The dollar index (DXY00) today is down -0.53%, undercut by today's weaker-than-expected US consumer sentiment report and today's -0.7 bp decline in the 2-year T-note yield.  The dollar is also suffering from underlying foreign investor concern about the possibility of a politically-driven US monetary policy after US Treasury Secretary Bessent on Wednesday appeared to give the Fed marching orders on how much to cut interest rates. 

The markets are awaiting the outcome of this afternoon's Trump-Putin summit, which will begin at "around 3 pm ET" (11 AM Anchorage time), followed by a joint press conference, according to Reuters' description of the White House schedule.  The outcome could have macroeconomic implications regarding tariffs and oil prices, and will, of course, have major implications for European security.

Today's headline US retail sales report was slightly weaker than market expectations, but there was an upward revision for June, leaving the report roughly neutral for the markets.  The markets welcomed the report amidst worries about how US retail spending will hold up with a weaker labor market and consumer uncertainty about inflation and the economic outlook.  July US retail sales rose +0.5% m/m, slightly weaker than market expectations of +0.6%, although June was revised higher to +0.9% from +0.6%.  July retail sales ex-autos rose +0.3% m/m, in line with market expectations and down from June's revised +0.8% (preliminary +0.5%).

The University of Michigan's preliminary-Aug US consumer sentiment index fell by -3.1 points to 58.6, which was weaker than expectations for a slight +0.3 point increase to 62.0. The survey showed that US consumer expectations for inflation rose to +4.9% over the next year and to an annual +3.9% for the next 5-10 years.  The survey also found that 58% of consumers plan to cut spending due to inflation.

July US import prices rose +0.4% m/m, which was stronger than expectations of +0.1%.  On a year-on-year basis, July US import prices strengthened to -0.2% from a revised -0.5% y/y in June.  July US import prices ex-petroleum rose +0.3% m/m versus June's revised -0.2% (preliminary unchanged).

Today's July US industrial production report of -0.1% m/m was slightly weaker than expectations of unchanged, although June was revised upward to +0.4% m/m from +0.3%.  July manufacturing production was unchanged m/m, matching market expectations, while July was revised higher to +0.3% from +0.1%.

Today's Aug Empire manufacturing index of 11.9 was substantially stronger than market expectations of zero and was up from July's 5.5.

Chicago Fed President Austan Goolsbee delivered mildly hawkish remarks today, stating that he would like to see at least one more inflation report to ensure that persistent inflation pressures aren't emerging.  He expressed concern about the high service inflation data in the July CPI report, but noted the importance of not placing too much weight on a single month's data.

The markets today will continue to adjust to the inflation outlook following Thursday's hawkish PPI report.  The July final-demand PPI surged to +3.3% y/y (nominal) and +3.7% y/y (core).  The PPI report suggested that the markets were overly optimistic about Tuesday's CPI report and that companies are passing through tariffs at the wholesale level at a higher pace than earlier thought.  Following the report, the markets erased any hopes of a -50 bp rate cut at the Fed's September meeting and pulled back expectations for a -25 bp rate cut to 93% from 100% before the report. 

Weak Chinese economic reports overnight were negative for the global economic growth outlook.  China's economy is weakening due to US tariffs and the Chinese government's attempt to crack down on excessive competition that has driven prices to loss-making levels in some industries.  China's July retail sales report of +3.7% y/y was weaker than expectations of +4.6% and down from June's +4.8%.  China's July industrial production report of +5.7% y/y was weaker than expectations of +6.0% and was down from June's +6.8%.  China's July jobless rate rose to 5.2% from June's +5.0% and was higher than expectations.  China's July property investment fell -12.0% ytd y/y from -11.2% in June and was weaker than expectations of -11.4%. 

In recent tariff news, President Trump early Tuesday extended the tariff truce with China for another 90 days until November.  Last Wednesday, Mr. Trump announced that he will impose a 100% tariff on semiconductor imports.  Still, companies would be eligible for exemptions if they demonstrate a commitment to building their products in the US.  However, the US will levy a separate tax on imports of electronic products that employ semiconductors.  Also, Mr. Trump announced last Wednesday that he will double tariffs on US imports from India to 50% from the current 25% tariff, due to India's purchases of Russian oil.  Last Tuesday, Mr. Trump said that US tariffs on pharmaceutical imports would be announced "within the next week or so." According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced.

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 93% at the September 16-17 FOMC meeting and at 53% for a second -25 bp rate cut at the following meeting on October 28-29.

EUR/USD (^EURUSD) is up +0.58% on dollar weakness.  The euro has some underlying support from hopes of some progress on ending the Russia-Ukraine war at today's Trump-Putin summit.

Swaps are pricing in a 5% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.

USD/JPY (^USDJPY) is down -0.63% due to weakness in the dollar. The yen saw some underlying support after US Treasury Secretary Bessent earlier this week said the Bank of Japan is falling behind the curve in addressing inflation and that he expects a rate hike. However, the yen continues to be undercut by concern that US tariff policies will harm the Japanese economy.

December gold (GCZ25) is up +5.7 (+0.17%), and September silver (SIU25) is down -0.124 (-0.33%).  Gold is seeing support today from the weaker dollar.  Silver is seeing weakness on concern about industrial metals demand after today's weaker-than-expected US consumer sentiment index and Chinese economic data.

Gold continues to have safe-haven support related to US tariffs and geopolitical risks, including the conflicts in Ukraine and the Middle East.  Fund buying of precious metals continues to support prices after gold holdings in ETFs rose to a 2-year high on Tuesday, and silver holdings in ETFs reached a 3-year high last Friday.