US consumers don’t appear to share Donald Trump’s concerns about interest rates.

The University of Michigan’s monthly survey of consumer sentiment has shown a small increase, to 98.4 from 98.2 last month. That’s close to a 10-year high.

Americans reported that they were more optimistic about their financial prospects — perhaps thanks to recent stock market gains, and hopes of a US-China trade war deal.

What does Donald Trump mean when he says he preferred New York Fed President John Williams’ “first statement much better than his second”?

Well, Williams caused excitement yesterday when he outlined the virtue of pro-active, early, interest rate cuts – rather than waiting for problems to develop.

By comparing a rate cut to a vaccination jab sparked excitement among investors, and speculation that he could be backing a large cut to borrowing costs.

But this prompted the New York Fed to issue a clarification to its leaders’ speech, insisting that he wasn’t trying to guide the market (to Trump’s obvious disappointment).

They said:

“This was an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting.”

Retail news: a private equity firm has bought a controlling stake in department store Liberty London, in a deal valuing the landmark at £300m.

More here:

Related: Liberty store sold for £300m to private equity group

We mentioned this morning that gold has hit a six-year high, but it’s actually an EIGHT year high once you priced it in sterling rather than dollars.

That’s because of the pound’s recent weakness following the EU referendum.

Adrian Ash, director of research at online and mobile-app trading platform BullionVault, explains:

“Rising debt and falling interest rates are conspiring with the UK’s Brexit mess to push down Sterling as gold sets multi-year highs.

“The last and only other time gold traded this high for UK savers was summer 2011, when the global financial crisis peaked with the near-collapse of the Euro and the worst rioting across England in modern times.”

Shares in Microsoft have hit a record high, after it reported strong revenue growth from cloud computing services and its Surface laptop business.

Over in New York, stocks are rising at the start of trading as investors anticipate US interest rate cuts soon.

The Dow Jones industrial average has gained 110 points, or 0.4%, to 27,333, while the S&P 500 has gained 0.35% to 3,005 — close to this week’s record highs.

St. Louis Federal Reserve president James Bullard has boosted stocks, by saying that a 0.25% cut in US interest rates this month would be appropriate.

Our economics editor, Larry Elliott, says June’s public finances in June show the scale of the challenge facing Boris Johnson or Jeremy Hunt:

Pledges by Boris Johnson and Jeremy Hunt to cut taxes and increase spending have come just as the UK’s public finances have shown a marked deterioration, according to the latest official figures.

In what analysts called a “reality check” for the two Conservative prime ministerial contenders, the Office for National Statistics said the government needed to borrow £7.2bn last month – more than double the £3.3bn in the same month a year ago.

Higher spending and lower tax receipts were responsible for the highest June deficit – the gap between government income and spending – in four years, amid signs that the economic slowdown is starting to feed through into the public finances.

Hunt and Johnson have promised big cuts in corporate and personal taxes while campaigning to succeed Theresa May, prompting a warning from the independent Office for Budget Responsibility on Thursday that there was no fiscal “free lunch”. The OBR warned that the contenders’ proposals were uncosted and would be likely to raise government borrowing by tens of billions of pounds.

More here:

Related: Worsening public finances give next PM a sharp ‘reality check’

2019 has been a strong year for stock markets so far, with Wall Street up 20%, Britain’s FTSE 100 gaining 11% and China’s CSI 300 rallying by 17%.

But we’re now entering the summer lull, and analysts are wondering if a correction is close.

Mike Wilson, chief investment officer of Morgan Stanley, believes stocks could soon shed 10% of their value in the next few months, telling Marketwatch:

“We’re not looking for the bottom to fallout like last year, but I do expect a 10% correction in the next three months,”

He argues that earnings estimates are too frothy, and may come down over the summer – very plausible, if the world economy loses momentum.

It also appears that a US interest rate cut is rather ‘priced in’ to valuations, so traders could take profits when it actually happens.

Wilson says:

“We think there’s still some unfinished business and it’s not going to be scary, but it will be a better opportunity to buy stocks over the next three to six months, and maybe 18 months. We tell people don’t chase break outs when everyone is getting excited.”

Over in Milan, stocks are sliding as investor worry that Italy’s coalition government could collapse.
Tensions have been growing for weeks between the right-wing League party, and the anti-establishment Movement Five Star. Now, League leader Matteo Salvini (Italy’s deputy PM) has criticised his coalition partners, revealing he will meet M5S’s Luigi Di Maio soon.

Salvini is unhappy that M5S are blocking certain government policies, saying:

“We will certainly meet … the problem is not Di Maio, but opposition coming from many 5-Star politicians.

“There is an obvious and total block on proposals, initiatives, projects and infrastructure by some 5-Star ministers that hurts Italy.

Salvini’s attacks on migration, and his decision to block migrant rescue ships from docking at Italian ports, have also angered M5S politicians.

Opinions poll show that the League are leading the polls — which might encourage Salvani to push for an election….

Italy’s FTSE MIB has lost 1% today, with bank shares down 2.5%.

Here’s our news story on how gold had been boosted by tensions in the Gulf, and the prospect of interest rate cuts:

Related: Gold price hits six-year high as investors await US interest rate cut

The jump in UK borrowing casts a shadow over the coronation of the next Conservative Party leader next week.

Howard Archer of the EY Item Club says the swelling deficit is “hardly the best backdrop” to the race to Downing Street.

Both Boris Johnson and Jeremy Hunt have made expensive pledges in their battle for votes (which chancellor Philip Hammond say are impossible under a no-deal Brexit….)

