US equity futures are flat, reversing an earlier loss but lagging the Asia-Pac and EMEA sessions, following the latest batch of tariff letters with the most impactful being a 50% tariff on Brazil. As of 8:15am ET, S&P and Nasdaq futures are flat after closing just shy of an all-time high on Wednesday. Pre-market, Mag7 names are mixed with NVDA leading the Semis bid post positive TSM revenue update. Treasuries resumed their decline after Wednesday’s rebound, with the 10-year yield rising two basis points to 4.35%. The dollar was steady. Cmdtys are rebounding with bids across all 3 complexes with gold, steel, and natgas the standout performers. Today’s macro data focus is on initial jobless claims and continuing claims.
In premarket trading, Mag 7 stocks are mixed (Tesla +1%, Nvidia +0.9%, Meta little changed, Microsoft -0.1%, Alphabet -0.07%, Amazon -0.3%, Apple -0.5%).
While tariff headlines have dominated the newsflow this week, there’s been little to derail a rally in US stocks. Signs of economic strength, confidence in the upcoming earnings season and optimism for artificial intelligence have given traders the conviction to keeping buying equities.
“The market’s sensitivity toward tariffs has diminished,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “The key driver of equity returns for us has been and remain corporate earnings, particularly in the IT sector, and here policy and trade uncertainty have not caused too much damage.”
US President Donald Trump issued a fresh batch of tariff demands on Wednesday, including a 50% rate on Brazil that sent the real tumbling. He also confirmed that the US would begin levying a 50% tariff on copper next month.
Meanwhile, sentiment got a boost from China, where a gauge of property shares jumped the most in nearly nine months, fueled by speculation a high-level meeting will be held next week to help revive the struggling sector.
Overnight, Goldman Sachs warned against loading up on stocks exposed to the economic cycle, while also recommending investors don’t be overly defensive. Trade war uncertainty is rife, with Goldman cautioning against one-sided allocation. “The equity market appears to be pricing an optimistic outlook for the US economy, but we believe there are risks in both directions and investors should not be clearly cyclical or defensive,” strategists including Ryan Hammond said. Within defensives, Goldman recommends investors own utilities and real estate, which typically benefit most from lower bond yields. In terms of cyclicals, the strategists favor basic materials versus energy on the expectation of lower oil prices.
Katharine Neiss, chief European economist at PGIM Fixed Income, warns that the average US tariff rate could ultimately exceed current expectations of “a shade above 10%.”
“There is still a huge amount of uncertainty and I don’t expect that it’s going to get resolved,” Neiss told Bloomberg TV. “These negotiations are going to drift, maybe by the time we get to the end of the year. That’s kind of bad news because the uncertainty itself is depressing decisions.”
LME copper rose 1% on Thursday, snapping a five-day losing streak. The metal gained 1.9% in New York, extending an advance to more than 11% since Monday, the day before Trump first floated the size of the tariff.
The Stoxx 600 is up 0.6% tracking their longest winning streak in a month, as miners rally on the back of higher iron ore prices. Swiss chocolatier Barry Callebaut sinks after once again cutting its guidance, while advertising group WPP ekes out gains after Wednesday’s plunge as it announced new CEO. Local bourses are led by UK FTSE 100, where mining stocks lead a 1% gain tracking gains across the metals complex. Here are the biggest movers Thursday:
Earlier in the session, Asian equities edged higher, with South Korean shares climbing following the central bank’s decision to leave its policy rate unchanged. Japanese stocks underperformed as the yen rose, while concerns remained about US tariffs. Key gauges advanced in Indonesia, Australia, Vietnam and Taiwan. The MSCI Asia Pacific Index traded in a narrow range, with TSMC and SK Hynix the biggest boosts, and Sony and Nintendo among the major drags. Stocks advanced across much of the region, amid broad optimism over trade talks with the US. South Korea led gains as investors welcomed news that the Bank of Korea is keeping its monetary policy accommodative. The benchmark Kospi rose 1.6%, advancing for a fourth-consecutive session. Chinese shares staged a late afternoon rally, fueled by speculation a high-level meeting will be held next week to help revive the struggling property sector. The jump followed unverified social media reports of a potential meeting, which analysts said sparked speculation of a possible resumption in the development of shanty-town areas.
In FX, the Bloomberg Dollar Spot Index slips 0.1%, with the Swiss franc leading G-10 losses as it edges lower against the greenback. The Norwegian krone outperforms, climbing 0.5% after core inflation rose for the first time in four months. The Aussie dollar also gains, buoyed by the rally in iron ore.
