up of inventory and the purchasing of more inputs. The latter rose to the greatest degree in over three years and helped to drive a further monthly increase in stocks of input purchases. Pre-production inventory growth was marked, and the second-fastest in over three years, surpassed only by May’s survey record increase.

There was some notable upward pressure on input prices during June, with inflation accelerating to its highest in just under three years. Firms widely reported the inflationary impact of tariffs on prices, especially for metals like steel. In response, output charges were raised to the greatest degree since September 2022.

US manufacturers are hopeful of a more stable economic environment in the year ahead. Trade uncertainty is expected to dissipate, whilst a generally stronger economy is anticipated to drive sales higher. Overall, confidence with regards to output in 12 months’ time improved to its highest in four months.

A relatively positive outlook also helped to underpin a rise in employment during June. Some pressure on capacity encouraged firms to add to their staffing numbers – backlogs of work increased for the first time since September 2022 during June. Overall, employment increased during June for a second successive month and at the fastest pace for over two-and-a-half years.

The ISM surveys mostly larger companies. It appears from S&P Global’s comments that tariff front running was more prevalent among smaller manufacturers. Both surveys agree on prices however.

Wells Fargo:

(…) in this latest read on activity in the manufacturing sector, there is a case that supply chains remain disrupted, inventory management is fraught with trade-offs and pricing pressure is mounting.

 

Tariffs are a top-of-mind worry across businesses with nine out of ten purchasing managers mentioning it in their responses. While tariffs are a universally held concern, it is clear that some industries are impacted more than others. In the machinery space, for example, one respondent said the “tariff mess has utterly stopped sales globally and domestically. Everyone is on pause. Orders have collapsed.” The new orders component dropped to 46.4. (…)

Inventories could be serving as a bulwark against the immediate pass-through of higher prices but those defenses are crumbling. The inventories index rose 2.5 points to 49.2; that means firms are still drawing down stockpiled inputs to sustain production, but the pace of that drawdown has slowed. When assessing their customer’s inventories, firms suspect those stockpiles are also too low and being drawn upon more incrementally.

While the extent of tariff-induced inflation remains to be seen, the trend move higher in the ISM manufacturing prices paid index certainly suggests manufacturers are operating in a higher-cost environment. The prices paid index has now risen in nine of the past twelve months and remains the highest of any component above its prior six-month average. As the nearby chart shows, the overall consumer price index tends to track more closely with service-sector price pressure, but early price pressure tends to show up for manufacturers first.

Mexican manufacturers face another marked drop in new orders and rising input prices

Mexico’s manufacturing sector remained firmly in contraction territory throughout June. The latest S&P Global PMI® survey indicated significant declines in total new business and international sales, as clients often postponed orders. In response, goods producers trimmed output volumes, cut input purchases and scaled back employment.

Companies experienced another sharp rise in input prices. Amid heightened competitive pressures, only a small proportion of firms passed higher costs on to clients. The rate of output charge inflation was slight and the weakest in three months.

Canada’s PMI is out today.

Powell Cites Solid Economy in Keeping Wait-and-See Stance on Rates

(…) “We’re simply taking some time,” Powell said Tuesday, repeating his earlier view. “As long as the U.S. economy is in solid shape, we think the prudent thing to do is wait and learn more and see what those effects might be.” (…)

Powell said the Fed would likely have continued to gradually lower rates this year if not for concerns that tariffs might derail the last interval of officials’ recent fight to subdue inflation. (…)

“I wouldn’t take any meeting off the table or put it directly on the table,” he said.

Officials will “be monitoring, particularly, what does show up in terms of inflation or what does not show up,” Powell said. On the labor market, he said, “We watch very carefully for signs of unexpected weakness.” (…)

Where previously the Fed might have needed clear signs of deterioration to justify a rate cut, Powell has hinted that the current environment suggests weak employment data this summer  and milder-than-anticipated price increases could be sufficient to put rate cuts back in play. (…)

The Fed leader received a standing ovation from attendees at the opening dinner of the central banking conference on Monday after his counterpart, ECB President Christine Lagarde, said he “epitomizes the standard of a courageous central banker.”

Ed Yardeni:

There is method to President Donald Trump’s madness regarding Fed Chair Jerome Powell. Trump has been hammering Powell almost daily recently because doing so is very effectively hammering the foreign-exchange value of the dollar. Trump wants a weaker dollar to boost US exports and depress US imports. He has said that he favored a weaker dollar many times in the past, but now he has found a way to achieve that: by beating up on Powell.

Trump wants Powell to resign so that he can replace him with one of his loyalists, who will cut interest rates more quickly than Powell. (…)

Powell’s term as Fed chair ends on May 15, 2026. He might then decide to serve out his term as Fed governor through January 31, 2028. If so, then Trump would have to chose one of the current Fed governors as the new Fed chair. In this case, he would most likely pick Fed Governor Christopher Waller, who Trump appointed and who has been publicly lobbying for the job by advocating lowering interest rates sooner rather than later. (…)

Car Sales Cooled in June as Trump Bump Fades Shoppers are no longer rushing to get ahead of tariff-related price increases

(…) Fearing higher prices, many Americans rushed to showrooms. Sales in March and April jumped to their highest number in years; U.S. car buyers bought some 173,000 extra vehicles during those two months in an effort to get ahead of tariffs, according to J.D. Power.

By mid-May, business began to slow, and the sluggishness continued into June.

“Things have tapered off a bit,” said Sean Hogan, vice president of Sierra Automotive Group, an L.A.-area dealership chain. The tariff threat coupled with Memorial Day sales drove many car purchases in the months leading up to June, he said. (…)

Buyers paid on average $46,233 for a new car or truck in June, a $1,400 increase from a year prior, according to research firm J.D. Power. Several automakers have cut back on importing vehicles, while North American auto factories are making fewer vehicles.

In addition to higher duties, trade wars could hobble availability of key materials as has been the case with crucial magnets made with Chinese-supplied rare-earth elements.

If the moves result in significantly tighter supply, vehicle prices could remain high even if demand cools.

“There has really been a triple whammy on the consumer,” Toyota’s Christ said.

Construction Spending Weakens in May High Rates and Elevated Economic Uncertainty Continue to Weigh on Outlays

Construction spending dipped 0.3% in May, the seventh straight monthly decline. The drop largely was broad-based, with total residential and nonresidential outlays pulling back during the month. (…)

 

May JOLTS: A Dubious Rise in Openings

Job openings unexpectedly jumped to 7.8 million in May, up from 7.4 million in April. While the beat appears out of step with separate data (e.g., Indeed job postings, small business hiring plans, continuing jobless claims) that show the labor market cooling, the favorable May Job Openings and Labor Turnover Survey data suggest the pace of softening remains gradual on trend. The advance in openings nudged the number of job openings per unemployed worker up to 1.07 from 1.03 in April despite the modest rise in unemployment during the month. The near-leveling out of this ratio in recent months suggests a broad-based slackening in the labor market has yet to meaningfully take hold, similar to the unemployment rate having moved sideways for nearly a year now.