Related: Do spending plans of Boris Johnson and Jeremy Hunt add up?

He says:

Disappointing news on the public finances to greet the new Prime Minister and Chancellor when they shortly take office with the June shortfall on the budget deficit more than doubling year-on-year.

Furthermore June meant that the public finances have seen year-on-year deterioration through the first three months of fiscal year 2019/20.

Archer adds that it’s too early to say definitively whether the UK will hit, or miss, it’s budget target this year.

Much will depend on whether the economy can shrug off its current weakness as well as on Brexit developments. It will also be influenced by any changes to fiscal policy by the new Prime Minister and Chancellor.

Bloomberg’s Jill Ward points out that the cost of servicing Britain’s national debt rose in June — helping to push the deficit higher.

• Spending including capital investment rose 7.2%, boosted by debt interest costs — higher RPI pushed up payments on inflation-linked bonds — and government outlays on goods and services.
• Receipts rose 1.5%, with dividends and national-insurance contributions driving the increase. Excluding these categories, tax income was virtually unchanged.

A no-deal Brexit crisis would make the UK public finances look even worse, points out Mike Jakeman, senior economist at PwC:

There remains an unusual amount of uncertainty around the short-term future of the public finances at present. A no-deal Brexit would hit both government revenue (through lower tax receipts) and expenditure (through the need for fiscal stimulus package). The government would be likely to have to reconsider its medium-term targets for the deficit and debt.

But even if a no-deal Brexit is avoided, a new chancellor is likely to bring new priorities and, with a spending review on the horizon, could sanction a period of looser fiscal policy.”

Economist Rupert Seggins shows how government spending has outpaced the tax take this financial year:

John McDonnell MP, Labour’s Shadow Chancellor, is concerned that Britain’s deficit is going up….

“With the Conservatives obsessed with No Deal Brexit and a race to the bottom on taxes, the outlook for our public services after years of austerity is grim.

“Instead of investing to grow they have passed on the deficit to hospitals and local councils, overseeing stagnating wages and productivity.

“Only a Labour Government will deliver the radical transformation that is desperately needed to boost living standards and eliminate in-work poverty.”

June’s budget deficit figures are much worst than expected, points out Helia Ebrahimi of Channel 4.

The rising deficit may limit the next prime minister’s ability to deliver tax cuts or spending increases, unless they’re happy to drive borrowing higher.

The surge in borrowing in June suggests Britain could miss its borrowing targets this financial year.

The UK was expected to borrow £29.3bn in the 2019-20 financial year, up from £23.5bn in the 12 months to March.

Just three months into the financial year, and Britain has already borrowed £17.9bn, compared with £13.5bn at this stage a year ago.

Iran insists that America has not shot down one of its drones… and is now suggesting that US forces could have downed one of their own!

The deputy foreign minister, Abbas Araqchi, tweeted that he was “worried” that the USS Boxer had accidentally hit one of its own side’s unmanned aerial systems (UAS).

This has taken some of the heat out of the gold price, which has dipped back to $1,440 per ounce.

The oil price has jumped 1% today, after America claimed to have shot down an Iranian drone.

Brent crude has risen to $62.645 per barrel, reversing several day of losses, as investors brace for more skirmishes in the Gulf region.

Cailin Birch, Global analyst at The Economist Intelligence Unit, says they’re right to worry:

“Reports that the US brought down an Iranian drone in the Strait of Hormuz will escalate tensions even further. Iranian officials have thus far taken care not to react to the incident in a way that provoke further conflict; officials’ immediate response was to deny that any Iranian aircraft had been lost. Nonetheless, Iran has made it clear in recent weeks that it rejects any Western presence in the Strait of Hormuz–officials warned the UK to withdraw its ships from the region earlier this month, saying that it could ensure regional security alone. The latest skirmish with the US is likely to put Iran even more on guard.

We still do not expect either party to willingly enter into open conflict; Iran is ill equipped to wage an expensive conflict, and doing so would probably alienate its remaining allies in Europe. The US government will not want to start a deeply unpopular foreign conflict just as the campaign season ramps up for 2020. However, the risk of a policy miscalculation remains high in this heated environment, meaning that more skirmishes are likely in the coming weeks.”

Billionaire investor Ray Dalio has fuelled the gold boom this week, arguing that investors should pile into the precious metal.

In a blogpost, Dalio argued that gold was a sensible asset to invest in, as geopolitical tensions are rising and central bankers are likely to ease monetary policy to ward off a slowdown.

He wrote:

“Those [investments] that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold.

Dalio also pointed to the slump in government bond yields, as investors have piled into safe-haven assets such as German debt:

I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”

Gold struck its all-time high back in 2011, after the financial crisis, when it peaked over $1,900.

We’re nowhere near those levels yet, but Fawad Razaqzada, market analyst at Forex.com, suspects bullion will keep rising through 2019.

He cites the weakening US dollar (which pushes up commodity prices) and the fact that bonds provide so little income at present.

The underlying trend is bullish for gold and silver, due to the falling government bond yields and the recent struggles for the dollar and stocks. So, as things stand, these are good times for buck-denominated and noninterest-bearing precious metals.

Stock markets are taking a cue from gold this morning, with gains across the globe.

Japan’s Nikkei has jumped 2%, and China’s CSI 300 index gained 1%, on hope of a US interest rate cut soon.

In London, the FTSE 100 has jumped by 48 points, or 0.6%, to 7,543.