Israel launched an attack on Iran to halt the creation of nuclear bombs, and the United States supported it by sending B-2 aircraft and deep-strike bombs. This significantly changed the dynamics of the Middle East by severely affecting the promoters of terrorist groups in Lebanon, Yemen, and Gaza, and will likely lead to a peace treaty between Arab countries and Israel.
In the United States, the Supreme Court made a significant and momentous decision by ruling in favor of the executive branch in a dispute with lower courts. The decision is that a lower court judge cannot modify a policy that affects the entire country at the national level, thereby giving the president significantly greater power, as local judges had continually overturned his initiatives. The vote was 6-3, with the justices voting along party lines.
This Supreme Court decision presents a dilemma for me, as I have always maintained that the US is a great country due to the separation of its three branches of government: executive, legislative, and judicial. On the one hand, it is beneficial that the president makes major decisions without interference from the courts; on the other hand, it opens the way to a system lacking the necessary checks and balances.
In New York, a 33-year-old socialist Democrat, Zohran Mamdani, won his party’s election to be the candidate for mayor of New York City. This man’s ideas are socialist, seeking to raise taxes on the wealthy, create government-run supermarkets, divert resources away from the police, and implement structural changes to life in the world’s most important city. I don’t think he will win the mayoral election, but if he does, there will be a massive exodus of wealthy people and a considerable decline in the city’s quality of life.
Trump got NATO member countries to agree to increase their military spending from 2% to 5% of their GDP, thereby strengthening their military capacity to defend themselves against an attack and making the economic contribution that had been overburdened on the United States more balanced. The only country that did not agree was Spain, and Trump said they will pay for it with higher tariffs.
A trade agreement was reached between the United States and China, although it has not yet been signed. The agreement reduces tariffs on imports, allows the export of high-tech products to China, and ensures the supply of so-called rare earths and magnets to the United States.
The tax that Canada had imposed on US technology companies, such as Google, Facebook, and Amazon, which was due to take effect on July 1, was canceled two days after President Trump announced that trade talks with Canada had broken down and that tariffs on Canadian products would be increased.
The US government, through its financial regulator FINCEN, accused two banks and a brokerage firm in Mexico of facilitating money laundering operations for drug cartels. Although CI Banco and Intercam together account for only 1.51% of the banking system, the fact is relevant, as they could try to do the same with other institutions. The Mexican government initially denied knowledge of this investigation and dismissed FINCEN’s claims; however, the following day, it intervened in the case of the accused banks.
Finally, I would like to comment on Trump’s “Big Beautiful Bill.” This is his legislative initiative that establishes a series of tax cuts, primarily making permanent the reductions he obtained in his first administration, which were set to expire this year. In addition, tips, overtime income, and Social Security payments for pensioners are exempt from taxation. In exchange, it cuts many public expenditures, especially Medicaid, which provides free health insurance for people with low incomes, but only if a series of specific conditions is met in each case.
The president wants to sign this bill before July 4, and it is a race against time. Several more conservative Republican senators and representatives disagree with the proposal, as it increases the deficit by $2.4 trillion above the $3.4 trillion that was already going to be spent on Social Security, Medicare, debt service, and the military, in addition to other expenses that the government faces above what it collects.
The government believes that the tariffs will encourage more companies to establish operations in the United States, resulting in increased employment and tax revenue, which will help offset the projected revenue shortfall. It is difficult to believe that many manufacturing jobs will be created due to the vast difference in labor costs between the United States and emerging countries. Still, time will tell what the reality will be.
Turning to the economy, the United States is slowing down, as reports on manufacturing, home sales, and consumer spending have shown a downward trend. However, consumers remain upbeat and continue to use their credit cards almost indiscriminately. Job creation has fallen from 250,000 per month to 150,000 in the first half of the year, and inflation has remained steady at around 2.7%, above the Fed’s 2% target but at an acceptable level.
The central bank, in its dual role of fighting inflation and preventing unemployment, has been reluctant to lower interest rates until it sees the impact of the tariffs. This has led President Trump to insult the Fed chairman, calling him “stupid” and an “idiot,” as well as “slow,” when comparing the 11 rate cuts in the European Union with zero in the United States. It is worth noting that the Supreme Court ruled that Trump cannot fire Powell, whose term as Fed chair ends in May 2026. The OECD lowered its GDP growth estimate from 2.2% to 1.6% and declined to give a figure for 2026 until the impact of the tariffs is known.
Interestingly, over the last two months, the country has experienced its lowest trade deficit in 20 years, as imports stalled due to tariff uncertainty. In April and May, the country collected $37.8 billion in import taxes, accounting for 6% of total government revenue and 7.3 times the amount collected in the same two months of 2024.
From 1996 to 2026, the number of publicly traded companies in the United States decreased from 8,000 to 4,000, while the number of private equity firms grew from 2,000 to 11,500, which is concerning because the SEC has no oversight over these companies. An interesting fact is that the wealthiest 1% of the country owns 34% of total assets, and the richest 10% owns 63% of the total. Productivity fell by 1.6% in the last quarter, which is bad for inflation. Likewise, hourly earnings rose by 1.3%.