In rates, treasuries are lower, paring some of Wednesday’s advance ahead of a sale of 30-year bonds. US 10-year yields rise 2 bps to 4.35%. Bunds edge lower. Gilts curve flattens, with longer-dated maturities rising while the front end drops. The last of this week’s three coupon sales follows good results for 3- and 10-year note auctions. For the 30-year TSY reopening at 1pm New York time, WI yield near 4.875% is ~3bp cheaper than last month’s auction, which stopped through by 1.5bp
In commodities, spot gold climbs $15 to around $3,328/oz. WTI falls 0.4% to near $68.10 a barrel. Iron ore futures are up over 3% in Singapore and heading for the highest close since May amid renewed optimism over China’s determination to eradicate industrial overcapacity. LME copper climbs 0.5%. Bitcoin rises 0.4% and above $111,000.
Looking at today's calendar, US economic data slate includes weekly jobless claims at 8:30am. Fed speaker slate includes Musalem (9am) and Daly (2:30pm)
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APAC stocks traded with a mostly positive bias following the gains on Wall St although some of the upside was limited as participants digested the latest batch of tariff letters and with underperformance in Japan due to recent currency strength. ASX 200 gained with the index led by strength in mining names due to recent upside in metal prices. Nikkei 225 bucked the trend amid headwinds from a firmer currency and following somewhat ambiguous Japanese PPI data. KOSPI outperformed despite the BoK's widely expected rate pause, while the central bank's language remained dovish as it maintained the rate cut stance and a majority of members were open to a cut in the three months ahead. Hang Seng and Shanghai Comp were marginally positive in quiet trade with little fresh macro drivers, although China's State Council recently issued a notice on stepping up support for employment and will support enterprises in stabilising jobs. TSMC (2330 TT) Q2 (TWD): Revenue 933.8bln (exp. 927.8bln), via a Reuters calculation; YTD sales +40% Y/Y, June sales +26.9% Y/Y.
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European bourses began with modest gains, upside that has gradually and incrementally increased across the morning, Euro Stoxx 50 +0.3%. Region deriving strength from the boost seen in China-related stocks on recent reports around housing support. A narrative that has led to outperformance in the FTSE 100 +1.1%, given the large number of mining names in the region and associated benefit from touted China housing construction support. Sectors opened entirely firmer, though a few have drifted slightly into the red. Basic Resources lead, given the mentioned China stimulus. Tech benefits with ASML bolstered alongside gains in NVDIA on Wednesday and after TSMC revenue beat consensus. Those in the red are the more defensive ones, with Utilities currently lagging marginally.
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DB's Jim Reid concludes the overnight wrap
Optimism largely returned to markets yesterday, even as the lingering threat of further US tariffs on August 1 remained in the background. Indeed, a tech-led rebound helped the S&P 500 (+0.61%) to stabilise after its losses at the start of the week, whilst the NASDAQ (+0.94%) and the German DAX (+1.42%) hit an all-time high. In fact, there was a significant milestone, as Nvidia (+1.80%) became the first company to surpass a $4tn market cap on an intraday basis, before closing just shy of that at $3.974tn. So for everything else that’s happening right now, from tariffs to fiscal fears, AI is the great hope for US exceptionalism to return. The rally also got a further boost as lower bond yields meant that fears eased about the fiscal situation, and a strong auction helped the 10yr Treasury yield (-6.7bps) to finally decline after 5 consecutive gains. So it was a strong day all round, even if there wasn’t really a fresh catalyst to drive things higher.
However, just when you thought it was safe to emerge from the July 9th tariff deadline day, we’ve had a fresh set of announcements after the US close that signalled a more aggressive stance. First, Trump confirmed overnight that the 50% copper tariff will come into place on August 1, which is an important one given its applications across various products. And second, he announced a 50% tariff on goods from Brazil, which is significant as it broke with the trend of tariffs being broadly in line with the Liberation Day levels set on April 2. Indeed, Brazil had a 10% tariff at that time, so that’s a notable escalation, and it follows Trump’s threats to place higher levies on the BRICS over recent days. So that meant the Brazilian Real weakened by -2.29% against the US Dollar yesterday, its biggest decline since April 4 amidst the turmoil after Liberation Day. We also heard about several other countries, but the Philippines was the only other in the US’ top 50 trading partners, and they were given a 20% rate.
