US Budget Deficit Rises Nearly 20% Despite Tariff Revenue Boost

GLOBAL MOOD: Risk-On
Drivers: US Inflation Data, Fed rate cut hopes, Geopolitical Tensions

Markets showed optimism as key US inflation data aligned with expectations, boosting hopes for a Federal Reserve rate cut. The extension of the US-China tariff truce further supported a positive risk sentiment despite ongoing geopolitical uncertainties.

TODAY’S WATCHLIST
 - Earnings:  BPCL, Engineers India, Godrej Industries, Muthoot Finance
 - India July WPI
 - Fed Barkin Speaks
 - Fed Bostic Speaks

THE BIG STORY
The US government’s budget deficit grew nearly 20% in July to $291 billion, driven by outlays rising faster than receipts despite a $21 billion jump in customs duties from President Trump’s tariffs, the Treasury Department reported. July’s deficit was $47 billion higher than in 2024, with receipts increasing 2% to $338 billion and outlays hitting a record $630 billion. Adjusted for fewer business days, the deficit would be around $271 billion. Customs receipts rose sharply to $27.7 billion from $7.1 billion year-on-year due to higher tariffs.

US Treasury Secretary Scott Bessent said several major trade agreements remain pending, including talks with Switzerland and India, with India described as “a bit recalcitrant.” He expressed optimism that trade deals could be finalised by October’s end. Relief also came as the US and China extended their tariff truce until 10 November, staving off triple-digit duties on each other’s goods and easing trade tensions.

DATA SPOTLIGHT
US consumer prices rose modestly in July, with increased costs in services such as airline fares and tariff-sensitive goods like household furniture driving the largest underlying inflation gain in six months. The Labor Department’s report also indicated a slowdown in the disinflationary trend for services, highlighted by record increases in dental service costs and rising healthcare prices. The Consumer Price Index increased 0.2% in July, following a 0.3% rise in June, matching economists’ expectations. Annual headline inflation held steady at a seven-month high of 2.7%, while the annual core rate rose to a five-month peak of 3.1%. 

Takeaway: July’s US inflation data reveals persistent underlying price pressures, particularly in services and healthcare, signalling that inflation remains a concern for policymakers. However, the absence of sharp inflation surprises has strengthened market expectations for a Federal Reserve rate cut in September.

WHAT HAPPENED OVERNIGHT

• US Stocks surge as inflation data boost Fed rate cut hope
  
  • The S&P 500 and Nasdaq both hit record closing highs after inflation data broadly in line with expectations.
  • Alphabet shares gained 1.2% after Perplexity made a $34.5 billion cash offer to acquire the company’s Chrome browser.

• US Treasury short-term yields Fall, long-term yields rise
  
  • The 10-year US treasury yield hovered around 4.28% on Tuesday.
  • President Trump reiterated calls for lower interest rates following the inflation report.
  • The two-year note yield dropped 2.3 basis points to 3.731%, reflecting shifts in interest rate expectations.

• Dollar weakens after moderate Inflation data
  
  • US dollar fell broadly following moderate July consumer price increases, supporting expectations of a Fed rate cut next month.
  • The euro strengthened 0.53%, trading at $1.1675 against the dollar.

• Crude oil prices dip ahead of US inventory report
  
  • Brent crude oil prices fell on Tuesday as US crude oil inventories rose by 1.5 million barrels in the week ending 8 August 2025, exceeding expectations of a 0.8-million-barrel drawdown.
  • Market focus is also shifting to expected declining demand at the end of the summer driving season in early September.

Day’s Ledger

Economic Data:

• India July WPI
• UK June Balance of Trade

Corporate Actions:

• Earnings: Aditya Birla Fashion, BPCL, Engineers India, Godrej Industries, Gujarat Pipavav, Hindustan Copper, IRCTC, Muthoot Finance, Nuvama Wealth, and Pfizer 
• Ganga Papers to consider fund raising
• Avonmore Capital to consider fund raising

Policy Events:

• Fed Barkin Speaks
• Fed Goolsbee Speaks
• Fed Bostic Speaks

TICKERS TO WATCH

• APOLLO HOSPITALS PAT rises to ₹4.33 billion vs ₹3.05 billion last year
• COCHIN SHIPYARD reported net profit ₹1.88 billion vs ₹1.81 billion last year
• GUJARAT PETRONET net profit ₹1.42 billion vs ₹2.12 billion last year
• HUL shareholders clear Kwality Wall’s ice-cream biz demerger
• JINDAL STEEL PAT ₹14.94 billion vs ₹13.40 billion last year
• KARNATAKA BANK net profit drops to ₹2.92 billion vs ₹4.00 billion last year
• NHPC net profit ₹10.72 billion vs ₹10.18 billion last year
• NMDC net profit ₹19.69 billion vs ₹19.84 billion last year
• OIL INDIA net profit ₹8.13 billion vs ₹14.67 billion last year, and ONGC, OIL INDIA sign pact for three hydrocarbon blocks
• ONE97’S Paytm Payments arm gets RBI nod for aggregator biz
• RADICO KHAITAN buys 47.5% each in two D’YAVOL Spirits units
• USHA MARTIN net profit ₹1.01 billion vs ₹1.04 billion last year

MUST READ 

• Powell, Under Construction
• When the RBI Governor’s Words Move More Than Just Markets
• CPI inflation eases to 8-year low of 1.55% in July on favourable base effect, drop in food prices
• PwC India targets three-fold revenue growth by 2030, 20,000 new jobs
• SEBI rejects Anil Ambani's settlement plea over Yes Bank investments
• SEBI looks to further ease regulations for foreign investors
• Raghuram Rajan on 50% tariffs: ‘Hard to negotiate with gun to head’
• Fed’s Barkin says balance between jobs, inflation risks unclear
• Nagel says rates at ‘very good level’ and ECB can act flexibly

See you tomorrow with another edition of The Morning Edge.

Have a great trading day.

ICICI’s Minimum Balance Hike Signals Banking’s Cost Reality Check 

ICICI Bank’s recent decision to raise the minimum average balance for new savings accounts is not a mere pricing tweak. It is a public admission of a shift that the industry has long acknowledged in private: the economics of running a traditional retail bank have changed irreversibly. 

Srinath Sridharann writes, Indian banking must shed the pretence to free service and confront the structural trade-offs between inclusion and profitability.