JOLTS tracks vacancies at the end of month and thus captured hiring intentions following the significant deescalation in U.S. tariffs on Chinese goods in mid-May. The trade détente helped reinvigorate small business confidence over the month and may have contributed to the better-than-expected increase in job openings. Openings in goods industries most directly affected by tariffs rose over the month, including transportation & warehousing (+60K) and manufacturing (+22K). But the lion’s share of the increase stemmed from a jump in leisure & hospitality services (+279K), which may be hard to sustain given growing signs of consumer spending fatigue. (…)

 

Eurozone’s Jobless Rate Creeps Higher as Business Uncertainty Abounds Unemployment increases to 6.3% as trade barriers and rising oil prices pose hiring challenges

Unemployment rose to 6.3% in the 20-nation currency area, up from 6.2% in April, the European Union’s statistics agency Eurostat said Wednesday. A consensus of economists polled by The Wall Street Journal had expected the rate to hold at 6.2% in May.

Despite the uptick, the jobless rate is near historically tight levels. April’s level equaled the eurozone’s record-low rate, although it came after March’s level had been revised higher to 6.4%. (…)

The European Central Bank expects unemployment to average 6.3% in 2025, according to its latest projections. However, it said there could be a renewed decline in the rate from early next year should economic growth accelerate as it anticipates.

Trump Said Trade Deals Would Come Easy. Japan Is Proving Him Wrong. Difficult talks with many nations cast doubt on next week’s deadline; ‘We can do whatever we want,’ Trump said.

(…) After slapping so-called reciprocal tariffs on dozens of countries on what Trump dubbed “Liberation Day”—then putting them on hold—the White House vowed to strike a spate of trade deals before July 9. The standoff with Japan shows how hard that is turning out to be.

Administration officials attempting to negotiate multiple deals have at times contradicted one another about goals and timelines, and Trump has further muddied the picture with references to sending letters. Adding to the uncertainty is an appeals court hearing set for late July over the legality of the emergency authority Trump used to impose the so-called reciprocal tariffs.

Even the tariff deadline is in question. On Friday, after Treasury Secretary Scott Bessent indicated some countries could get an extension, Trump injected further uncertainty. “We can do whatever we want,” he said in a news conference. “We can extend it, we can make it shorter. I’d like to make it shorter.” On Tuesday, Trump said he’s “not thinking about” extending the deadline. (…)

Thus far, the administration has cut only a limited trade agreement with the U.K. and struck a tariff truce with China. Hanging over the entire process is Trump’s earlier promise to restore the Liberation Day tariffs on countries that don’t do deals—potentially triggering another round of market chaos. (…)

In April, Peter Navarro, Trump’s senior trade and manufacturing adviser, said the administration could land 90 deals in 90 days. After the U.S. struck the limited agreement with the U.K. in early May, Trump said he believed the deals would start flowing at a rapid pace.

Administration officials looked to Japan to keep the momentum going. (…)

The U.S. complicated its negotiating position with Japan and other countries by increasing tariffs as talks progressed, such as in June when Trump doubled global steel tariffs with no warning for trading partners. Other so-called national-security tariffs on products such as lumber, semiconductors and critical minerals remain in the planning process, making some nations hesitant to strike deals before they are unveiled. The administration’s bellicose approach also became a political issue in some countries it was negotiating with, encouraging resistance to the U.S. rather than cooperation. (…)

Trump’s reciprocal tariffs for Japan had been set at 24% before the pause—far above the roughly 1.5% average tariffs that had been in place, according to the Richmond Fed. Besides seeking a reduction to those, Japanese officials have said repeatedly they cannot agree to any deal that doesn’t reduce industry-specific tariffs, particularly after the U.K. received some relief from steel and auto tariffs. In June, after another round of talks, Akazawa said all U.S. levies must be reduced in any deal. (…)

In June, Prime Minister Ishiba flew to Canada for a leadership summit of the Group of Seven industrialized nations hoping to force a compromise, but a meeting between Trump and him yielded no breakthrough. (…)

The two sides appear to remain far apart on key issues like the auto tariffs, said people with knowledge of the talks. As of late June, they hadn’t even decided whether any deal would include those levies or focus only on the reciprocal tariffs.

An official from Greer’s office told The Wall Street Journal the administration is prioritizing negotiations with trading partners who have presented more serious offers than Japan has. (…)

Many of those nations are balking at being forced to choose between the U.S. and China, making any deals on those issues unlikely in the short term. One Asian economic official said the U.S. demands would be difficult to meet, given that the export-led economies in the region are so entwined with both the U.S. and China. (…)

European Commission President Ursula von der Leyen pushed back, saying certain topics legislated by the EU are “absolutely untouchable.” (…) “But where it is the sovereign decision-making process in the European Union and its member states that is affected, this is too far,” she said.

Even some Republicans are growing frustrated with the White House’s negotiating strategy. During a recent Senate Appropriations Committee hearing, Sen. John Kennedy (R., La.) asked, “Are you or are you not pursuing reciprocity?” when Lutnick said he wouldn’t agree to a hypothetical deal with Vietnam that would cancel out all tariffs and trade barriers in both countries.

Kennedy later said: “I was confused more after the hearing than before about their negotiating strategy here.”

ING:

(…) Despite trade talks, the US is not pursuing reciprocity – tariff revenue is a strategic goal to finance at least part of the Big Beautiful Bill Act. Commerce Secretary Howard Lutnick has made it clear: zero-for-zero deals are off the table. (…)

Despite potential trade deal announcements, the trade war and the reshuffling of trade flows are far from over. With Canada introducing a new tariff quota (TRQ) on steel mill product imports from non-free trade agreement (FTA) partners as of 27 June, redirecting goods via third countries is becoming increasingly difficult. China has once again expressed strong discontent with other countries entering trade agreements with the US that it perceives as undermining its interests. The Chinese Ministry of Commerce warned that it would take “firm, resolute countermeasures” if such deals come at China’s expense, calling the US strategy of reciprocal tariffs “unilateral bullying” that disrupts the international trade order.

We have warned before that the US tariff strategy could prompt global concessions and isolate China, with countries targeted by potential US tariff action making significant concessions, ultimately improving trade relations between the US and the rest of the world, but at the expense of China.

As China is perceived as the largest geopolitical threat to the US administration, there is a huge possibility that American policies will focus more on indirect trade impediments, including investment, social media, and technology cooperation, pressuring companies to reduce their business with China if they wish to invest in the US. This places both Asian/Chinese trade partners and US allies in a difficult position.

While many trading partners have launched anti-dumping investigations into some of China’s trade practices, the Chinese market is even more important to ASEAN nations, African, Latin American countries and even Germany in terms of imports than the US market. Many countries rely on Chinese components and raw materials, and the flexing of China curbing rare earth exports shows that there is no easy way out when choosing between the US and China.

