MNI ASIA OPEN: Tariff Inflation Pass-Through One-Off Risk?

EXECUTIVE SUMMARY

• MNI INTERVIEW: Fed's Daly: Time To Think About Adjusting Rates
• MNI FED: St Louis's Musalem: Tariffs Could Impact Inflation Well Into 2026
• MNI US-RUSSIA: Rubio-Need To See Roadmap From Russia On Ending Ukraine Conflict
• MNI US DATA: Claims Data Reinforces "Low Firing, Low Hiring" Labor Market Theme

US

MNI INTERVIEW: Fed's Daly: Time To Think About Adjusting Rates

Federal Reserve Bank of San Francisco Mary Daly told MNI on Thursday the Fed should start thinking about cutting interest rates, potentially twice this year, and it's possible that a large tariffs-driven increase in inflation does not materialize. "I really am of a view that it's time to think about normalizing, or adjusting – perhaps not normalizing just yet – but at least adjusting the interest rate to ensure that we can continue to say the following: The economy's in a good place and policy's in a good place. So I see two cuts as a likely outcome," she told a MNI Livestreamed Connect event.

MNI FED: St Louis's Musalem Explains Benefit Of Paying Interest On Reserves

St Louis Fed President Musalem makes what appears to be the first comment by a Fed official on some politicians' proposals to eliminate interest paid on Fed reserves in order to help shore up public finances. Musalem says: So if if interest on reserves went away suddenly, commercial banks would reduce their levels of reserves and that would inject liquidity into the money market. And to maintain interest rate control, the Fed would then probably have to sell Treasuries in the market to reduce liquidity. So the ample reserves or abundant reserves regime requires interest on reserves for interest rate control. That transition will be [from] ample reserves to, let's say, scarce reserves.

MNI FED: St Louis's Musalem: Tariffs Could Impact Inflation Well Into 2026

St Louis Fed Pres Musalem, a 2025 FOMC voter and considered to be a hawk, makes his first comments since the June meeting. He does not give away much on his rate views but overall we continue to think he is one of the 7 members who penciled in no rate cuts this year, preferring to wait and see several months of inflation data before deciding on the impact of tariffs. Musalem sounded a little dovish on incoming inflation data, emphasizing that on a 3-month basis there have been "very positive inflation trends in core and headline [PCE] in goods and in services, and those are very welcome developments".

NEWS

MNI US-RUSSIA: Rubio-Need To See Roadmap From Russia On Ending Ukraine Conflict

Reuters reports comments from US Secretary of State Marco Rubio following his talks with Russian Foreign Minister Sergey Lavrov in Kuala Lumpur. Rubio says the two "shared some ideas and comments", calling it "a frank, important conversation." Rubio says US President Donald Trump is "disappointed there has not been more flexibility on the Russian side over [the war in] Ukraine....It's been difficult". Rubio: "We need to see a roadmap moving forward on how the Ukraine conflict can conclude."

MNI US-RUSSIA: Rubio-Lavrov Meeting Concludes After ~1hr

TASS reports that the meeting between Russian Foreign Minister Sergey Lavrov and US Secretary of State Marco Rubio, taking place on the sidelines of the ASEAN foreign ministers' meeting in Malaysia, has concluded after just under an hour. The meeting comes after US President Donald Trump has vocally expressed his frustration with Russia, and in particular President Vladimir Putin, over perceived foot-dragging in reaching a peace deal with Ukraine.

MNI EU-RUSSIA: German Chancellor Calls Out Slovakian PM Over Sanctions Veto

Speaking at the Ukraine Recovery Conference in Rome, German Chancellor Freidrich Merz calls out Slovakian PM Robert Fico over his gov'ts continued veto against an 18th round of sanctions against Russia. Merz says “I urgently ask Slovakia and its Prime Minister to give up the resistance and to make the way free for package number 18.” Slovakia's opposition is not to the content of 18th package of sanctions, but instead to the EU's plan to phase out the use of Russian fossil fuels. 

US TSYS

MNI US TSYS: Bonds Lead Rebound Off Early Lows, S&P/Nasdaq Climb To New Highs

• Treasuries look to finish mixed Thursday, off early session lows, curves twist flatter with Bonds leading the rebound in late trade (USU5 +4 at 114-06): 2s10s -0.913 at 47.371, 5s30s -2.776 at 93.272. Markets traded with a positive tone, shrugging off tariff-related event and pass-through inflation risks to focus on economic data.
• The latest weekly claims showed a further improvement in seasonally-adjusted initial claims, though the continued elevation in continuing claims kept the broader theme of a 'low firing, low hiring' labor market very much intact going into the second half of the year. Initial jobless claims were below expected at 227k (235k consensus, 232k prior rev from 233k) in the Jul 5 week. Continuing claims were exactly in line at 1,965k (1,965k expected, prior rev from 1,964k)
• SF Fed President Daly said "the economy's in a good place and policy's in a good place. So I see two cuts as a likely outcome," she told a MNI Livestreamed Connect event, adding it's possible that a large tariffs-driven increase in inflation does not materialize.
• Earlier, StL Fed Pres Musalem sounded a little dovish on incoming inflation data, emphasizing that on a 3-month basis there have been "very positive inflation trends in core and headline [PCE] in goods and in services, and those are very welcome developments".

