YOUR DAILY EDGE: 17 July 2025

US Producer Prices Stagnated on Decline in Services Costs

The producer price index was unchanged from a month earlier, after an upwardly revised 0.3% gain in May, according to a Bureau of Labor Statistics report released Wednesday. US wholesale prices rose 2.3% from a year earlier, the least since September.

Excluding food, energy and trade services, the PPI was also flat. It increased 2.5% from June of last year — the smallest annual advance since late 2023.

The latest wholesale price data suggest manufacturers are so far proceeding cautiously on the extent to which they can pass through higher US tariffs to their customers. The data showed wholesaler and retailer margins were little changed in June after surging in May.

Goods prices excluding food and energy rose 0.3%. Energy costs climbed as natural gas for electric power generation jumped the most in three years.

Services costs, however, fell 0.1%. Over half of the decline was due to a 4.1% drop in traveler accommodations services, the BLS said. Airline passenger services slid 2.7%, the biggest drop since May 2024. (…)

Like the CPI report, the PPI data also indicated some tariff-related inflation. Consumer durable goods costs rose 0.4% after a 0.5% gain in the prior month, the biggest back-to-back gain in about three years.

The PPI report showed the costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, edged up. Unprocessed goods prices increased for the first time in four months.

This chart shows goods inflation YoY for PPI and PCE since 1975. I suspect that the decline in oil prices, like in 2015-16, is helping keep retail inflation lower. But PPI inflation is creeping up: +2.7% YoY in June and +3.8% annualized in the last 3 months. Oil prices are up 15% since they bottomed in May.

“The PPI report comes with a clear warning label: “The scope of the CPI includes imports. The PPI excludes imports.” The PCED measure of consumer prices also includes imports. June’s PCED will be reported on July 31. We expect to see it warming up too, from 2.3% to 2.5% y/y, as predicted by the Cleveland Fed’s Inflation Nowcasting model. July is also tracking at 2.5%.” (Ed Yardeni)

A Modest Rise in June Industrial Output

Overall industrial production rose 0.3% in June on the heels of an upward revision that lifted May’s 0.2% headline decline to an unchanged reading for the month. (…)

An expected rebound in utilities output of 2.8% more than offsets a decline of 2.5% in the prior month. Still with just an 11% share of total output, it is not as though the gains in utilities provided a massive lift to the headline.

Rather, the growth came from actual manufacturing. A closer look at the underlying details here reflects offsets across different industries, but on balance a less negative reading in the hard data than the contracting signals from various manufacturing surveys might otherwise suggest. (…)

Factory output rose just 0.1% in June, that exceeded admittedly modest expectations of no change (0.0%). What makes the feat somewhat more impressive is that most of the upward revision to May’s output was in the factory sector. The initially reported May gain of 0.1% now stands at 0.3%, so June’s gain is coming off a higher base.

While it might be tempting to see the awakenings of a manufacturing renaissance spurred on by tariffs, it is both too soon and not quite accurate to say that. Durable goods manufacturing is where you’d look for early indications that levies were stoking output. As it turned out, durable goods production stalled in June. Gains in primary metals and machinery were offset by declines in output of motor vehicles, electrical equipment and appliances, as well as fabricated metals and wood products.

On the non-durable side of manufacturing, declines at textile mills (-1.0%) and plastic and rubber plants (-0.6%) were more than offset by increased output of petroleum (+2.9%).

Trump Likely to Fire Powell Soon, White House Official Says

President Donald Trump is likely to fire Federal Reserve Chair Jerome Powell soon, a White House official said, and discussed the possible move in a meeting with congressional Republicans on Tuesday night.

While the lawmakers voiced support for the move, which would likely roil financial markets and lead to a consequential legal showdown, Trump has not made a final decision and could change his mind, according to the official who requested anonymity to discuss a private conversation. (…)

Trump made the comments in a meeting with GOP lawmakers who voted against cryptocurrency legislation earlier Tuesday. The remarks were first reported by CBS News. (…)

The White House official disputed the notion that Trump would move immediately to remove Powell. (…)

In recent days, Trump and his allies have lambasted Powell over renovations at the Fed’s Washington headquarters, arguing that the work has been plagued by cost overruns and is exorbitantly lavish for a government office building. Trump suggested that the renovation costs were “pretty disgraceful.”

