Market attention was beginning to shift toward the 9th of July deadline for President Donald Trump’s trade tariffs to take effect, amid continued mixed signals from the White House. While some officials hinted at potential flexibility around the timeline, concerns persisted that Trump may proceed with unilateral tariffs despite ongoing negotiations.
After an extended period of revisions, Trump’s tax and spending package has narrowly cleared a key hurdle and is now headed back to the House for final approval. The bill proposes increases in funding for border security, defence, and energy development, while also extending tax cuts. According to the Congressional Budget Office, the measure is projected to add nearly $3.3 trillion to the federal deficit over the next ten years. One thing we know about markets is that they hate uncertainty which is why, having perhaps largely anticipated the bill’s passage, it is likely that traders responded in muted tones.
Although China’s official PMI indicated that manufacturing activity contracted in June, the Caixin PMI survey painted a more optimistic picture, revealing a rebound in the sector. The Caixin China General Manufacturing Purchasing Managers’ Index (focused primarily on smaller, privately-owned firms in southern China) rose to 50.4 from 48.3 the previous month. Since any reading above 50 signals growth and anything below suggests contraction, this increase suggests a modest recovery. Despite lingering trade tensions, stronger demand from promotional campaigns and better trading conditions were cited as key factors driving the improvement in new orders and overall sentiment.
This week, markets have also been made aware that the European Union is said to be open to a trade deal with the United States that would apply a flat 10% tariff to many of its exports. However, EU policymakers are seeking U.S. concessions in return in the form of reduced tariffs on critical sectors, pushing for easing the current 25% U.S. duties on vehicles and auto parts, as well as the steep 50% tariffs on steel and aluminium. While still speculative in nature, such negotiations could influence terms of trade and future cross-border capital flows.
Other market drivers included the latest Eurozone CPI data, which edged up to 2%, a slight increase from May’s 1.9%. While signalling a steady upward trend, the figure yet remains within the European Central Bank’s inflation target. Core CPI, which excludes food and energy, held steady at 2.3%, while services inflation rose to 3.3%. Although policymakers are expected to keep rates unchanged at their upcoming meeting later this month, the latest figures may offer encouragement as they suggest a delicate but promising balance between supporting aggregate demand amongst consumers and keeping inflation in check.
Still to come this week we have a closure in US markets on Friday for the 4th of July holiday, Eurozone unemployment rate, US jobs data and Eurozone PPI.
Nicola Tune, Portfolio Specialist