OVERNIGHT DATA

MNI US DATA: Claims Data Reinforces "Low Firing, Low Hiring" Labor Market Theme

The latest weekly jobless claims report showed a further improvement in seasonally-adjusted initial claims, though the continued elevation in continuing claims kept the broader theme of a 'low firing, low hiring' labor market very much intact going into the second half of the year.

• Initial jobless claims were below expected at 227k (235k consensus, 232k prior rev from 233k) in the Jul 5 week. This was the 4th consecutive pullback from the recent high 250k in the Jun 7 week, with the current level now marking an 11-week low. The 4-week average fell for a 3rd consecutive week, to 236k, a 5-week low.
• Continuing claims were exactly in line at 1,965k (1,965k expected, prior rev from 1,964k) in the Jun 28 week. This was, by  a mere 1k, the highest continuing print since November 2021.
• Overall continuing claims have pretty much steadied out between 1,900-2,000k (4 of the last 5 weeks were within a range of 1,951-1,965), with the advance seasonally adjusted insured unemployment rate in the 1.27-1.29% range over the past 5 weeks.
• So far as seasonal factors are concerned, initial NSA rose 10.0k, besting the seasonal factor expectation of a rise of 14.8k; there were no major standouts on a state-by-state NSA basis. Meanwhile continuing claims rose 6.1k NSA, with seasonal factors expecting a decrease of 3.9k.

MARKETS SNAPSHOT

Key market levels of markets in late NY trade:
DJIA up 212.71 points (0.48%) at 44674.98
S&P E-Mini Future up 17.75 points (0.28%) at 6325.75
Nasdaq up 18 points (0.1%) at 20631.68
US 10-Yr yield is up 1.2 bps at 4.3438%
US Sep 10-Yr futures are down 2/32 at 111-6.5
EURUSD down 0.0021 (-0.18%) at 1.1699
USDJPY down 0.16 (-0.11%) at 146.18
WTI Crude Oil (front-month) down $1.49 (-2.18%) at $66.89
Gold is up $11.28 (0.34%) at $3325.00

European bourses closing levels:
EuroStoxx 50 down 7.38 points (-0.14%) at 5438.27
FTSE 100 up 108.64 points (1.23%) at 8975.66
German DAX down 92.75 points (-0.38%) at 24456.81
French CAC 40 up 23.79 points (0.3%) at 7902.25

US TREASURY FUTURES CLOSE

3M10Y +2.015, -1.407 (L: -5.382 / H: 1.363)
2Y10Y -0.903, 47.381 (L: 46.549 / H: 49.837)
2Y30Y -2.595, 99.333 (L: 97.895 / H: 103.435)
5Y30Y -2.601, 93.447 (L: 92.491 / H: 96.899)
Current futures levels:
Sep 2-Yr futures down 0.75/32 at 103-22.5 (L: 103-21.25 / H: 103-24.625)
Sep 5-Yr futures down 1.5/32 at 108-11.75 (L: 108-08.25 / H: 108-16.25)
Sep 10-Yr futures down 2/32 at 111-6.5 (L: 111-00.5 / H: 111-13.5)
Sep 30-Yr futures up 5/32 at 114-7 (L: 113-23 / H: 114-13)
Sep Ultra futures up 9/32 at 117-19 (L: 116-29 / H: 117-23)

MNI US 10YR FUTURE TECHS: (U5) Monitoring Support

• RES 4: 112-23   High May 1 and key resistance
• RES 3: 112-15   61.8% retracement of the Apr 7 - 11 sell-off
• RES 2: 112-12+ High Jul 1 and a bull trigger
• RES 1: 111-13+/111-28 High Jul 10 / High Jul 3
• PRICE:‌‌ 111-06 @ 1225 ET Jul 10
• SUP 1: 110-21+/17 Low Jul 8 / 61.8% of the May 22 - Jul 1 bull leg     
• SUP 2: 110-10+ Low Jun 16
• SUP 3: 110-03   76.4% of the May 22 - Jul 1 bull leg
• SUP 4: 109-28   Low Jun 6 and 11 

Treasury futures maintain a softer short-term tone following the retracement that started Jul 1. Price has traded through support at the 50-day EMA, at 110-30+. This undermines a recent bull theme and exposes 110-17 next, a Fibonacci retracement point and a key support. A break would strengthen a bearish threat. Note that it also remains possible that the recent move down is a correction. Resistance to watch is at 111-28, the Jul 3 high.