The US does not have all the cards…and cannot do whatever Trump wants.

Meanwhile

Tariff Cash Is Rolling In: June’s Record Take Spikes by $20.5 Billion Year-over-Year

(…) This $20.5 billion is additional revenues, compared to a year ago. If tariffs bring in an additional $20.5 billion a month going forward, it would amount to about $250 billion a year in additional revenues.

This money flowing into the Treasury has been paid by US-based importers.

Whether or not, and to what extent tariffs can be passed on to consumers is unpredictable and depends on whether or not companies will have the pricing power to raise prices without crushing their sales – they had this pricing power during the free money era in 2021 and 2022 but then lost it as the free money ran out – so we’ll be watching this closely:

In 2024, PPI-Core Goods inflation was 2.4%. It averaged 3.2% in February-March, 3.9% in the last 2 months.

The Meh Tax Bill That Has to Pass The Senate version adds tax permanence and more Medicaid reform.

The WSJ Editorial Board:

The Senate passed President Trump’s tax bill on Tuesday, to exaggerated glee and consternation. Republicans say it is the start of a new economic golden age, while Democrats call it spendthrift and cruel. They’re both wrong. The bill had to pass to avoid a $4.5 trillion tax hike next year when the 2017 reforms expire, but as a reform of the post-Covid welfare state it is a disappointment.

The bill’s best news is the economic certainty it will provide businesses. It makes permanent the 2017 reform’s lower marginal tax rates, 20% deduction for pass-through businesses, increased estate-tax exemption and immediate expensing for capital investment and research and development. It also provides full expensing for new factories through 2028.

Although largely extending the tax status quo, the bill could boost growth at the margin by giving businesses the confidence they need to make long-term investments. Permanence also means Democrats can’t leverage the future expiration of the tax cuts to extract more spending—or tax hikes—from Republicans.

On another positive note, the bill ends the Inflation Reduction Act’s tax credits for wind and solar projects that begin construction later than a year from now, and eliminates the electric-vehicle credits. In return, Republicans from windy Great Plains states extracted a two-year extension of the IRA’s biofuels tax credit. Call it the Hawkeye Heist.

One bad development is that MAGA-era Republicans are imitating Democrats in using the tax code for industrial and social policy. The bill boosts the Chips Act tax credit for semiconductor plants to 35% from 25%. A new auto-loan interest deduction for cars assembled in the U.S. is a sop to a single industry and more debt-financed consumption.

Other examples include new “Trump accounts” with $1,000 deposits for each newborn from 2025 to 2028 and a tax exclusion for income from tips (limit: $25,000) and overtime ($12,500). The exemptions are set to lapse after 2028, which reduces their cost on paper (roughly $150 billion). (…)

Savings from food stamps and Medicaid come entirely from policy tweaks that reduce waste and abuse such as stricter eligibility checks. The bill attempts to crack down on state scams that expand food-stamp eligibility and use provider taxes to launder more federal Medicaid matching funds. It also includes modest Medicaid work requirements for adults covered under ObamaCare and makes it harder for states to get waivers from food-stamp work requirements. (…)

The bill caps graduate loans ($100,000 for masters degrees and $200,000 professional ones), which will make it harder for colleges to raise tuition to extract more loan subsidies. The bill also rolls back Obama repayment plans that provide de facto loan forgiveness.

The bill’s other main upside is $150 billion for defense, though some in the White House want to use this bump to reduce defense spending in future years. The defense boost is also less than the bill’s $170 billion for homeland security and immigration enforcement, which is excessive given that border crossings are now at a trickle. The astonishing $45 billion for the border wall could be better spent on new weapons systems and ships.

The House planned to take up the Senate bill as we write this, and the Members might as well pass it and live to fight another day. The bill is more than anything the triumph of GOP political necessity, and the end of tax uncertainty is its main virtue.

China Is Quickly Eroding America’s Lead in the Global AI Race Chinese AI models are becoming more popular worldwide, testing American superiority

In Europe, the Middle East, Africa and Asia, users ranging from multinational banks to public universities are turning to large language models from Chinese companies such as startup DeepSeek and e-commerce giant Alibaba as alternatives to American offerings such as ChatGPT.

HSBC and Standard Chartered have begun testing DeepSeek’s models internally, according to people familiar with the matter. Saudi Aramco, the world’s largest oil company, recently installed DeepSeek in its main data center.

Even major American cloud service providers such as Amazon Web Services, Microsoft and Google offer DeepSeek to customers, despite the White House banning use of the company’s app on some government devices over data-security concerns.

OpenAI’s ChatGPT remains the world’s predominant AI consumer chatbot, with 910 million global downloads compared with DeepSeek’s 125 million, figures from researcher Sensor Tower show. American AI is widely seen as the industry’s gold standard, thanks to advantages in computing semiconductors, cutting-edge research and access to financial capital.

But as in many other industries, Chinese companies have started to snatch customers by offering performance that is nearly as good at vastly lower prices. A study of global competitiveness in critical technologies released in early June by researchers at Harvard University found China has advantages in two key building blocks of AI, data and human capital, that are helping it keep pace.

The competition, some industry insiders say, has set the world on the path toward a technological Cold War in which countries will have to decide to align with either American or Chinese AI systems.

“The No. 1 factor that will define whether the U.S. or China wins this race is whose technology is most broadly adopted in the rest of the world,” Microsoft President Brad Smith said at a recent Senate hearing. “Whoever gets there first will be difficult to supplant.” (…)

U.S. lawmakers recently introduced a bipartisan bill that would ban federal agencies from using AI developed in China.

As the competing systems become more closed off to each other, industry insiders say AI models will have freer rein to lock users inside bubbles of misinformation and propaganda. Further down the line, a breakdown in U.S.-China cooperation on safety and security could cripple the world’s capacity to fight future military and societal threats from unrestrained AI.

The fracturing of global AI is already costing Western makers of computer chips and other hardware billions in lost sales. (…)

Adoption of Chinese models globally could also mean lost market share and earnings for AI-related U.S. firms such as Google and Meta.

This year, privately held OpenAI has been making a strong push to expand overseas, opening offices in Europe and Asia.

In a public post on Substack on June 25, OpenAI wrote that Zhipu AI, a Chinese AI upstart, was making inroads helping Southeast Asian, Middle Eastern and African nations build out their AI infrastructure.

OpenAI said the Chinese startup’s goal was to “lock Chinese systems and standards into emerging markets before U.S. or European rivals can,” and claimed its leadership frequently engaged with Chinese Communist Party officials. OpenAI has a similar business line selling AI solutions to governments around the world.

“We want to make sure democratic AI wins over authoritarian AI,” OpenAI Chief Executive Sam Altman said in May.

While American AI companies give priority to the pursuit of major breakthroughs in a race to build artificial superintelligence, China’s AI industry is focused far more on using AI to build practical applications—an emphasis that could help it win new users quickly.

