Global Stocks Rise Ahead of Tariff Talks and U.S. Earnings, Inflation Data
Wall Street's trading day ended with slight gains. The Dow and S&P 500 added to modest gains, and the Nasdaq increased 0.25%. Investors are thus on tenterhooks about second-quarter earnings; S&P 500 profits are expected to rise 5.8% year-over-year, versus April's expectation of a 10.2% increase, before Trump's tariff brinkmanship.
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Trump's Warnings on Tariffs Prompt Global Rebuke
Over the weekend, President Trump indicated that 30% tariffs on EU and Mexican goods could kick in on August 1. However, he also expressed willingness to negotiate. The EU cautioned that retaliatory measures would be taken if no agreement were reached. U.S. Treasury Secretary Scott Bessent is scheduled to meet on Friday in Tokyo with Japan's Prime Minister Shigeru Ishiba before the U.S. slaps on higher 25% tariffs.
Mexico has not publicly responded, while upcoming elections in Japan could shake domestic politics. Japanese government bonds fell sharply, with the yield on the 10-year note spiking to 1.595 percent, a level not seen since 2008.
Focus on Earnings and Inflation Data
So far, markets are generally treating the tariff threats as background noise unless some tangible action is taken. What matters most to investors right now is the U.S. inflation report. The Consumer Price Index (CPI) for June is expected on Tuesday. Experts believe that Trump's new tariffs could soon start pushing prices higher.
Meanwhile, Trump has again attacked Federal Reserve Chair Jerome Powell. Analysts say Powell is increasingly feeling political pressure to cut interest rates more aggressively, although the Fed still has said it plans to be patient.
Energy, Metals Circle on Geopolitical Tension
Oil prices fell after Trump gave Russia a 30-day deadline to end the war in Ukraine or face new U.S. energy sanctions. Brent crude dropped 0.6 percent to $66.56 a barrel. Gold rose 0.5 percent to $3,358 an ounce, and silver gained 0.3 percent to $38.25, close to 2011 highs.
The dollar was little changed at 147.62 yen. The euro rose 0.1 percent to $1.1680, snapping a four-day downward trend.
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The equities benchmark is trading at 22 times expected 12-month profits and is fast approaching the level it hit in February, before April 2 when President Donald Trump unleashed his global tariffs that weighed on sentiment. This week, investors will get results from a slew of Big Tech giants including Alphabet and Tesla, industrial behemoth Honeywell International, chemicals maker Dow, defense contractors Lockheed Martin and Northrop Grumman, and auto manufacturer General Motors, among many others. Big US banks delivered an earnings bonanza based on record-breaking trading revenues, as the volatility sparked by Trump's tariff offensive ignited market activity at some of Wall Street's biggest firms. Still, the share moves were underwhelming. Goldman Sachs Group equities traders posted the largest revenue haul in Wall Street history, but the company's shares rose less than 1 per cent on the day it reported earnings. Even worse, Morgan Stanley's net revenue topped estimates and the shares closed down 1.3 per cent. And JPMorgan Chase & Co.'s stock traders notched their best second quarter ever, while fixed-income trading trounced expectations, yet the stock dropped 0.7 per cent. Still, market pros noted that the powerful bank earnings offer an encouraging indication for the overall economy. 'Banks can only be healthy when the economy is strong,' said Mr Mark Malek, chief investment officer at Siebert. 'So their earnings along with their commentary serve as a broader benchmark on economic health.' The durability of the US consumer has been a major question for investors and economists, especially in the face of still-high inflation, elevated interest rates and continued uncertainty about the new US trade regime. The initial signs are encouraging based on earnings from airlines to PepsiCo Inc. to Netflix to jeans-maker Levi Strauss & Co. 'The consumer remains strong,' Mr Malek said. 'That is paramount.' Travel in the US is recovering with the approval of Trump's tax cut and spending package and negotiators appearing to make progress in tariff discussions, Delta Air Lines Inc. Chief Executive Officer Ed Bastian said. PepsiCo's North American business improved and it saw strong growth in international markets. Netflix raised its full-year forecast. And Levi Strauss said it expects sales growth to outweigh the impact of Trump's tariffs. Retail sales figures on Thursday offered proof of this continued strength. Commerce Department data showed the value of retail purchases, not adjusted for inflation, increased 0.6% after declines in the prior two months, exceeding nearly all estimates in a Bloomberg survey of economists. 'So far it has been a thumbs up from earnings,' Malek said. 'While a big tariff-driven breakdown may still lurk in the shadows, the harbinger has not shown up yet.' Shares of PepsiCo and Delta have been the stark outliers this quarter, bringing in big gains after strong results. Both stocks were lagging the broader market significantly this year ahead of the numbers. With so many uncertainties still lingering – especially on tariffs, economic growth, inflation and the Federal Reserve's rate-cut plan – corporate outlooks will play a significant role in shaping investor confidence from here. 'The biggest question facing S&P 500 earnings is who bears the tariff bill,' said Mr Dec Mullarkey, managing director at Sun Life Investment Management. Second-quarter earnings estimates for the S&P 500 have been drastically reduced this year, with analysts expecting profits to rise 3.3 per cent from a year ago as of the last close, down from the 9.5 per cent growth expected at the beginning of the year. 'The bar is low,' said Ms Irene Tunkel, chief US equity strategist at BCA Research. 'Companies will likely clear it, but that's no longer enough. With valuations stretched, investors want strong guidance, and earnings misses will be punished fast.'
