What matters in U.S. and global markets today |
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The dollar is on course for its best week of the year, as unfolding U.S. trade deals are succeeding in raising tariffs without attracting much retaliation or causing major economic damage so far. A weekend agreement by the European Union to accept a 15% U.S. tariff hike, with promises of hefty spending on U.S. energy and arms to boot, saw the dollar notch its . Sustained dollar gains are a mixed blessing for Wall Street stocks and for President Donald Trump's administration, as it as an integral part of tackling trade deficits and boosting competitiveness. I'll review today's market news and then look at whether the dollar's considerable |
- The dollar rebound comes as the starts its two-day policy meeting, though with no change in rates expected this week as eyes drift to its September gathering instead. A big week for labor market data kicks off with the release of U.S. June job openings, and then we'll see June goods trade, which will figure into the week's second-quarter U.S. GDP report.
- In the thick of the corporate earnings season - with four big tech megacaps reporting this week and the likes of UPS, Merck and Boeing out later today - Wall Street indexes eked out new records on Monday. U.S. futures were positive again ahead of Tuesday's bell, with European and Chinese stocks rebounding too and only Japan bucking the trend.
- Treasury markets were steady after hefty debt auctions on Monday. The Treasury announced plans to borrow $1.007 trillion in the third quarter, largely in line with forecasts though likely frontloaded with bill sales. Details of the . Along with the Fed meeting, bonds kept a close eye on higher crude oil prices after Trump set a new deadline of "10 or 12 days" for Russia to make progress toward ending the war in Ukraine or face more sanctions on both .
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- met for a second day of talks in Stockholm to defuse the bilateral trade war between the world's two biggest economies. The meetings are expected to agree another 90-day extension of a tariff truce struck in mid-May.
- Koo Yun-cheol said he would seek a mutually beneficial trade deal when he meets U.S. Treasury Secretary Scott Bessent for talks this week.
- U.S. President Donald Trump unexpectedly shortened his deadline for hitting Russia with the most severe sanctions on its oil exports to date. While the market has called the president's bluff thus far, the sheer scale of the threat may force investors to start pricing in this meaningful tail risk,
- The earnings season is ramping up, and investors are once again focusing on whether companies will beat or miss expectations. However, Panmure Liberum investment strategist Joachim Klement claims the major driver of share prices can be
- As investors brace for the busiest week of the U.S. earnings season, debate is picking up again about the 'Mag 7' influence over U.S. equity indexes and whether we could be seeing the beginnings of true market broadening.
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Dollar shedding its tariff risk premium |
The dollar's surge since the U.S.-European Union trade deal seems a little counterintuitive at first glance, but the rally suggests the greenback may be shedding its elevated trade risk premium - whether Washington wants that or not. The weekend's U.S.-EU agreement averted a likely protracted trade war by halving threatened U.S. import tariffs on European goods in return for market access and investment commitments. It mirrored a similar deal made with Japan last week, though it covers four times as much U.S. trade. But, curiously, news of the Japan deal last Tuesday pushed the yen higher, initially at least. There was no such boon for the euro on Monday - as it tumbled over 1% through the day against a resurgent dollar. |
Graphics are produced by Reuters. |
Some people pointed to disquiet within Europe about whether the bloc rolled over too easily, only to end up with tariffs some 14 percentage points higher than they were at the start of the year anyway. Others focused on the impact of likely exaggerated European investment and spending pledges. But something else seemed to be stirring in a broader worldwide dollar rally that went way beyond the euro, a possible unwinding of the risk premium that had been built into the currency since April to account for Washington's seemingly chaotic tariff swipes and possible reactions. With EU, Japan and UK deals in the bag and intense talks under way with China, Canada and Mexico, Washington has essentially defused tensions surrounding the looming August 1 trade deal deadline. And the agreements completed now cover a combined 60% of all U.S. trade. The China standoff will likely rumble on but negotiations are under way in Stockholm and standing pacts will likely be extended, with Beijing's hand weakened by trade deals elsewhere. What's more, the Trump administration appears to have successfully managed all this with a minimum of retaliation and limited economic damage to date. The effective U.S. tariff rate is set to end somewhere between 15% and 20%. That may be a possible drag on growth at home and abroad, but tariff income is flattering U.S. government revenues at a relatively low cost. Any U.S. consumer inflation fallout coming down the pike will keep the Federal Reserve cautious for longer about interest rate cuts - but that too may be a lift for the dollar if it's more responsive to the rates picture again. |
"In terms of domestic political dynamics, Donald Trump is winning the trade war," AXA Group Chief Economist Gilles Moec wrote on Monday. Assuming this is the beginning of the end of the year's big tariff shock, businesses and markets may finally have some degree of certainty about the months ahead and allow a lot of paused planning and activity to resume - even if at measurably higher costs. Fading recession risks further on that, the dollar should again start to revert to more normal behavior tracking relative interest rates and economic signals rather than Truth Social posts. |
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Graphics are produced by Reuters. |
Dollar selling has abated in recent weeks, but the weekend U.S.-EU trade deal has catapulted it higher across the board as investors start to remove a tariff risk premium dogging the currency all year. The dollar's DXY index surged more than 1% on Monday, its biggest one day gain in more than two months, and has added to that on Tuesday. After just two days, it's on course for its best week of the year. |
- U.S. June goods trade balance (8:30ED AM T), June retail/wholesale inventories (8:30 AM EDT) May house prices (9:00 AM EDT), July consumer confidence (10:00 AM EDT) June JOLTS job openings data (3:00 PM EDT) Dallas Federal Reserve July service sector survey (3:30 PM EDT)
- International Monetary Fund releases its update World Economic Outlook (9:00 AM EDT)
- U.S. and Chinese negotiators meet for a second day in Stockholm
- Federal Reserve's Federal Open Market Committee starts its two-day meeting on interest rates, decision Wednesday
- U.S. corporate earnings: UPS, Merck, Boeing, PayPal, Starbucks, Visa, Corning, UnitedHealth, Procter & Gamble, Stanley Black & Decker, Sysco, Incyte, Norfolk Southern, Booking, Ecolab, Carrier, PPG, Regency Centers, Caesars, Royal Caribbean, American Tower, CBRE, Teradyne, Mondelez, BXP, Seagate, DTE
- U.S. Treasury sells $44 billion of 7-year notes, $30 billion of 2-year floating rate notes
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