Son Min

Jerome Powell, Chair of the Fed, stated his position on rate decisions. On the 1st (local time), according to Walter Bloomberg, Chair Powell said, "Most Fed officials expect rate cuts by the end of this year," and added, "We cannot conclude yet whether a rate cut in July is too soon." He continued, "As long as the U.S. economy remains solid, waiting is a good option," suggesting that the timing of the rate cuts will be decided based on future data. He also mentioned that current inflation is showing a positive trend. Powell said, "The U.S. economy is currently in a good state. Excluding tariffs, inflation is proceeding as expected," but added, "However, the effects of tariffs are expected to appear starting this summer." He also expressed his view regarding pressure from President Donald Trump. Powell stated, "Regarding pressure from Trump, I am focused solely on the Fed’s mandates." When asked whether he would remain on the Fed board after May next year, he replied, "I have nothing to say on that."

The ISM Manufacturing Purchasing Managers' Index (PMI) for June in the United States slightly exceeded expectations. According to the manufacturing PMI report released by the Institute for Supply Management (ISM) on the 1st (local time), the June manufacturing PMI for the US stood at 49.0, surpassing both the expected value (48.8) and the previous month's figure (48.5). The report stated, "The manufacturing PMI, after two months of expansion, has entered a contraction phase for four consecutive months." However, it also pointed out, "The overall US economy has maintained expansion for 62 consecutive months." Furthermore, "Improvements in production and inventory contributed to the month-over-month rise in the PMI," although, "while companies are increasing production, they remain cautious regarding employment." ISM calculates the PMI based on a monthly survey evaluating manufacturing business conditions conducted across 400 companies in 20 industries. A PMI above 50 indicates more respondents expect business conditions to expand, while a reading below 50 means more expect a contraction.

The U.S. June Manufacturing Purchasing Managers' Index (PMI) slightly exceeded expectations. On the 1st (local time), S&P Global announced that the Manufacturing Purchasing Managers' Index for June stood at 52.9, slightly surpassing Wall Street's forecast of 52.0. The S&P Global report stated, "This manufacturing PMI marks the highest level since May 2022 and indicates strong economic expansion, with figures above 50 for six consecutive months," and added, "Manufacturers recorded an increase in production for the first time in four months." It continued, "Companies expect sales to rise, anticipating improved business conditions and reduced trade uncertainty." Chris Williamson, Chief Economist at S&P Global, analyzed, "In June, U.S. manufacturing production returned to growth," and explained, "The increase in orders from both domestic and overseas customers directly drove higher workloads and production recovery." However, he noted, "This may be due to customers placing advance inventory orders to hedge against tariff-driven price increases," and added, "Price pressures have already accumulated, and growth could slow in the second half of the year." The Purchasing Managers' Index (PMI) uses 50 as a baseline to gauge expansion or contraction. A PMI above 50 indicates economic expansion, while below 50 signifies contraction.

This year, it has been observed that the likelihood of Elon Musk, Tesla's Chief Executive Officer (CEO), forming a new political party has surged. According to Kalshi, a decentralized U.S. prediction platform, the probability that Elon Musk will form a new political party this year has soared to 41%. This development is interpreted as a result of the further deterioration of relations between Donald Trump, the President of the United States, and Elon Musk. Previously, Musk criticized the 'Trump Budget,' which contains President Trump's tax cut policies, saying it is a bill that 'makes the U.S. a slave to debt.' President Trump, when asked if Musk should be deported, responded, 'It needs to be considered.' Meanwhile, Elon Musk has previously proposed the establishment of a new party to represent 80%.

U.S. President Donald Trump has stated that he will look into the possibility of expelling Elon Musk, the CEO of Tesla. According to Walter Bloomberg on the 1st (local time), President Trump was asked whether he would expel Elon Musk, CEO of Tesla, and answered, "I will look into it." Previously, Musk had criticized President Trump's tax-cut policies, saying that the "Trump budget," which included them, was a bill that would make America a slave to debt.

The Japanese point accumulation app Ponta, operated by Mitsubishi Corporation and Lawson, is expected to support virtual asset (cryptocurrency) transactions. According to Nikkei on the 1st (local time), Ponta plans to support virtual asset transactions within this year. The transaction support will be carried out in cooperation with virtual asset service providers by Loyalty Marketing, the operator of Ponta. Meanwhile, Ponta is known to have over 100 million users.