Leading Chinese AI companies—which include Tencent and Baidu—further benefit from releasing their AI models open-source, meaning users are free to tweak them for their own purposes. That encourages developers and companies globally to adopt them.

Analysts say it could also pressure U.S. rivals such as OpenAI and Anthropic to justify keeping their models private and the premiums they charge for their service.

On Latenode, a Cyprus-based platform that helps global businesses build custom AI tools for tasks including creating social-media and marketing content, as many as one in five users globally now opt for DeepSeek’s model, according to co-founder Oleg Zankov.

“DeepSeek is overall the same quality but 17 times cheaper,” Zankov said, which makes it particularly appealing for clients in places such as Chile and Brazil, where money and computing power aren’t as plentiful.

Developers have created more than 100,000 derivative models based on Alibaba’s flagship open-source AI model, Qwen, Alibaba said.

Abeja, a Tokyo-based AI startup, chose Qwen over similar products from Google and Meta last fall when asked to build a series of customized models for Japan’s Ministry of Economy, Trade and Industry.

At the University of the Witwatersrand in South Africa, research managers chose DeepSeek for a pilot grant-writing project because it is open-source and can be used offline, keeping the university’s data safe, according to Taariq Surtee, the university’s head of e-research.

A few years ago, the American and Chinese AI sectors were tightly intertwined.

In 2018, U.S. investors participated in deals covering around 30% of the $21.9 billion in funding for the Chinese AI sector, according to PitchBook. Elite Chinese students flooded into American universities and Silicon Valley companies.

Today, U.S. venture-capital investment in Chinese AI companies has largely dried up. Chinese nationals are finding it harder to study and work in the U.S.

The less dominant American AI companies are, the less power the U.S. will have to set global standards for how the technology should be used, industry analysts say. That opens the door for Beijing to use Chinese models as a Trojan horse for disseminating information that reflects its preferred view of the world, some warn.

While the open-source version of DeepSeek deployed by some institutions and researchers isn’t censored, the app’s consumer version produces censored answers on topics considered sensitive by the Communist Party, such as ethnic assimilation campaigns in Xinjiang and Tibet.

The U.S. also risks losing insight into China’s ambitions and AI innovations, according to Ritwik Gupta, AI policy fellow at the University of California, Berkeley.

“If they are dependent on the global ecosystem, then we can govern it,” said Gupta. “If not, China is going to do what it is going to do, and we won’t have visibility.”

BlackRock Sees Growing Client Push to Diversify From US Assets

More than 20% of the firm’s clients said in a recent survey that they were looking at trimming their exposure to US markets and the dollar, said Elaine Wu, head of Asia-Pacific investment and portfolio solutions, at a media briefing in Hong Kong on Wednesday.

“There was a pretty good amount of people that were looking to Asia equity positioning,” said Wu, although she added that other clients remain interested in the US and those cutting back could return. (…)

• European junk bond sales hit record as investors cut US exposure

Sales of risky European corporate debt surged to their highest ever level in June, as lowly rated companies take advantage of a capital flight out of US markets on fears over the fallout from President Donald Trump’s trade tariffs. (…)

June also saw the greatest number of deals on record at 44, according to PitchBook data. (…)

European high-yield bond funds, meanwhile, have posted seven straight weeks of inflows, according to Bank of America data. (…)

High-yield spreads — the extra yield over government debt that risky borrowers must pay — have dropped from more than 4 percentage points in April to 3.1 percentage points at the end of June, according to Ice BofA data.

“You can print pretty high-risk stuff at very attractive rates at the moment. The market is running red hot,” said one high-yield bond investor. “There are inflows coming into our market as people are looking to diversify away from the US.” (…)

“There’s a huge amount of capital flowing into the asset class . . . and we are starting to see larger managers focus more on Europe,” said Thompson. (…)

Paramount Settles Trump’s ‘60 Minutes’ Suit for $16 Million

Paramount Global reached a settlement with President Donald Trump over a lawsuit that alleged election interference by the company’s CBS news network when it showed two different versions of a 60 Minutes interview with then-Vice President Kamala Harris in October.

Paramount agreed to pay $16 million, including plaintiff’s fees, according to a statement from the company. What’s left will go to a future presidential library. Trump had sought damages of $20 billion. No money will be paid to him directly.

The settlement doesn’t include an apology. The network has agreed to release transcripts of presidential candidate interviews in the future. Although officially unrelated, the settlement is widely viewed as critical for Paramount to gain approval from federal regulators for its pending merger with Skydance Media. (…)

• Behind the ‘60 Minutes’ Upheaval, a Big Merger Seeking Approval

Shari Redstone wanted to know what 60 Minutes was going to say next about President Donald Trump.

The CBS newsmagazine aired two segments involving Trump on April 13 that angered the president, one on his plans to take over Greenland and another an interview with Ukraine President Volodymyr Zelenskiy that discussed US policy in the region. Trump immediately lashed out on social media, saying 60 Minutes should “pay a big price” for its frequent reporting on him, which he called “fraudulent.”

Following Trump’s post, Redstone, who is the chair of CBS’ parent company Paramount Global, had a conversation with CBS Chief Executive Officer George Cheeks to discuss 60 Minutes’ upcoming slate of stories about the president. Redstone indicated which ones she thought were fair and those that could be problematic, according to CBS employees Bloomberg spoke with.

60 Minutes didn’t change its plans based on her feedback, the employees said. The network aired a segment Sunday about Trump’s cuts to the National Institutes of Health. Still, Executive Producer Bill Owens announced to his staff last week that he’s leaving, citing corporate interference at the most-watched TV news program in the US. (…)

Paramount is also waiting for the Federal Communications Commission to approve its merger with Skydance Media, a deal that includes a $2.4 billion payment for the Redstone family’s holding company. FCC Chairman Brendan Carr, who was appointed to that position by Trump, has been a staunch ally of the president. (…)

While the merger hangs in limbo, Redstone’s final months as a media mogul are engulfed in controversy, as the Boston-bred lawyer is caught between a defiant news division and a president who has sought to punish media companies he sees as disagreeing with him. (…)

ECONOMY WATCH

Goldman Sachs routinely polls its analysts:

The Goldman Sachs Analyst Index (GSAI) declined by 3.5pt to 58.6 in June. The composition was mixed-to-weak, as the employment (-4.5pt to 44.0) and new orders (-5.8pt to 63.4) components both declined while the shipments component increased (+3.2pp to 67.2).

The exports component declined (-10.0pt to 40.0). The inventories component (-3.5pt to 39.8) and the orders less inventories gap (-2.3pt to 23.6) both decreased.

The GSAI’s materials prices component (-8.3pt to 66.7) declined while the output prices (+3.9pt to 56.9) and wages (+9.4pt to 63.6) components both increased. (…)

As we discussed recently, surveys from the New York and Atlanta Feds asked companies to provide quantitative answers to questions about how much of the tariff cost increase they intend to pass along eventually. On average they expect consumers to absorb about 50% of the direct cost of the tariffs.