Asked on Tuesday if it was a fireable offense, Trump responded, “I think it sort of is,” but stopped short of saying he planned to push out the Fed chief over the flap.

“I think he’s a total stiff, but the one thing I didn’t see him as is the guy that needed a palace to live in,” Trump said.

Powell has called media reports about the renovations inaccurate. Earlier this week, he made a formal request for the bank’s inspector general to review the renovation.

Powell has also maintained that a president has no legal authority to fire or demote those in leadership positions at the Fed. In April he said, “we’re not removable except for cause.” (…)

Trump Raises Pressure on Powell While Calling Firing ‘Unlikely’

President Donald Trump said he’s not planning to fire Jerome Powell, and still managed to make it sound like a threat.

Trump’s comments capped a hectic few hours that took his pressure campaign against the Federal Reserve chief to a new level — and sent markets into a shortlived nosedive.

He ran the idea of sacking Powell by a receptive group of Republican lawmakers late Tuesday. An aide said Wednesday morning he was likely to follow through. Then the president publicly backpedaled – with a major caveat.

“I don’t rule out anything, but I think it’s highly unlikely, unless he has to leave for fraud,” Trump said Wednesday when asked about axing the Fed chair. (…)

Next up for the beleaguered central bank is the prospect that a trio of Trump aides might visit the renovation site, casting a fresh spotlight on the project. Office of Management and Budget Director Russell Vought, Deputy Chief of Staff James Blair and Federal Housing Finance Agency Director Bill Pulte – one of Powell’s most vociferous critics — are pushing to carry out an ad-hoc investigation of their own.

“His time has come and the president has made clear that he doesn’t want him here,” Pulte told Bloomberg Television on Wednesday, demurring on whether he personally drafted the dismissal letter Trump was said to have waved in front of lawmakers. (…)

“We think Trump is testing the markets to see whether he can fire Powell,” wrote Anna Wong, chief US economist at Bloomberg Economics. “The sharp reaction appears to have convinced him to pull back on the firing rhetoric for now.” (…)

Congressional Republicans were split on the move. “My understanding is he doesn’t have any intention of doing that,” said Senate Majority Leader John Thune. House Speaker Mike Johnson said he wasn’t sure Trump had the power to do so, though referred to the frustration in party ranks by saying “new leadership would be helpful at the Fed.”

Internal GOP tensions may help explain the timing of Trump’s latest salvo against Powell. The president is looking to shift attention away from the saga over the release of documents in the Jeffrey Epstein case — which has sharply divided his base. Trump said Wednesday he had “total” confidence in Attorney General Pam Bondi over the matter, and he’s angrily urged supporters to shift their attention elsewhere. (…)

The president reiterated on Wednesday that whoever gets the job will be expected to deliver lower rates — another potential hammer blow to the central bank’s autonomy, even if Powell escapes firing.

“Fortunately, we get to make a change in the next, what, eight months or so,” Trump said. “I’m only interested in low-interest people.”

• US justice department fires Epstein prosecutor Maurene Comey

Axios:

President Trump lashed out at “PAST supporters” for their continued focus on Jeffrey Epstein. “Let these weaklings continue forward and do the Democrats’ work, don’t even think about talking of our incredible and unprecedented success, because I don’t want their support anymore!” he said on Truth Social. Go deeper.

Japan’s Exports Drop Again as Tariffs Weigh Shipments to the U.S. slid 11.4% from a year earlier in June, highlighting the impact of higher tariffs

Exports fell 0.5% compared with the same period a year earlier, according to the Ministry of Finance on Thursday. That was an improvement from May’s 1.7% drop but well short of an LSEG-compiled forecast for a 0.5% increase.

Japan’s shipments to the U.S. slid 11.4% from a year earlier in June, highlighting the impact of higher tariffs. The reading marked a third straight month of declines after May’s 11.0% fall.

Japan’s trade surplus with the U.S. also shrank 22.9% in June.