SOFR FUTURES CLOSE

Sep 25 steady00 at 95.880
Dec 25 steady00 at 96.175
Mar 26 -0.005 at 96.425
Jun 26 -0.010 at 96.640
Red Pack (Sep 26-Jun 27) -0.015 to -0.015
Green Pack (Sep 27-Jun 28) -0.01 to -0.005
Blue Pack (Sep 28-Jun 29) -0.005 to steady
Gold Pack (Sep 29-Jun 30) -0.005 to steady

REFERENCE RATES (PRIOR SESSION)
​​​​​​​
US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.32% (-0.02), volume: $2.752T
• Broad General Collateral Rate (BGCR): 4.31% (-0.01), volume: $1.133T
• Tri-Party General Collateral Rate (TCR): 4.31% (-0.01), volume: $1.101T
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $105B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $262B

RRP usage retreats to $183.339B this afternoon from $227.273B yesterday, total number of counterparties at 36. Usage had fallen to $54.772B on Wednesday, April 16 -- lowest level since April 2021 - compares to yesterday's (July 1) $460.731B highest usage since December 31.

MNI PIPELINE: Corporate Bond Update: Upsized $3B Nissan 3Pt Launched

• Date $MM Issuer (Priced *, Launch #)
• 07/10 $3B #Nissan Motor $1B 5Y 7.5%, $750M 7Y 7.75%, $1.25B 10Y 8.125% (upsized from $2.25B)
• 07/10 $1.5B #World Bank 2030 Tap SOFR+43 (upsized from $500M)
• 07/10 $750 #Aviation Capital Group 5Y +107
• 07/10 $600M #Pacific Life 7Y +75

MNI EGB BONDS: EGBs-GILTS CASH CLOSE: German Yields Resume Recent Uptrend

EGB yields resumed their recent uptrend Thursday, with Gilts outperforming Bunds.

• There was once again no overt macro headline or data driver for Bund and broader EGB weakness, with the prevailing theme continuing to be expansionary German fiscal policy.
• Solid US jobless claims data also contributed to global core FI weakness in the afternoon through the cash close.
• Fiscal policy remains a concern in the UK too, but Gilts continued to consolidate from last week's spike.
• European data was second-tier, with Italian industrial production coming in weaker than expected, and German final June inflation confirming the last estimates.
• The German curve bear steepened on the day, with 10Y yields seeing their highest close since April 2 and 2Y since May 15. The UK curve bull steepened.
• Periphery/semi-core spreads were mostly wider to Bunds, with Spain/Portugal notable outperformers.
• Friday's data highlight is UK monthly activity/GDP, with appearances by ECB's Panetta, Vujcic and Cipollone.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3bps at 1.89%, 5-Yr is up 3.4bps at 2.273%, 10-Yr is up 3.2bps at 2.705%, and 30-Yr is up 4.1bps at 3.203%.
• UK: The 2-Yr yield is down 2.4bps at 3.856%, 5-Yr is down 1.5bps at 4.026%, 10-Yr is down 1.7bps at 4.595%, and 30-Yr is down 1.6bps at 5.406%.
• Italian BTP spread up 0.3bps at 85.4bps / Spanish down 0.8bps at 61.4bps

MNI FOREX: DXY Set to Advance Again, AUD Strength Standing Out

• Although off its best levels, the USD index looks set to post its highest recovery close on Thursday, having risen around 1.4% from last week’s cycle lows. Price action has been assisted by a better-than-expected set of US jobless claims data, underpinning the latest strength for the greenback.
• However, intra-day sentiment across the G10 complex has been mixed, with the EUR and GBP underperforming while the likes of AUD and NZD have thrived. Fresh weekly highs for e-mini S&P 500 futures have assisted the higher beta currencies , providing a particularly supportive tone for the Australian dollar, which has been notably outperforming in the crosses. This dynamic has allowed the likes of EURAUD and GBPAUD to extend losses to 0.88% and 0.72% respectively as we approach the APAC crossover
• EURAUD has now reached a near three-week low back below 1.7800, exacerbated by a clean break below 20-day EMA support, which intersected at 1.7865. For GBPAUD, price action extends the 3-day slide to 1.5%, and the cross is now breaching short-term trendline support, located around 2.0660.
• In similar vein, continued outperformance against the Kiwi has seen AUDNZD also extend its most recent rally, with the cross testing the May highs at 1.0922. A sustained break would signal scope for a move back to the early April highs just above the 1.10 mark.
• Although showcasing another 100+ pip range (145.76 – 146.79), USDJPY holds close to unchanged on the session and might struggle for momentum in either direction owing to the lack of US data on Friday. The global calendar will be highlighted by UK GDP figures and Canadian employment data.

FRIDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
11/07/2025	0600/0700	***	GB	UK Monthly GDP
11/07/2025	0600/0700	**	GB	Trade Balance
11/07/2025	0600/0700	**	GB	Index of Services
11/07/2025	0600/0700	**	GB	Index of Production
11/07/2025	0600/0700	**	GB	Output in the Construction Industry
11/07/2025	0645/0845	***	FR	HICP (f)
11/07/2025	1130/1330		EU	ECB Cipollone At Ukraine Recovery Conference
11/07/2025	-	***	CN	Money Supply
11/07/2025	-	***	CN	New Loans
11/07/2025	-	***	CN	Social Financing
11/07/2025	1230/0830	***	CA	Labour Force Survey
11/07/2025	1230/0830	*	CA	Building Permits
11/07/2025	1600/1200	***	US	USDA Crop Estimates - WASDE
11/07/2025	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly
11/07/2025	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly
11/07/2025	1800/1400	**	US	Treasury Budget