What matters in U.S. and global markets today |
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Blowout results from megacaps and catapulted U.S. stock futures up more than 1% on Thursday, while an overnight dollar surge on hawkish noises from the cooled a touch as the gave similar signals today. The week's blizzard of economic data and corporate earnings, and central bank decisions have helped Wall Street stocks and the dollar build a head of steam, with the greenback hitting on Wednesday as Fed easing expectations retreated sharply. The dollar is now on course for its best week in almost three years. I'll provide a rundown of the rest of today's market news and then discuss how the current trajectory of the trade war could potentially depress goods price inflation in Europe, |
- In the face of above-forecast , inflation and , the Fed on Wednesday signalled it was in no rush to cut rates again despite intense , knocking year-end easing bets back 10 basis points to just 35 bps. Futures now only see a 50-50 chance of a rate cut in September. June U.S. inflation updates are due later today, with July's employment report out Friday. Meanwhile, the Bank of Japan nudged up its inflation and GDP forecasts, increasing expectations for another rate rise there this year, which bolstered the yen.
- Microsoft and Meta delivered big earnings beats after Wednesday's bell, causing their share prices to soar 9% and 12%, respectively, after hours, as investors welcomed news of and cloud revenue. Microsoft is now on track to see its valuation eclipse $4 trillion. S&P 500 and Nasdaq futures both climbed more than 1% before today's open. European and Japanese stocks also advanced, while China's bourses bucked the trend on and trade tensions.
- As Friday's U.S. tariff deadline nears, President Donald Trump said the U.S. will charge a , down from a threatened 25% and similar to deals for Japan and Europe. and Mexico have yet to agree to separate deals, , and . China's temporary pact with America was rolled over, but it too faces higher U.S. tariffs than Europe or Japan. But Trump also sent after saying 50% tariffs on imports of copper pipes and wiring would kick in on Friday, short of the sweeping restrictions expected and with several exemptions.
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- President said on Wednesday the U.S. will charge a 15% tariff on imports from South Korea, down from a threatened 25%, as part of a that
- U.S. President Donald Trump intensified his trade war with Canada a day ahead of his August 1 deadline for a tariff agreement, saying it would be "very hard" to make a deal with Canada after it
- The Bank of Japan revised up its inflation forecasts on Thursday and offered a less gloomy outlook on the economy than three months ago, keeping alive the possibility of a
- The European Union's lavish pledge to buy $750 billion of U.S. energy by 2028 risks exacerbating the bloc's already outsized dependence on American gas, just as it finds itself increasingly reliant on Chinese technology to power its energy transition.
- has tempered his most belligerent trade threats and begun striking deals with major partners, meaning most countries won't face the punishing announced on 'Liberation Day', but
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US-China trade war could push ECB to continue easing |
The impact of U.S. tariffs on world trade flows will reverberate in numerous ways for years to come, but a potential re-routing of Chinese exports to Europe could slow inflation there and heap pressure on the ECB for further monetary easing. The European Central Bank appears to have convinced most people last week that the bar for more interest rate cuts in this cycle is quite high. Inflation is near its target, a tariff shock in the euro zone has likely been avoided following the bloc's deal with Washington this week, and a major German fiscal stimulus promises to stoke a 2026 euro zone upturn. Money markets no longer fully price another rate cut in this cycle, and major financial houses such as Deutsche Bank now reckon the easing cycle is over. | Graphics are produced by Reuters. |
But as Washington prepares its final list of tariffs for the world at large on Friday, there's another pressure for the ECB to consider. In a blog published on Wednesday, ECB economists detailed how a major flow of Chinese trade away from the United States could lower euro zone inflation further next year, causing the central bank to significantly undershoot its 2% target. Various models considered the potential impact of having higher U.S. tariffs on Chinese goods versus the levies on the rest of the world. The conclusion was that Chinese imports to the euro zone could rise 7%-10%, with Europe's already significant reliance on Chinese imports making it more likely it will absorb cheaper redirected goods. Some 75% of all products imported by big euro zone countries already have at least one Chinese supplier, they point out. Chinese authorities have pledged to support their exporters as they seek new markets at home or in third countries. What's more, China's yuan has fallen almost 10% against the euro over the past six months, making Chinese imports to Europe even cheaper. |
The direct disinflationary impact seems pretty clear before even discussing the effect on European companies of a new wave of lower-cost competition. "With trade tensions between China and the United States reaching new heights, Chinese exports may be redirected to the euro area," the blog concludes. "In a severe scenario, this additional supply and the accompanying lower import prices could bring down euro area inflation by as much as 0.15 percentage points (next year)." Smaller effects would persist through 2027, they added. |
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Graphics are produced by Reuters. |
Big Tech is spending more than ever on artificial intelligence - but the returns are rising too, and investors are buying in. AI played a bigger role in driving demand across internet search, digital advertising and cloud computing in the April-June quarter, powering revenue growth at technology giants Microsoft, Meta and Alphabet. The upbeat commentary also bodes well for Amazon, the largest U.S. cloud provider, which reports earnings after Thursday's market close. |
- U.S. June personal consumption expenditures inflation gauge (8:30 AM EDT), weekly jobless claims (8:30 AM EDT) U.S. Q2 employment costs (8:30 AM EDT), Chicago July business survey (9:45 AM EDT); Canada May GDP (8:30 AM EDT)
- U.S. corporate earnings: Apple, Amazon, Ameren, AbbVie, Biogen, Bristol Myers Squibb, Eastman Chemical, Clorox, CVS, Comcast, Resmed, Cigna, Edison, Stryker, Mastercard, Intercontinental Exchange, Coinbase, S&P Global, Southern, Howmet, Masco, First Solar, Eversource, Ingersoll Rand, PG&E, PPL, Xcel Energy, Baxter, Mettler-Toledo, Wills Towers Watson, International Paper, AMETEK, Kimco, CMS
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