Surveys from the New York and Dallas Feds also asked companies about the timeline for raising prices. Across these surveys, the average firm expected 60% of tariff cost passthrough to happen within one month, 85% to happen within three months, and 98% to happen within one year.

Half of surveyed analysts indicated that firms in their sector would face higher input costs as a result of tariffs, and all of those analysts expected firms to pass the cost of tariffs on to consumers. One third of those analysts, including those who cover hardware and infrastructure and machinery companies, expected firms to pass along at least 80% of the cost of tariffs to consumers. On average, analysts expected that consumers would absorb 60% of the cost of tariffs, slightly above the average from the New York and Atlanta Fed surveys.

• The daily data for the top 10 airports in the US shows some weakness among foreign arrivals (Apollo)

• Car Sales Hit a Wall as Tariff-Induced Shopping Spree Subsides

(…) The annual automotive selling rate likely fell to 15 million in June — the slowest pace in the last 12 months — from 17.6 million in April as consumers grow cautious about big-ticket purchases over worries about the economy. With already high car prices expected to rise further as automakers manage billions of dollars in tariff costs, it may only get worse from here.

“The party is over,” Jonathan Smoke, chief economist for researcher Cox Automotive Inc., said in an interview. “It’s clearly slowing. It’s because of affordability getting worse and forcing what we think will be production declines to keep supply in balance.”

Smoke sees the annualized monthly rate of US auto sales sticking around 15 million in the second half of the year, down from 16.3 million in the first six months of 2025. Last year, Americans purchased roughly 16 million cars and light trucks. (…)

Automakers have so far refrained from large, across the board price increases. Instead, they’ve pulled other levers such as cutting incentive spending, or raising the price of select models affected by tariffs.

Average monthly car payments reached a record $747 in June, up $22 from a year ago, according to J.D. Power. That has more people stretching car loans to 84 months — 7 years — which accounted for 12% of all auto financing last month, up 3 percentage points from last year. (…)

The firm [consultant AlixPartners] predicts automakers will pass along 80% of the cost of Trump’s tariffs to consumers, driving up prices by nearly $2,000 per car.

• Sun Belt Slowdown (Axios)

The once-hot housing markets in the Sun Belt are cooling fast with a buildup of unsold houses sitting on the market for weeks.

• Real estate agents in the South and Southwest say they’re seeing more people list homes, giving up on hopes that mortgage rates will drop anytime soon.
• Houses in Florida now take a median 73 days to sell, up from 55 days two years ago and twice as long as in New Jersey and Virginia. Meanwhile, in Colorado, inventory has surged 51% in May from last year, according to Realtor.com.
• It’s a stark shift from the pandemic-era frenzy when cheap mortgages and an influx of people to the south triggered bidding wars and record-fast sales.
• Meanwhile, tenants in New York City’s roughly 1 million rent-stabilized apartments face a fourth straight year of price hikes.

Did you miss yesterday’s YOUR DAILY EDGE: 30 June 2025: Houston, … Houston?

Goldman Sachs: Shifting to a September Cut and a Lower Terminal Rate

We are pulling forward our forecast for the next cut to September. We had previously expected a cut in December because we thought that the peak summer tariff effects on monthly inflation would make it awkward to cut sooner. But the very early evidence suggests that the tariff effects look a bit smaller than we expected, other disinflationary forces have been stronger, and we suspect that the Fed leadership shares our view that tariffs will only have a one-time price level effect. And while the labor market still looks healthy, it has become hard to find a job, and both residual seasonality and immigration policy changes pose near-term downside risk to payrolls.

While it is far from clear, we think the odds of a cut in September are somewhat above 50% because we see several routes to get there—underwhelming tariff effects, larger disinflationary offsets, and either genuine labor market softness or a scare from month-to-month volatility. We are penciling in three 25bp cuts in September, October, and December because if there is any insurance motive for cutting, it would be most natural to cut at consecutive meetings, as in 2019. We do not expect a cut in July, barring much weaker-than-expected employment data this week.

Ed Yardeni:

The stock market seems to be carefree. Investors likely figure that any signs of slower economic growth increase the odds that the Fed will ease. Plus, inflation remains remarkably subdued through May notwithstanding Trump’s tariffs. June’s CPI inflation rate is tracking around only 2.6% y/y according to the Cleveland Fed’s Inflation Nowcasting model. The dollar’s weakness is viewed as boosting corporate earnings. And stock investors probably figure that if the bond market doesn’t seem to care much about the deficit-bloating potential of Trump’s Big, Beautiful Budget Bill, why should they? “Summertime, and the livin’ is easy,” as the song goes from Porgy and Bess.

In an interview today with CNBC’s Jim Cramer, Amazon CEO Andy Jassy said the retail and tech giant hasn’t seen significant price increases, and he explained why as follows: “We did a lot of forward buying several months ago, and then a lot of our sellers, our third-party selling partners, forward deployed a lot of inventory to avoid some of the issues with the uncertainty around where tariffs are going to settle,” he said. “And we have, so far, not seen prices appreciably go up.”

MANUFACTURING PMIs

Eurozone: Marginal expansion of production volumes in June

At 49.5 in June, up fractionally from 49.4 in May, the HCOB Eurozone Manufacturing PMI® reached its highest level since August 2022. Although still below the neutral 50.0 threshold, the latest reading signalled only a marginal downturn in manufacturing conditions. Reduced staffing numbers and lower stocks of purchases were negative influences on the headline PMI in June, while rising production had a positive impact.

There was a mixed picture across the national Manufacturing PMIs in June, with Ireland and Greece once again posting the strongest improvements in overall business conditions. Spain and the Netherlands also registered strengthening manufacturing performances, with the latter posting the fastest upturn since May 2024. In contrast, Austria, Italy and France all registered faster declines in manufacturing sector conditions. Goods producers in Germany also signalled a sustained downturn in June, but the speed of contraction was only marginal and the least marked since August 2022.

Production volumes across the Euro area manufacturing sector increased for the fourth successive month in June. However, the rate of expansion was only marginal and eased to its weakest since March. Higher levels of output were supported by stable order books and, in some cases, efforts to clear backlogs of work.

Despite a rise in output and an improved trend for incoming new work, the latest survey indicated a further modest decline in staffing numbers. Lower employment has been recorded throughout the past 25 months and the rate of job shedding was slightly faster than in May. Cutbacks to input buying also continued in June, albeit to the least marked extent for three years. Reduced purchasing activity partly reflected ongoing efforts to streamline inventories. Stocks of purchases have declined in each month since February 2023.

Suppliers’ delivery times worsened for the first time since January, despite subdued demand for manufacturing items. Purchasing costs meanwhile decreased for the third successive month, which led to another marginal reduction in average prices charged by euro area manufacturers.