Deutsche Bank plans to officially launch a cryptocurrency (crypto asset) custody service next year. On the 1st (local time), Bloomberg, citing informed sources, reported that “Deutsche Bank plans to launch a cryptocurrency custody service next year.” To this end, it is known to be collaborating with Bitpanda Technology Solutions, a technology subsidiary of the Austria-based crypto asset exchange Bitpanda. In addition, it will continue its cooperation with its existing partner, the Swiss digital asset infrastructure company Taurus. Previously, Deutsche Bank revealed that it is considering the introduction of stablecoins and tokenized deposits.

Yield gap reaches highest since the financial crisis Hong Kong absorbs Mainland funds Capital flows into technology stocks like Tencent Hang Seng Index surges since April Shanghai Stock Exchange stagnates Dampened investment sentiment due to sluggish Chinese consumption "Recovery unlikely without stimulus measures" In the first half of this year, the Hong Kong stock market surged 20%, while the Chinese Shanghai market remained flat, making the performance gap between the two exchanges the largest since 2008. A boom in technology stock investments and an influx of Mainland funds fueled the Hong Kong rally. In contrast, the Shanghai market struggled under a sluggish real estate market, weakened consumption, and ongoing US-China trade tensions. ◇ Funds concentrate on Hong Kong tech stocks According to the Hong Kong Stock Exchange, the Hang Seng Index rose 20.0% from the start of the year through the end of June. This is about 3.6 times higher than the 5.49% gain of the S&P 500 over the same period. Analysts note that the Hong Kong market has a high proportion of innovative companies not listed on the Mainland, making it a popular alternative investment destination. In particular, after DeepSeek fueled expectations for China's artificial intelligence (AI) theme, investors piled into large technology players such as Alibaba and Tencent, giving the market strong upward momentum. In contrast, the Shanghai market has a high share of traditional sectors sensitive to the economic cycle, such as finance, energy, and real estate. The large-scale inflow of Mainland capital also supported the rise in Hong Kong stocks. Mainland Chinese investors bought more than ₩120 trillion worth of Hong Kong stocks so far this year. According to the Hong Kong Stock Exchange, from January to May this year, net purchases of Hong Kong stocks by Mainland investors totaled HKD 695.2 billion (about ₩122 trillion), reaching 90% of last year’s total net purchases. HSBC projects that net purchases by Mainland investors will reach a record USD 18 billion (about ₩249 trillion) this year. Some believe there is room for further gains. George Molina, Head of Asia Trading at Franklin Templeton, said, "Hong Kong is still one of the few markets that has not recovered to pre-COVID-19 highs" and "There is an undeniable appeal in terms of valuation." However, ongoing US–China tensions are a variable for investor sentiment. If the United States imposes high reciprocal tariffs on China, it could dampen sentiment. Some in the market say that, in that case, the Hang Seng Index could fall below its current level of 24,000. ◇ Shanghai market stagnates In contrast, the CSI 300 Index, the main gauge for the Shanghai market, rose only 0.03% in the first half amid a real estate slump, weak consumption, and deflationary pressure. Effectively, it was flat. The fall in real estate prices shrank household assets and weighed on consumer capacity. The government's large-scale stimulus measures also fell short of market expectations, further dampening investor sentiment. Winnie Wu of Bank of America Global Research pointed out, "Policy support for real estate and the consumer sector remains limited and its effectiveness minimal," adding, "Even the trade-in program simply brought consumption forward." US trade tensions were also a drag on investor morale. Recently, both countries agreed to cooperate on export controls for semiconductors and rare earths, easing some tensions, but tariff issues continue to weigh on Mainlanders. Dongchen, an analyst at Pictet Asset Management, said, "Without strong policy backing, it will be difficult to change the direction of the Mainland market." The Manufacturing PMI for June, published by the National Bureau of Statistics, was 49.7—slightly above expectations (49.6)—but was not considered strong enough to trigger a rebound. However, some view that the Shanghai market may have bottomed, with potential for future growth. Goldman Sachs projected that the CSI 300 Index could rise over 10% to reach 4,600, noting that increased fiscal support and accommodative monetary policy may help absorb tariff shocks. Goldman Sachs said, "It is likely that Chinese stocks have bottomed," adding, "In the second half, expectations for a recovery in consumption and the real estate market will gradually be reflected." Some global investors, despite policy uncertainty, are taking a selective approach to seek opportunities on a stock-by-stock basis. Juliana Hansveden, portfolio manager at Ninety One, commented, "Beijing is signaling intentions to support the private sector and consumption, making a selective approach worthwhile." Reporter: Hyin Lee hey@hankyung.com