In the last four years, 5,000 artificial intelligence companies have been established, which is still in its infancy, but will surely bring about a vast change that will transform our lives. The total savings of the American people, including retirement funds, reached $43 trillion, equivalent to 23 times Mexico’s GDP. One interesting fact is that the average price of cars sold in the United States is $48,863, and the annual operating cost is $12,296.
Mexico has continued its policy, which began six months ago, of non-confrontation with Trump, resulting in few penalties in terms of tariffs. The tax on remittances has already been reduced from 3.5% to 1% and only for person-to-person cash transfers, not bank-to-bank transfers. The country continues to have slightly higher inflation than Banxico would like, but this has not prevented interest rates from being lowered to 8%. Despite this, the peso continues to appreciate against a very weak dollar. The forecasts predict a slight economic contraction in 2025 and a 1% growth in 2026, which is insufficient to meet the needs of a country with an average age of 21.6 years.
President Sheinbaum, who has generally done a good job of removing Mexico from Trump’s crosshairs, remains under pressure from a series of social policies inherited from AMLO, a team imposed on her by the previous administration, and a precarious economic situation, as she inherited empty coffers and many payment commitments. Below, as I do every month, I list the positive and negative developments for June.
Positives:
· The Dos Bocas refinery is now operating at 210,000 barrels per day, 42% of capacity.
· Reserves reached $241.761 billion.
· Despite insecurity and corruption, Mexico ranks 11th in terms of attractiveness for foreign direct investment.
· Banxico has cut interest rates 11 times, supporting the development of social housing and helping domestic producers.
· Car sales are projected to reach between 1.49 and 1.52 million by 2026. Chinese cars already account for 19.3% of the market.
Negatives:
· Remittances in April were $4.761 billion, 12.1% lower than in April 2024.
· Analysts’ average forecast is for GDP growth of 0.18% in 2025 and 1.41% in 2026, which is slightly above what I believe will happen.
· Manufacturing and export data report declines of 8.3% and 19.7%, respectively, mainly due to uncertainty over US tariffs.
· The IMSS reported a loss of 45,600 jobs in May, the worst month in 22 years.
· May was a terrible month for capital markets, as there was an outflow of foreign money from both stocks and bonds.
· The intervention of the two banks and Vector, a brokerage firm, which we mentioned earlier.
In comments on other countries, we begin with Israel, where first-quarter GDP grew 3.7% annualized, returning to its pre-war level. The central bank lowered its estimate for 2025 from 4% to 3.5% due to the impact of the war in Gaza. Inflation fell from 3.6% to 3.1%, the lowest level in a year and almost at the target range of 1% to 3%, which would allow interest rates to be lowered from their current level of 4.5%. Unemployment stands at 2.2%, the lowest in many years, mainly due to reservists being called up to serve in the army.
Prime Minister Netanyahu’s approval rating rose sharply to 61% from 43% before the attack on Iran. An initiative in parliament to call new elections was not approved, giving him a respite and allowing him to continue with his current policy. As we mentioned earlier, the potential elimination of the risk of a nuclear attack by Iran alters the geopolitical landscape of the Middle East and may facilitate the extension of the Abraham Accords, a highly sought-after peace agreement with additional Arab countries.
In the rest of the world, central banks have been purchasing gold for their reserves at a rate of approximately 1,000 tons per year. Gold reserves account for approximately 20% of total reserves, or nearly 36,000 tons. Norway’s sovereign wealth fund reached $1.77 trillion, the largest in the world, although China has two funds that together total $2.75 trillion.
China reported a decline in production and corporate profits, but the government has implemented a series of incentives that are reversing this negative trend. As part of this policy, the government issued yuan-denominated bonds worth $1.5 trillion. Sales of Chinese electric cars in the UK now account for 10% of the total market and 8.9% in Europe as a whole. Notably, Chinese exports rose 5% in May to $316 billion, despite a considerable reduction in shipments to the United States due to uncertainty surrounding tariffs.
Milei’s economic experiment in Argentina appears to be a success, with inflation reduced to less than 20% per year, a pact with the IMF that provides dollar resources, and projected economic growth of more than 5% for this year. On the other hand, Brazil continues to battle chronic inflation, which has forced the central bank to raise interest rates to 15%, the highest in the world for an industrialized country. However, this has kept its production plant and unemployment rate below 4%. Brazil announced a $6.1 billion program for the exploitation of rare earths, aiming to capitalize on the shortage created by the conflict between the United States and China. Colombia abandoned its fiscal discipline plan, and both its currency and capital markets fell as an unbridled socialist government could produce rampant inflation that would significantly affect the country.
For the first time in history, the Emirates placed more orders for Western products than Saudi Arabia, capitalizing on its increased revenues following OPEC’s third oil production increase of 411,000 barrels per day. Stock markets reached their all-time high in June. Bonds rose in price as the US Treasury bond rate fell to 4.25%. Gold rose with the attack on Iran but fell back $200 to $3,270 per ounce. The dollar fell sharply against all foreign currencies. Bitcoin reached an all-time high of $111,140 before falling below $99,000 and stabilizing around $106,000. It is difficult to explain the peso‘s reaction, which closed at $18.80 despite facing numerous headwinds. It will be interesting to see how the tariff issue unfolds and when the review of the USMCA will commence. We do not expect the peso to fall significantly below these levels, and it is likely to stabilize between $19.50 and $20.
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