Finally, business optimism continued to recover from April’s recent dip. Confidence levels regarding prospects for output growth over the next 12 months were the highest for more than three years in June and comfortably above the long-run series average.

China: Manufacturing sector returns to growth in June

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI) rose to 50.4 in June, up from 48.3 in May. Posting above the 50.0 no-change threshold in June, the latest figure signalled that manufacturing sector conditions improved at the end of the second quarter. Business conditions have now improved in eight of the past nine months.

Helping to lift the headline index was a renewed expansion in manufacturing production in June following a brief decline in May. While modest, the rate of growth was the quickest since November 2024, and driven by reports of firmer demand conditions.

According to panellists, better trade conditions and promotional activities supported a fresh rise in new orders. The rate of new order growth was only marginal, however, as external demand remained muted. New export orders declined for the third month in a row in June, albeit at a noticeably weaker pace than in May.

Meanwhile, a slight accumulation of backlogged orders was recorded for the first time in three months. This was attributed to both higher new work inflows and a reduction in workforce capacity. Employment across the Chinese manufacturing sector fell in June amid both resignations and redundancies, according to panellists.

Firms were generally cautious with hiring on the back of cost control measures and reduced optimism regarding output in the next 12 months. While the Future Output Index posted above the neutral 50.0 threshold to reflect positive expectations for the year ahead, the level of confidence eased since May and remained below the series long-run trend. Nevertheless, companies were hopeful that business development efforts and new product launches will help to drive sales and production growth.

Sufficient holdings of input stocks at goods producers led to a reduction in input buying in June. The level of pre-production inventory across the sector was unchanged on the month. In contrast, stocks of finished goods were depleted slightly as items were shipped out for order fulfilment.

Finally, supply chain conditions continued to deteriorate at the end of the second quarter, as Chinese manufacturers experienced delivery delays again in June. That said, reports of lower raw material prices drove a fourth monthly reduction in average input costs.

Chinese manufacturers often shared cost savings with their clients, resulting in another decline in average selling prices. Export charges continued to increase, however, driven by rising shipping and logistics costs.

The official manufacturing purchasing managers index for June–the first full month after the China-U.S. trade truce was reached in London–came in at 49.7, edging up from May’s 49.5 and matching the 49.7 tipped by a Wall Street Journal poll of economists, according to data released by the National Bureau of Statistics on Monday.

The subindex for total new orders moved back to the expansionary territory and climbed to 50.2 in June, compared with 49.8 in May, and the new export orders subindex rose to 49.7 from 47.5.

Japan: Manufacturing conditions stabilise in June

The headline S&P Global Japan Manufacturing Purchasing Managers’ Index™ (PMI^®) rose from 49.4 in May to just above the neutral 50.0 level at 50.1 in June. The latest reading was therefore consistent with broadly stable operating conditions following an 11-month period of deterioration.

Data split by broad industrial group indicated that business conditions improved for makers of consumer goods, but weakened slightly across both intermediate and investment goods segments.

Helping to push the headline index higher was a fresh rise in output during June. Though modest, it marked the first increase since last August, with some panel members raising production due to hopes of improvements in customer demand in the months ahead. Other firms noted the rise was also to help reduce backlogs.

Overall demand conditions remained subdued in June, with manufacturers recording a further decline in overall new orders. The rate of contraction quickened slightly since May but remained mild. There were reports that US tariffs and lingering uncertainty over the outlook had dampened sales. New export business likewise declined in June and at a solid rate, with lower demand across key markets in Asia, Europe and the US noted by panel members.

Muted customer demand led manufacturers to remain cautious with regards to purchasing activity, which fell further in June. That said, the rate of contraction was the slowest seen in the current nine-month sequence of decline. Companies also remained wary regarding inventory levels, with stocks of finished items falling slightly, while inventories of inputs rose only fractionally.

Average supplier performance continued to deteriorate, though lead times lengthened only slightly overall. According to panel members, stock and labour shortages at vendors contributed to delivery delays.

Employment across Japan’s manufacturing sector remained on an upward trajectory in June. Though modest, the latest upturn in staff numbers was the most pronounced in 14 months. Companies often noted that staffing levels had increased due to the filling of vacancies and expectations of firmer customer demand.

Alongside higher output, improved staffing capacity supported a further reduction in backlogs of work, which fell solidly overall.

After easing to a 14-month low in May, average input cost inflation accelerated slightly in June and remained sharp overall. Manufacturers noted a variety of inputs had gone up in price, including raw materials, labour, energy and transport.

Companies looked to partially pass on higher cost burdens by raising their selling prices again in June. The rate of output charge inflation was solid, having edged up to a three-month high.

Japanese goods producers generally anticipate production to increase over the next year, with overall optimism improving to the highest level since January. Forecasts of stronger market conditions and increased sales supported growth projections, while some firms also cited company expansion plans and new product releases.

ASEAN manufacturing sector downturn deepens at midway point of 2025

The S&P Global ASEAN Manufacturing Purchasing Managers’ Index™ (PMI®) posted below the neutral mark of 50.0 for a third straight month in June. At 48.6 down from 49.2 in May, the index signalled a modest, yet the most pronounced worsening in operating conditions since August 2021.

Both new orders and output remained in contraction territory since April. Recent figures revealed a sharper decline in incoming new orders for ASEAN goods producers, marking the most significant drop since August 2021.

The overall new orders landscape was once again hampered by declining foreign demand for ASEAN goods, which continued to worsen. In fact, the rate of decrease in new export orders was solid and the most pronounced in eight months. Meanwhile, the downturn in production remained shallow, with the rate of decrease consistent with that observed in May.

Manufacturing companies across ASEAN aligned their purchasing of inputs and employment in line with the deteriorating demand picture. Both measures recorded steeper contractions, with payroll numbers being reduced to the greatest extent since October 2021.

The latest ASEAN manufacturing performance was coupled with historically muted inflationary pressures. The rate of input price inflation softened further since May, to indicate only a modest increase in cost burdens, which was the slowest in just over five years. Although the pace of charge inflation accelerated during the month, manufacturers raised their prices only marginally. (..)

The US PMIs are out later today.

China Vows to Rein In Intense Competition, Build Unified Market

China’s top leadership has pledged to curb aggressive price competition among businesses, aiming to accelerate efforts toward a unified national market to help boost domestic demand.

Officials at a high-level economic meeting chaired by President Xi Jinping said they would crack down on “disorderly” low-price competition and phase out outdated industrial capacity, Xinhua News Agency reported on Tuesday.

For years Beijing has sought to dismantle local protectionist barriers in hopes of spurring consumption and domestic demand. With global trade tensions rising, that mission has taken on greater urgency. The renewed focus on curbing excessive competition and overcapacity suggests top leaders are concerned about the deflationary pressures weighing on the economy.

To build a more integrated and efficient domestic market, China plans to standardize rules and infrastructure, align government practices, and unify markets for labor, land, capital and other inputs. Officials also called for the regulation of local investment promotion efforts and strengthening disclosure of related information. The fiscal system will be improved to support the push.

