Malaysia faces a potential risk of becoming a transit hub for terrorism, as IS-linked Bangladeshis recruit migrant workers through social media platforms.
In a week marked by significant economic developments, attention is turning towards President Donald Trump's July 9 deadline for sweeping tariffs on countries like Japan. This looming deadline, coupled with the recent passage of Trump's tax cut bill, is creating a complex landscape for global currencies and financial markets.
The tax cut bill, which was passed by the Republican-controlled House of Representatives, is projected to reduce federal tax revenue by approximately $5 trillion from 2025 to 2034 on a conventional basis. This reduction, combined with the expected growth effects, is expected to raise long-run GDP by about 1.2%, but also increase federal budget deficits by roughly $3 trillion over the decade, accounting for spending reductions and interest costs.
The bill includes provisions such as increased child tax credits and enhanced business incentives like immediate write-offs for equipment and research costs, aimed at stimulating economic activity. However, it also causes higher deficits and a debt-to-GDP ratio increase, which could pressure financial markets due to higher government borrowing needs.
The increased deficits could lead to greater U.S. Treasury issuance, potentially influencing global interest rates and investor appetite for dollar-denominated assets. The higher borrowing needs implied by the tax bill could exert upward pressure on U.S. Treasury yields, impacting global bond markets and currencies, since the U.S. dollar remains the world's primary reserve currency.
Meanwhile, ongoing trade policies continue to add uncertainty and volatility to currency and equity markets worldwide. Trump's announcement that letters will be sent to countries today specifying tariff rates, a shift from earlier pledges to ink individual deals, has not alleviated these concerns.
The US jobs data was stronger than expected, pushing out the potential timing for rate cuts by the Federal Reserve. The US Labor Department's employment report showed that nonfarm payrolls increased by 147,000 jobs in June, well ahead of economists' forecast. This strong jobs report, coupled with signs of labor market resilience, has led to market expectations for the Federal Reserve leaving rates unchanged at its July meeting rising to a 95.3% probability.
In the currency markets, the dollar held gains today, trading at ¥144.69 against the yen, down 0.2% from its surge in the previous US trading day. The euro added 0.1% to US$1.1769, while sterling traded at US$1.3668, up 0.1%. The kiwi dollar rose 0.2 per cent to US$0.608 due to US stocks climbing to new record levels.
The markets are embracing these signs of labor market resilience and hopes for further US trade deals. However, the mixed signals from the tax cut bill and ongoing trade policies continue to create uncertainty and volatility in the global financial markets.
References: [1] Committee for a Responsible Federal Budget. (2017). Analysis of the House GOP Tax Bill. Retrieved from https://www.crfb.org/papers/analysis-house-gop-tax-bill [2] Congressional Budget Office. (2017). Estimated Budget Effects of the Conference Agreement for H.R. 1, the Tax Cuts and Jobs Act. Retrieved from https://www.cbo.gov/publication/53181
- The tax cut bill, with its implications of increased deficits and debt-to-GDP ratio increase, may create pressure on financial markets due to higher government borrowing needs, as outlined in the Committee for a Responsible Federal Budget's analysis of the House GOP Tax Bill.
- In the global economy, the financial landscape remains complex due to factors such as Trump's tariff decisions, the tax cut bill's effects on the economy, and the anticipated influence on currencies and markets, as the Congressional Budget Office's report on the Budget Effects of the Tax Cuts and Jobs Act suggests.
- The recent passage of Trump's tax cut bill and the looming deadline for sweeping tariffs are shaping the news headlines in the general-news sector, with potential impacts on business, finance, and politics worldwide. Meanwhile, developments in trade policies and the current state of the global economy remain focal points for many news outlets covering economic and financial stories.