“While overall exports are still holding up well, those to the U.S. are plunging and we think soft global demand will result in a further decline over the coming quarters,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics. (…)

That duty, combined with existing levies on cars, steel and aluminum, could easily shave 1% off Japan’s gross domestic product, said Stefan Angrick at Moody’s Analytics.

“At the very least, this would see GDP flatline over 2025 and 2026,” he said. (…)

Thursday’s data suggests that Japanese carmakers are cutting prices to absorb the cost of the 25% auto tariff Trump announced earlier this year. The volume of car exports to the U.S. rose 3.4% from a year earlier in June, but the export value slipped 26.7%. (…)

“Exporters could face declining profits, potentially increasing pressure for cost-cutting and restructuring. If this affects winter bonuses or the 2026 spring wage negotiations, it could weaken the virtuous cycle of wages and prices,” Norinchukin Research’s Minami said.

• Swiss Exports Slip as Frontrunning Fades, Strong Franc Hits Demand Exports to the U.S. were down nearly 30%

Exports decreased 5.3% to 70.1 billion Swiss francs ($87.53 billion) over the quarter, from 74.0 billion francs in the first quarter, Swiss finance-department figures showed Thursday. Exports to the U.S. were down nearly 30%, reversing a sharp increase the previous quarter, when firms rushed to get orders in ahead of the anticipated package of U.S. trade tariffs announced in April by President Trump.

Imports to Switzerland also declined on the quarter, widening its trade surplus a little to 13.4 billion francs.

The swing in exports between the quarters was almost entirely down to the pharmaceutical sector, the department said. That mirrors Ireland, another major European pharma hub, where drug factories saw an increase in production ahead of the April tariff announcement. Swiss pharma exports dropped close to 10% over the period, the data showed. (…)

Exports of Swiss watches to the U.S. slumped 18% last month, highlighting the rockiness of the two countries’ trading relationship. Watchmaker Swatch Group, which produces brands including its namesake as well as high-end timepieces like Omega and Blancpain, said Thursday that it booked a 10% drop in sales over the first six months of the year, a result of fading demand in China. Luxury-goods group Richemont this week similarly reported declining sales in its watch division in recent months.

Trump’s sweeping package of trade tariffs included duties of 31%-32% on Swiss imports, a move that drew an indignant response from the government in Bern. (…)

• EU Exports to U.S. Cool as Trans-Atlantic Trade Faces Tariff Test

Exports to the U.S. from the European Union edged down to 46.2 billion euros, or around $53.6 billion, in May from 47.7 billion euros a month earlier, statistics agency Eurostat said Wednesday. Overall exports fell 0.8%, with the EU’s overall trade surplus rising to 13.4 billion euros.

The EU’s exports to the U.S. fell sharply in April after reaching a record high in March, when American importers stockpiled goods ahead of the Trump administration’s impending tariff announcements. (…)

Trump on Saturday said he would raise tariffs on most goods from the EU to 30% on Aug. 1. Goods are currently subject to a 10% baseline tariff, with car-parts and some metals subject to higher taxes.

A 30% levy would strike at the core of Germany’s export economy, Chancellor Friedrich Merz told German broadcaster ARD on Sunday. (…)

The U.S.-EU relationship accounts for about 30% of global goods trade, according to the European Council. The EU has threatened tariffs on 72 billion euros of U.S. goods including cars, planes and whiskey, should talks collapse. (…)

Much of Europe’s economic growth in the early part of the year came from front-loading of exports. Some of that continues: eurozone non-durable goods production, which includes pharmaceuticals, rose in May at its fastest pace since records began in 1991.

But Trump on Tuesday floated tariffs by the end of July on pharmaceuticals, which have yet to be subject to levies. The threat is particularly acute in some nations. Ireland’s hosting of major medicine manufacturers means around one-third of its total exports went to the U.S. last year.

• U.K. Economy Unexpectedly Slumps to Second Straight Month of Contraction
• Rise in Australian Unemployment Will Force RBA’s Hand Data released Thursday showed Australia’s unemployment rate unexpectedly rose to 4.3% in June, following a second consecutive month of weak hiring.