Authorities pledged to encourage private sector investment as part of efforts to boost homegrown innovation in maritime technology and nurture leading companies in the sector.

US narrows trade focus to secure deals before Donald Trump’s tariff deadline President’s 90-day pause on reciprocal levies expires on July 9

Donald Trump’s top trade officials are scaling back their ambitions for comprehensive reciprocal deals with foreign countries, seeking narrower agreements to avert the looming reimposition of US tariffs. (…)

The narrower, piecemeal plan for new deals marks a retreat from the White House’s vow to strike 90 trade deals during the 90-day pause in the sweeping “reciprocal” tariffs the president announced on April 2.

But it also offers some countries a chance to strike modest agreements. The administration would seek “agreements in principle” on a small number of trade disputes ahead of the deadline, the people said.

Countries that agree these narrower deals would be spared the harsher reciprocal tariffs, but left with an existing 10 per cent levy while talks on thornier issues continue, the people said.

However, talks remain complex, and alongside its narrower approach to deals, the administration was also still considering imposing tariffs on critical sectors, people familiar with the matter said. (…)

People familiar with the talks said the poor visibility of possible new sectoral tariffs the US might impose at a later date were hindering discussions. On Monday, Treasury secretary Scott Bessent suggested the US was focused primarily on the reciprocal tariffs, and would leave sectoral levies until later. (…)

• Japan digs in on rice and cars as trade talks with US stall

Japan has said it will not sacrifice its farmers to secure tariff exemptions from the US, as Tokyo and Washington hardened their positions in a rice diplomacy stand-off and hopes of an imminent trade deal between the allies faded. (…)

Japanese rice production has for decades been an intensely political issue. The crop commands an outsized national importance and farmers have been a crucial base of support for the long-ruling Liberal Democratic party. The US exports some rice tariff-free to Japan under a World Trade Organization “minimum access” agreement, but Japan imposes a levy on any imports beyond a 770,000-tonne limit. (…)

Tokyo has consistently demanded a full exemption from Washington’s blanket 25 per cent tariff on automotive imports, as well as the revocation of the 24 per cent “reciprocal” tariffs that Trump has threatened to impose on Japan. Those levies have been paused until a July 9 deadline to sign a trade deal.

But Japan’s chances of securing any tariff exemption in the short term appeared to be low and falling, said two people close to discussions. (…)

In an interview with Fox News last weekend, Trump bemoaned the “unfair” trading relationship in blunt terms, claiming that the US “[takes] millions and millions” of Japanese cars, while the Japanese “won’t take our cars”.

Japan’s biggest auto companies have established large manufacturing facilities in the US over decades. Car and truck exports to the US totalled 1.37mn vehicles in 2024, with the automotive sector representing about 28 per cent of Japan’s goods exports to the US.

The US, in turn, exports few vehicles to Japan, where American car models are generally seen as too large and fuel consumptive. (…)

• India seeks to seal interim trade deal with US this week

Richest 20% Get an Average $6,055 Income Boost in Trump Tax Bill

The Senate’s version of President Donald Trump’s proposed tax cut bill will cost the bottom 20% of taxpayers an average of $560 a year while giving an average boost of $6,055 to those at the top end.

That analysis from economists at the Budget Lab at Yale University bolsters Democratic critiques that the bill takes money out of the pockets of the working poor to give tax cuts to the rich.

The uneven distribution of the bill’s costs and benefits comes from a mix of tax and spending provisions. While the poorest taxpayers bear the brunt of cuts to Medicaid and the Supplemental Nutrition Assistance Program, those at the top end of the income charts would get the biggest benefit of the tax cuts, including income rate cuts and an expanded state and local tax deduction.

A proposal by Republican Senator Rick Scott of Florida would cut Medicaid even further. But the Budget Lab, a nonpartisan policy research group, cites economic studies showing that a little more than half of changes to the federal-and-state-funded health insurance program fall on providers rather than enrollees. And it assumes that states will pick up part of the cost of the social safety net programs, replacing about 1% of the income that the poorest families would have lost. (…)

The analysis excludes the effects of tariffs, which Senate negotiators have floated as a potential way to pay for income tax cuts. The Budget Lab said the bill would be even more regressive if tariffs were included.

• SNAP Cuts in Big Tax Bill Will Hit a Lot of Trump Voters Too More than 40 million people relied on the food-assistance program in 2024, or about 12% of the population. Many are located in red districts represented by legislators who support gutting the aid.

Shell-Led LNG Canada Ships First Cargo to Meet Asian Demand

Shell Plc has started exports from Canada’s first liquefied natural gas project, helping to meet rising Asian demand and extending its position in the global LNG market.

The first cargo from the plant in British Columbia was loaded on the vessel Gaslog Glasgow. Operator LNG Canada Development Inc. said on Monday that the ship is destined for “global markets.” Shell owns 40% of the project.

LNG Canada is ramping up at a time when demand for gas is on the rise and buyers are focused on trading routes that avoid geopolitical flashpoints — particularly around the Persian Gulf. The plant at Kitimat on Canada’s west coast is relatively close to customers in East Asia and comes on stream ahead of new export plants in the US and Qatar, which won’t add substantial supplies to the market until next year at the earliest. (…)

A second production unit, known as a train, will start up later this year, and the 14 million-ton-a-year facility will reach full capacity in 2026, Cremers said. Once both trains are online, Canada would rank eighth in global LNG exports, behind Nigeria, data compiled by Bloomberg show.

A further expansion is under discussion between Shell and its partners — Petroliam Nasional Bhd., PetroChina Co., Mitsubishi Corp. and Korea Gas Corp. — with a final investment decision likely next year, Cremers said. (…)

In The Globe & Mail:

“With LNG Canada’s first shipment to Asia, Canada is exporting its energy to reliable partners, diversifying trade and reducing global emissions – all in partnership with Indigenous peoples,” Prime Minister Mark Carney said.

B.C. Premier David Eby said: “It’s more important than ever that we get our resources to global markets and reduce our reliance on the United States.”

Happy Canada Day!

Trump to Powell:

BTW: LT rates back to normal?

Musk to Trump: “A massive strategic error is being made right now to damage solar/battery that will leave America extremely vulnerable in the future,” Musk tweeted Sunday, after the Senate unveiled new changes to the bill.

Axios explains:

The “big, beautiful bill,” which would gut key Biden-era clean energy subsidies and potentially impose new taxes on solar and wind projects, could reach Trump’s desk as soon as this week.

Jason Bordoff, who leads Columbia University’s energy think tank, said the bill could hinder the U.S. in the AI race with China.

• “Winning that race is going to require that we increase electricity generation capacity in the U.S. really fast — and by a lot,” he told Axios.
• That soaring demand is creating tailwinds for natural gas and nuclear, but even those “great” sources can’t ramp up fast enough to meet the urgent near-term needs of data centers and AI infrastructure, Bordoff said.