Meanwhile on the fiscal side, there was a lot of attention on a 10yr Treasury auction yesterday given recent fears around the fiscal situation, but strong demand meant that yields continued to fall. So it helped to push back against concerns that demand for longer-dated bonds was waning. The auction saw $39bn of notes sold, and were awarded at 4.362% versus a 4.365% yield at the bidding deadline. The bid-to-cover was 2.61, above the average of the last six similar auctions (2.57). So attention will now focus on the 30yr auction later today.
That Treasury rally continued after the auction as the Fed minutes from the June meeting were released. They indicated a divide about how restrictive policy currently was, as well as the tariff impact on inflation going forward. With regards to the current policy stance, it said “A couple of participants noted that, if the data evolve in line with their expectations, they would be open to considering a reduction in the target range for the policy rate as soon as at the next meeting.” So given recent commentary these could likely be Fed Governors Waller and Bowman. However, the minutes also highlight that “some participants saw the most likely appropriate path of monetary policy as involving no reductions in the target range for the federal funds rate this year.” Regardless, it said “several participants commented that the current target range for the federal funds rate may not be far above its neutral level”, indicating that any easing cycle may not lower rates significantly in the coming months. This growing divergence in expectations matches the dot plot distribution we saw last month, where 10 of 19 officials pencilled in at least two rate cuts this year while 7 officials saw no cuts, and the other 2 policymakers saw one cut.
On inflation, the difference of opinion was mainly on the effect of tariffs, even as there were questions on how inflation ex-tariffs was progressing. It said “Some participants observed that services price inflation had moved down recently, while goods price inflation had risen. A few participants noted that there had been limited progress recently in reducing core inflation.” Potentially the key sticking point going forward is that “while a few participants noted that tariffs would lead to a one-time increase in prices and would not affect longer-term inflation expectations, most participants noted the risk that tariffs could have more persistent effects on inflation, and some highlighted the fact that such persistence could also affect inflation expectations.” Looking ahead, the next FOMC meeting (July 29-30) will be just before the August 1st extension date for the “reciprocal” tariffs, so policymakers may still be awaiting clarity on what the trade levies going forward could look like even as they try and measure the impact from the tariffs already in place. In addition, oral arguments to the Court of Appeals on whether the International Emergency Economic Powers Act authorises the president to impose tariffs will be heard on July 31.
Ahead of the minutes, there had been fresh pressure from the administration to cut rates, as Trump posted that “Our Fed Rate is AT LEAST 3 Points too high.” And markets did move to price in more rate cuts yesterday, with the amount expected by the December meeting up +3.9bps on the day to 53.1bps. In turn, that helped sovereign bonds to rally across the board, with the 2yr Treasury yield (-4.8bps) down to 3.843%, whilst the 10yr yield (-6.7bps) fell to 4.332%. And that was echoed in Europe too, where yields on 10yr bunds (-1.4bps), OATs (-0.9bps) and BTPs (-1.3bps) all saw modest declines.
For equities, it was also a decent session, as the S&P 500 closed +0.61% higher, following some intraday volatility. Those gains were led by the Magnificent 7 (+1.23%), and Nvidia (+1.80%) in particular, which briefly became the first company to surpass a $4tn market cap on an intraday basis. Indeed, Nvidia is already up +21.29% this year, which is well ahead of the +6.49% gain for the S&P 500 and the +3.76% for the Mag 7, even if it’s not as rapid as its growth in 2023 and 2024 at this point. But in Europe the picture was much stronger, with the STOXX 600 (+0.78%) up for a third consecutive session, whilst the DAX (+1.42%) hit a new record.
Overnight in Asia, the major equity indices have seen a mixed performance. In South Korea, the KOSPI is up +1.06%, which comes after the Bank of Korea kept interest rates at 2.5% as expected, and Governor Rhee said that four board members were open to a cut in the next three months. However, in Japan the Nikkei is down -0.43% this morning, and a 20yr government bond auction saw a bid-to-cover ratio of 3.15, which was beneath the 12-month average of 3.29.
Otherwise, the Shanghai Comp (+0.36%), the CSI 300 (+0.30%) and the Hang Seng (+0.09%) have all posted modest gains. But US equity futures are pointing in a more negative direction, with those on the S&P 500 down -0.23%.
To the day ahead now, and data releases include the US weekly initial jobless claims, and Italian industrial production for May. Central bank speakers include the Fed’s Musalem and Daly, the ECB’s Cipollone, Escriva and Villeroy, and BoE Deputy Governor Breeden. Finally, there’s a 30yr Treasury auction taking place.