Carney says US deal that works for Canada isn’t on table yet

• Mexico plans stronger trade collaboration with Canada after Trump tariff threats

Mexican President Claudia Sheinbaum said on Wednesday that she had spoken with Canadian Prime Minister Mark Carney and that the two had agreed to strengthen trade collaboration, particularly in light of the tariffs from U.S. President Donald Trump set to go in effect on August 1.

“We both agreed that the (U.S.-Canada-Mexico) trade agreement needed to be respected, and we shared our experiences about the letter than we received from President Trump,” Sheinbaum said in her daily morning press conference.

Sheinbaum said she and Carney spoke about the strategies both countries were taking to negotiated with the Trump administration ahead of the August 1 deadline.

She added that Carney was set to visit Mexico, but that a date had not been set.

The Mexican leader said she had also met recently with business leaders, including magnate Carlos Slim, whose family controls firms such as telecommunications giant America Movil and conglomerate Grupo Carso, along with representatives from breadmaker Bimbo and steelmakers, regarding the tariffs.

• France Adds Support for Using Most-Potent Trade Tool on US

A French-led charge to deploy the EU’s so-called anti-coercion instrument is backed by more than half a dozen European capitals, according to people familiar with the matter. Several member states are more cautious, while others have yet to express a position, said the people, who spoke on condition of anonymity to discuss private deliberations. (…)

Those measures could include new taxes on US tech giants, for instance, or targeted curbs on US investments in the EU. They could also involve limiting access to certain parts of the EU market or restricting US firms from bidding for public contracts in Europe.

The first-ever use of the ACI would likely provoke an even wider transatlantic trade war, given Trump’s warnings that retaliation against American interests will only invite tougher tactics from his administration.

“In this negotiation, you need to show strength, you need to show force, unity and resolve,” Haddad told Bloomberg Television on Monday.

“We can go further” than the countermeasures announced by the European Commission targeting almost €100 billion ($116 billion) worth of US trade, he said, referring to the ACI.

The commission, which leads on trade matters on behalf of the bloc, has so far said use of the tool is premature as negotiations continue. Commission President Ursula von der Leyen told reporters on Sunday that “the ACI is created for extraordinary situations” and “we are not there yet.”

• Trump Softens Tone on China to Secure Xi Summit, Trade Deal

(…) On Tuesday, the US president said he would be fighting China “in a very friendly fashion.”

In meetings with his staff, Trump is often the least hawkish voice in the room, some of the people said. (…)

Trump’s fluid playbook and his departure from promised hawkish policies have worried policymakers inside his administration as well as outside advisers, the people said. This week only exacerbated concerns that previous US red lines with China are now negotiable.

Allowing Nvidia Corp. to sell its China-focused, less-advanced H20 chip once again — something multiple senior officials had said was not on the table — reversed the administration’s own stated approach of keeping the most critical American technologies out of Beijing’s hands.

Treasury Secretary Scott Bessent last month cited H20 controls as evidence of the administration’s toughness on China when pressed by senators who worried the US could trade advanced semiconductors for the Asian country’s rare-earth minerals.

(…) some Trump officials have privately objected to granting licenses they say will only embolden China’s tech champions, the people said.

Others have argued successfully that allowing Nvidia to compete with Huawei on its own turf is essential to winning the AI race with China. That view, championed by Nvidia Chief Executive Officer Jensen Huang, has gained traction inside the administration, people familiar with the matter said. (…)

In a further effort to ease tensions, US officials are preparing to delay an Aug. 12 deadline when US tariffs on China are set to snap back to 145% after the expiration of a 90-day truce. Bessent signaled in a Bloomberg Television interview this week that the deadline was flexible.

One person familiar with the plans said the tariff truce could be extended another three months. This comes as Trump is rolling out duties for other countries — including key allies — and threatening more actions on industries including pharmaceuticals and semiconductors.

Last week, US Secretary of State Marco Rubio said a summit between Trump and Xi is likely. Rubio, once among the staunchest China hawks in the Senate, said he had a “very constructive and positive” sit-down Friday with Chinese Foreign Minister Wang Yi.

On Wednesday, Trump praised China’s moves to tighten controls on chemicals used to make fentanyl, part of steps taken after the US president imposed a 20% tariff on the nation for facilitating flows of the drug.

