No relief from US-China trade truce

A look at the day ahead in European and global markets

By Johann M Cherian, Correspondent, Markets

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European investors are set to wake up to a souring mood as rapidly rising tensions in the Middle East and yet another tariff salvo from U.S. President Donald Trump triggered a new wave of dollar-selling and risk-off moves.

A man stands next to U.S. and China flags at Lancaster House, on the second day scheduled for trade talks between the U.S. and China, in London, Britain, June 10, 2025. REUTERS/Toby Melville/File Photo

The much-hyped U.S.-China talks culminated in a fragile truce that may have put a lid on simmering trade tensions between the world's top two economies for now but the lack of details has left investors unnerved.

For starters, China President Xi Jinping is yet to give his approval on the 'deal'. And details on how the new tariffs will be implemented are yet to be ironed out and U.S. export restrictions on high-end artificial intelligence chips are still in place.

And with the July 8 deadline on worldwide tariffs fast approaching, Trump is back to his unilateral style of policymaking as he said he would send out letters in one to two weeks outlining terms of trade to dozens of other countries, which they could embrace or reject.

Markets will be hoping for another TACO moment.

While backward looking inflation reports are yet to reflect the price pressures, companies are starting to sound the alarm. Zara-owner Inditex was the latest to issue a disappointing quarterly report and flag headwinds from trade uncertainty.

And as if investors did not have enough to juggle with already, geopolitical tensions in the Middle East are flaring, adding to the risks of rising crude prices fuelling inflation pressures.

Supply concerns out of the oil-rich region pushed Brent and West Texas Intermediate futures to two-month highs of nearly $70 a barrel each.

In all of this, as my colleague Jamie McGeever points out, valuations in equities and stocks are beginning to appear stretched, compounding the risks to investors in the event of a market selloff.

European futures were down 0.7%, while futures in the U.S. are pointing to a lower open on Thursday, but the benchmark indexes in the regions are just about 2% away from their respective record highs.

Further, investors continue to question the dollar's safe-haven status. On Thursday, the euro hit a seven-week high and is up 11% this year, poised for its biggest yearly advance since 2017.

The central bank bonanza next week could perhaps throw more light on the global economy's outlook. The U.S. Federal Reserve along with the Bank of Japan and the Bank of England are due to announce their policy decisions.

Meanwhile, investors will look for a string of UK economic data including reports on gross domestic product and manufacturing output later in the day. Both are expected to reflect a decline in activity on a monthly basis, reigned in by the BoE's cautious approach to monetary policy easing.

Graphics are produced by Reuters.

Graphics are produced by Reuters.

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