Wall Street Gets Wakeup Call From Lutnick in EU Trade Deal Update
We see more reasons to be cautious in the weeks ahead.
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In what appears to be an effort to reassert his position in trade talks following Wednesday's developments, President Donald Trump shared intentions to send letters to trading partners in the next one to two weeks setting unilateral tariff rates.
This comes ahead of a July 9 deadline to reimpose higher duties on dozens of economies. To that we can add that early on Thursday morning, Commerce Secretary Howard Lutnick indicated the European Union is likely to be among the last deals that the U.S. has completed. Mixing in timing shared by Treasury Secretary Scott Bessent a few weeks back, Lutnick’s comment suggests any deal could be stretched well into 2H 2025.
These developments add to our thinking that companies, and therefore the market, will need to revisit 2H 2025 EPS growth expectations in the coming weeks. It also explains why we and the market are looking past the progress in Wednesday's May CPI report and today’s May PPI data. While we saw a sequential uptick in May PPI data, just like we saw with May CPI figures, both the headline and core figures rose less than the market expected. But here too, the prospect for extended trade conversations means tariff-induced price pressures will remain a headwind on a few fronts. And that is likely to lead the Fed to reiterate a slow path to rate cuts next week.
Looking at the calendar, by the time we reach the Fed’s September meeting it will have another three months of data to layer into its thinking. One unknown is whether there will be any meaningful progress on trade deals. As we shared on Wednesday, the timetable for such a deal between the U.S. and China could extend into August, and we would not be surprised to see other countries bide their time until the outcome of that deal is known. Another reason why companies are likely to issue guidance in the coming weeks is that skews more conservative than not.
Against that backdrop, we’ll continue to pick our spots with the Portfolio, and should we see near-term good news pop the market near or into overbought territory, some prudent register ringing may be called for.