“China has been helping out,” Trump told reporters. “I mean, it’s been, it’s been a terrible situation for many years with fentanyl. But since I came here, we’re talking to them, and they’re making big steps.” (…)

Trump’s gentler handling of China is causing a rift among his advisers. Some members of his trade team want to hold a tough line against Beijing and have promised privately that export controls would never be part of trade discussions, people familiar with their deliberations said.

Yet during last month’s trade talks in London, Commerce Secretary Howard Lutnick openly said that recent export controls — officially justified on the basis of national security — were also designed to “annoy” Beijing. And this week, he — along with Bessent and White House AI and Crypto Czar David Sacks — said plainly that allowing some less-advanced Nvidia chip sales to China is indeed part of ongoing trade negotiations.

Made-in-China Chevys for $17,000 Are Winning Fans in Mexico

Uber driver Patricia Gatica looked no further than her nearby Chevrolet dealership for a new car. The mustard yellow Chevy Aveo she chose is small enough to squeeze through the congested streets of Mexico City and it gets a very respectable 48 miles per gallon.

Best of all, with a price tag of about $17,000, the General Motors Co. subcompact is very, very affordable. The secret: The American-branded car sold in Mexico is actually made in China, where cheaper labor and component costs allow companies to churn out less expensive cars. (…)

Right now, her Chinese-made car is only available outside of the US. But with prices starting below $18,000, the Aveo and similar Chevy Onix subcompact sedans show how much cheaper cars can be in a market that welcomes vehicles built in China. In the US, the average new car price has soared to almost $49,000, compared with about $32,000 in Mexico, according to the country’s automotive dealers association, AMDA.

GM’s lowest-cost car in the US, the Chevy Trax, starts at around $5,000 more than an Aveo sold in Mexico — and that’s for a bare bones version; It typically sells for thousands of dollars more with popular options like heated seats and remote ignition.

Washington has promised to shield American automakers from Chinese imports with tariffs — some in place since President Donald Trump’s first administration. But that hasn’t stopped GM, Ford Motor Co. and Stellantis NV — which owns the Chrysler, Jeep and Ram brands — from shipping their own China-made cars to Mexico and other Latin American markets. They’re part of a wave of Chinese car exports in recent years.

About 65% of GM’s sales in Mexico are brought in from China, totaling some 60,942 vehicles in the first half of the year, according to Mexican national statistics bureau Inegi. Overall, Chinese car imports by all brands made up almost one-fifth of total new car sales in Mexico last year, outpacing shipments from the US, Brazil, India and Japan.

The number is probably even higher as some Chinese brands like BYD Co., Geely Automotive Holdings and Guangzhou Automobile Group don’t report their data to Inegi. Mexico became the biggest destination for Chinese cars in the world in the first four months of the year, having overtaken Russia, according to the China Passenger Car Association. (…)

Shrinking profit margins, price wars and overcapacity in China led GM to send more of its production to other markets like Mexico, helping to grow sales and play into Beijing’s broader export push.

The carmaker’s sales of China-made vehicles in Mexico have accelerated over the past eight years. Between 2016 and 2024, they grew nearly 200 times. That resulted in part from a $5 billion investment in 2015 with its state-owned partner SAIC, which was used to create a family of compact models used to boost sales in China and other markets like Mexico. (…)

Protectionism and tariffs are making the US a high price/high cost country.

PBS, NPR Set to Lose Federal Funding as Senate Passes DOGE Cuts

Also, from Axios:

Voice of America — the U.S.-funded broadcaster long trusted to reach audiences inside authoritarian regimes — has gone dark in key regions after the Trump administration gutted its parent agency.

• Chinese state media is moving aggressively to fill the vacuum, expanding broadcasts in Nigeria, Thailand, Indonesia and other countries where VOA once saturated the airwaves, The Wall Street Journal reports.
• In a scathing report this week titled “The Price of Retreat,” Senate Democrats accused Trump of damaging America’s diplomatic toolkit and failing to offer “a viable alternative” to counter Chinese propaganda.

A new Pew Research poll of 25 countries found that China — not the U.S. — is now viewed as the world’s leading economic power.

• China’s favorability in most countries polled by Pew has ticked upward, while America’s global favorability has diminished significantly since Trump took office.