* In fiscal year 2026, the progress of U.S. fiscal spending has been relatively slow; as of May, the deficit is about $1.25 trillion, accounting for 61% of the full-year plan. The acceleration in the fiscal deficit in Q3 is driven by the catch-up of welfare spending, interest expense exceeding expectations, and tariff rebate implementation. Long-term bond yields in Q3 are expected to fluctuate at elevated levels around 4.5%; in Q4, they are expected to fall back to around 4% as expectations for further rate hikes shift and the fiscal backdrop tapers.* The real driver behind the U.S. Dollar Index is the real interest rate, whose underlying impetus is the growth expectations on the lower end of the K-shaped recovery. The housing recovery that the market has overlooked has already begun since the start of the year; with credit spreads moving in a pro-cyclical manner, mortgage rates have fallen against the trend, creating a second round of easing.* Global bauxite supply is shifting, with incremental supply growth led by Guinea. U.S. market premiums are being repriced in light of trade policy; Europe is being pulled between supply risks and weak demand. Japan’s premiums reflect the “temperature gauge” of supply and demand conditions across Asia. India has the conditions for integrated expansion, but incremental growth remains limited; an increased share of recycled aluminum may change the long-term supply-demand outlook.

SnapshotLaborer

2026-07-02 13:26:11

Abstract generation in progress

In fiscal year 2026, the progress of U.S. fiscal spending has been relatively slow; as of May, the deficit is about $1.25 trillion, accounting for 61% of the full-year plan. The acceleration in the fiscal deficit in Q3 is driven by the catch-up of welfare spending, interest expense exceeding expectations, and tariff rebate implementation. Long-term bond yields in Q3 are expected to fluctuate at elevated levels around 4.5%; in Q4, they are expected to fall back to around 4% as expectations for further rate hikes shift and the fiscal backdrop tapers.
The real driver behind the U.S. Dollar Index is the real interest rate, whose underlying impetus is the growth expectations on the lower end of the K-shaped recovery. The housing recovery that the market has overlooked has already begun since the start of the year; with credit spreads moving in a pro-cyclical manner, mortgage rates have fallen against the trend, creating a second round of easing.
Global bauxite supply is shifting, with incremental supply growth led by Guinea. U.S. market premiums are being repriced in light of trade policy; Europe is being pulled between supply risks and weak demand. Japan’s premiums reflect the “temperature gauge” of supply and demand conditions across Asia. India has the conditions for integrated expansion, but incremental growth remains limited; an increased share of recycled aluminum may change the long-term supply-demand outlook.

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U.S. fiscal may accelerate in Q3, real interest rates and the lower end of the K-shaped recovery push up the dollar, recycled aluminum will change long-term supply-demand pattern---0702 Macro Dehydration

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