EXTEND AND PRETEND
The deadline for implementing reciprocal tariffs was extended by the US to August 1st leaving a couple of weeks for negotiations but Trump also threatened high tariffs on the likes of the EU, Canada and Brazil, which suggested a more aggressive stance. Better growth prospects in Europe helped push equities higher in the region, with Germany's DAX index rallying to a new all-time high last week.
Q2 earnings season kicks off this week and there is likely to be a focus on guidance and strategy in light of tariff-related developments in recent months, with the likes of JP Morgan, Goldman Sachs, Citigroup, BlackRock, Netflix, Taiwan Semiconductor and ASML all reporting.
Economic data like US retail sales (Thursday) and consumer sentiment (Friday) as well as the ZEW business survey in Germany (tomorrow) may also be of note.
The US administration said it would implement reciprocal tariffs on August 1st, which leaves a couple of weeks for trade deals to be agreed. There was hope last week that a deal with the EU is close to being done.
However, later in the week President Trump escalated the trade war by threatening a 30% tax on imports from the EU and 35% on some Canadian goods, while other countries could face minimum tariffs of 15-20% instead of 10%. He also announced a 50% tariff on copper imports and the same rate for imports from Brazil.
Minutes from the Fed's June meeting suggested a split in the rate-setting committee, with some "open to considering" rate reductions this year if data moved in line with projections while others favoured no rate cuts in 2025. These differing views are natural given the heightened uncertainty around tariffs and wide range of possible outcomes.
US equities were weighed down by more aggressive posturing by Trump on tariffs, though this was offset to some extent by optimism around the AI theme, leaving the S&P 500 down by 0.3% last week.
European stocks were supported by optimism around growth prospects due to both a potential trade deal with the US and German fiscal stimulus. Germany's DAX index rallied by 2.0% and reached a new all-time high during the week, helping the Stoxx Europe 600 to rise by 1.2%.
The potentially improved economic backdrop in the Eurozone may require fewer, if any, further ECB rate cuts and this pushed up German bund yields (bond prices fall as yields rise), with that for the 10-year rising by 14bps to 2.72% last week. The equivalent US Treasury bond yield was up by 7bps to 4.42%.
- Tue 15th US - Consumer prices • Eurozone - Industrial production • Germany - ZEW business survey • China - GDP, retail sales, industrial production, fixed-asset investment
- Wed 16th US - Industrial production, Fed Beige Book
- Thu 17th US - Retail sales, initial jobless claims
- Fri 18th US - Consumer sentiment
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.