Power prices may rise, with new projects delayed just as U.S. electricity demand climbs for the first time in 15 years. Wind, solar and batteries make up roughly 95% of the projects proposed to connect to the grid.

Trump replies: Trump suggests Doge reviews subsidies to Musk’s companies

Trump to Musk: Elon Musk “may get more subsidy than any human being in history, by far, and without subsidies, Elon would probably have to close up shop and head back home to South Africa.”

Deflationary, really: Florida Gov. DeSantis Announces Tax Holiday On Guns

AI CORNER

China’s humanoid robots generate more soccer excitement than their human counterparts

Four teams of humanoid robots faced off in fully autonomous 3-on-3 soccer matches powered entirely by artificial intelligence on Saturday night in China’s capital in what was touted as a first in China and a preview for the upcoming World Humanoid Robot Games, set to take place in Beijing.

According to the organizers, a key aspect of the match was that all the participating robots operated fully autonomously using AI-driven strategies without any human intervention or supervision.

Equipped with advanced visual sensors, the robots were able to identify the ball and navigate the field with agility

They were also designed to stand up on their own after falling. However, during the match several still had to be carried off the field on stretchers by staff, adding to the realism of the experience.

China is stepping up efforts to develop AI-powered humanoid robots, using sports competitions like marathons, boxing, and football as a real-world proving ground.

Cheng Hao, founder and CEO of Booster Robotics, the company that supplied the robot players, said sports competitions offer the ideal testing ground for humanoid robots, helping to accelerate the development of both algorithms and integrated hardware-software systems. (…)

Booster Robotics provided the hardware for all four university teams, while each school’s research team developed and embedded their own algorithms for perception, decision-making, player formations, and passing strategies—including variables such as speed, force, and direction, according to Cheng.

Video footage

• Humanoids: A $5 Trillion Market

Are “humanoids”—human-like robots with arms, legs, hands and brains powered by artificial intelligence—on their way to work in factories, stores and your own kitchen? Not yet—but they are quickly evolving, and the market for humanoids could be twice the size of the auto industry in the coming decades.

Morgan Stanley Research estimates the humanoids market is likely to reach $5 trillion by 2050, plus related supply chains as well as repair, maintenance and support. There could be more than 1 billion humanoids in use by 2050. 

“Adoption should be relatively slow until the mid-2030s, accelerating in the late 2030s and 2040s,” says Adam Jonas, Morgan Stanley’s Head of Global Autos and Shared Mobility Research.

By 2050, about 90% of humanoids, or about 930 million units, will likely be used for repetitive, simple, and structured work—primarily industrial and commercial purposes. China is likely to have the highest number of humanoid robots in use by 2050, at 302.3 million, trailed by the U.S. at  77.7 million (up from the previous forecast of 63 million).

“The forecast for household usage is much more conservative, with only 80 million humanoids in homes by 2050,” Jonas says. “We are not going to see a robot in every home overnight.”

Creating a general-purpose humanoid that is capable of doing a vast array of useful tasks at home will require technological progress in both hardware and AI models, which should take about another decade. To get those humanoids into homes, prices need to decline significantly, in parallel with regulatory and societal acceptance of this use of humanoids.

“Once we get to that stage, humanoid volume and penetration should pick up quickly,” Jonas says. (…)

Morgan Stanley Research estimates that the cost of one humanoid was around $200,000 in 2024 in high-income countries.

As the technology advances and production volumes increase, prices are likely to fall to about $150,000 by 2028 and $50,000 by 2050. In lower-income countries, which may take more advantage of the cheaper Chinese supply chain, prices could fall to as low as $15,000 by 2050.

At that point, the U.S. penetration rate could range from 3%, for households earning between $50,000 and $75,000 a year, to 33%, for those with annual income above $200,000. About 10% of U.S. households overall could have a humanoid by 2050, totaling 15 million units in the country. Although China is likely to have the larger number of humanoids, only 3% of households are likely to own a humanoid, totaling about 4 million units.

“We recognize that, hypothetically, the average household could have more than one unit, creating a fleet of humanoid butlers,” Jonas says. “However, in our forecasts, we assume one humanoid per household at this time.”

Investors may want to watch the fact that China is dominating the field of AI-enabled robotics, humanoids or otherwise, and the gap with the U.S. is widening.

“It is becoming apparent that national support for ‘embodied AI’ may be far greater in China than in any other nation, driving continued innovation and capital formation,” says Sheng Zhong, Morgan Stanley’s Head of Industrials Research. “In our opinion, China’s lead in AI-robotics may need to widen before rivals, including the U.S., pay closer attention.”

Chinese supply-chain players are currently working on different solutions to improve the performance level of their components, via new design structures, new materials, refined manufacturing processes and AI algorithms to address the precision gap.

“There are some leading U.S. players in humanoid design and development at this stage, but China could catch up when humanoids reach downstream application and mass production, riding on its strong self-sufficient supply chain,” Zhong says.

Meanwhile, there are few U.S.-based alternatives for many humanoid components, such as screws, reducers, motors and batteries. Nearly every robot developer in the world still requires critical components sourced from China and other parts of Asia.

“While it is too soon to declare a final champion in the race for agentic humanoid robot supremacy, the U.S. will need to make significant changes in manufacturing capability, education and national policies to remain competitive in this area,” Jonas says.

WATCH: AI Is About to Get Physical

• Amazon Is on the Cusp of Using More Robots Than Humans in Its Warehouses The e-commerce giant now counts more than one million of the machines at its facilities

(…) One of Amazon’s newer robots, called Vulcan, has a sense of touch that enables it to pick items from numerous shelves. Amazon has taken recent steps to connect its robots to its order-fulfillment processes, so the machines can work in tandem with each other and with humans.

“They’re one step closer to that realization of the full integration of robotics,” said Rueben Scriven, research manager at Interact Analysis, a robotics consulting firm.

Now some 75% of Amazon’s global deliveries are assisted in some way by robotics, the company said. The growing automation has helped Amazon improve productivity, while easing pressure on the company to solve problems such as heavy staff turnover at its fulfillment centers. (…)

The average number of employees Amazon had per facility last year, roughly 670, was the lowest recorded in the past 16 years, according to a Wall Street Journal analysis, which compared the company’s reported workforce with estimates of its facility count.

The number of packages that Amazon ships itself per employee each year has also steadily increased since at least 2015 to about 3,870 from about 175, the analysis found, an indication of the company’s productivity gains. (…)

Amazon is also rolling out artificial intelligence in its warehouses, Chief Executive Andy Jassy said recently, “to improve inventory placement, demand forecasting, and the efficiency of our robots.” Amazon said it will cut the size of its total workforce in the next several years. (…)

“You have completely new jobs being created,” such as robot technicians, said Yesh Dattatreya, senior applied scientist at Amazon Robotics. Warehouse workers are being trained in mechatronics and robotics apprenticeships.  (…)