The Commerce Department revised Q2 GDP growth from previously estimated +3.3% to +3.8% (vs. +3.3% revision est.). The unexpected strength (highest in two years) was driven by strong consumer spending and the AI-driven business investment boom, as well as a sharp contraction in the trade deficit as the surge in imports slowed. At face value, such GDP strength suggests further Fed rate cuts may not be warranted.
President Trump rolled out new tariffs on Thursday, including a 100% duty on branded pharmaceuticals effective Oct. 1, with exemptions for companies building U.S. manufacturing facilities. Markets have so far shrugged off the tariff increase because pharmaceutical companies such as Merck, Novo Nordisk and Eli Lily have all commenced U.S. builds since 2023. At the same time, Trump imposed tariff rates of 50% on kitchen cabinets and vanities, 30% on upholstered furniture and 25% on heavy-duty trucks.
Energy Secretary Chris Wright announced plans to delay scheduled retirements of several dozen coal-fired power plants to help deliver the vast electricity required to fuel AI, while supporting administration goals to increase U.S. energy generation by 100GW within 5 years.
The rising gold price is beginning to affect Chinese physical gold demand with dealers widening discounts to global spot to $31-$71/oz this week from $21-$36/oz last week (multi-year lows). Indian buying remained more stable with local premiums of up to $7/oz over official domestic prices (highest since Nov. ’24).
Reuters reports Group of 7 members and the EU are considering price floors to promote rare earth production as well as taxes on some Chinese exports to incentivize investment. Separately, Handelsblatt reports that to fight Chinese dumping the European Commission is readying tariffs of 25%-50% on Chinese steel and related products in the next few weeks.
All eyes on the PCE Price Index @ 8:30 am (est. +0.3% m/m & +2.7% y/y) and U. of Mich. Sentiment @ 10 am (est. 55.4, 1yr. infl. +4.8% and 5-10yr. infl. +3.9%).