One week left until the end of tariff negotiations Besant raises the level of warnings Signals no extension of grace period Besant: "Even with good faith negotiations, tariffs will revert to the April 2 levels" Pressure on Japan over rice and automobile negotiations Trump: "Will send a letter to Japan" U.S. pharmaceutical industry: "Korean drug prices must come down" The U.S. government has warned that countries may face high tariff rates if the July 8 deadline for reciprocal tariff negotiations is missed. Until last week, there was a suggestion that the negotiating deadline might be extended, but after President Donald Trump made negative remarks about an extension, the U.S. administration also shifted its stance. This is interpreted as a strategy to keep the possibility of extension unclear until the last minute in order to pressure trading partners and extract more concessions. ◇"High tariffs for stubborn stances" U.S. Secretary of the Treasury Scott Besant said in a Bloomberg TV interview on the 30th (local time) that countries may "face high tariff rates" after the 9th. He stated, "Even countries negotiating in good faith may revert to the high (reciprocal) tariff rates announced on April 2 if they fail to reach the finish line due to intransigent positions," and added, "I hope such a situation does not arise." He threatened that even countries that cooperate sincerely may be subject to high tariffs. The Trump administration has repeatedly expressed hopes that the main negotiations will be concluded this week as the deadline approaches. White House Press Secretary Caroline Leavitt said at a press conference that President Trump will meet with the trade negotiation team this week to notify them of tariff rates. Secretary Besant said in the interview, "A series of deals are expected to be finalized." In particular, Besant’s remarks are interpreted as targeting Japan, which has held seven rounds of talks but seen little progress on key issues such as automobile tariffs. President Trump stated on social media, "I want to show how countries have acted so rudely towards America," adding, "Will send a letter to Japan." He said, "I have great respect for Japan, but they are experiencing a severe rice shortage in their country while refusing to accept American rice." Japan has requested an exemption from automobile tariffs, but President Trump insists that Japan should import American-made vehicles. However, with Japan's House of Councillors election scheduled for July 20, it will be difficult for Japan to make concessions in negotiations until then. India, where President Trump said a deal announcement was imminent, agreed to lower tariffs on thousands of items. The Financial Times (FT) reported that India agreed to import more liquefied natural gas (LNG) from the U.S. to reduce its trade surplus. The European Union (EU) is also rushing final-stage negotiations with the U.S. Maroš Šefčovič, the European Union Commissioner for Trade and Economic Security, stated that his working team headed to Washington, D.C. on the 30th of last month, and that he himself would go there on the 1st. ◇U.S. pharmaceutical industry: "Korean drug prices are too low" While President Trump continues to make unilateral statements, the Pharmaceutical Research and Manufacturers of America (PhRMA), a U.S. pharmaceutical lobbying group, urged that trade negotiations should be used as a lever to address unfair pharmaceutical policies and practices by foreign governments. This was stated in an opinion letter submitted to the Office of the United States Trade Representative (USTR) on the 27th of last month. PhRMA singled out countries with severe issues, including South Korea, Australia, Canada, Japan, the United Kingdom, and the EU. They pointed out that Korea’s health insurance authority keeps drug prices below fair market value. The U.S. government is currently investigating the impact of imports of semiconductors, timber, copper, pharmaceuticals, etc., on national security. After collecting industry opinions, the Trump administration added appliances such as refrigerators and washing machines to the list of products subject to the 50% steel tariff. It is said that previous draft proposals sent by the U.S. to the Korean government included many industry complaints without much filtering. For example, there was reportedly a claim that “because the average income of Korean workers is lower than in the U.S., they are more competitive than U.S. companies, which could serve as a basis for imposing tariffs.” However, it is expected that unreasonable demands will be naturally eliminated as negotiations progress. A senior government official said, "The sooner we identify areas of mutual interest and resolve uncertainties, the more it will benefit both sides." Washington—Sang-eun Lee, Correspondent selee@hankyung.com