Shares retreat slightly, euro dips as tariff costs counted
The dollar advanced against major currencies including the euro, which hit a one-month low and eyed its fourth straight day of declines as investors sobered up to the fact that the new U.S.-EU trade favoured the United States and did little for the 27-nation bloc's economic outlook.
Meanwhile, investors were looking to results in the days ahead from large companies such as Microsoft (MSFT.O), opens new tab, Meta Platforms (META.O), opens new tab, Apple (AAPL.O), opens new tab and Amazon (AMZN.O), opens new tab.
And they were also waiting for the Fed's policy statement and commentary, due on Wednesday afternoon following the U.S. central bank's two-day meeting.
The Fed is expected to keep interest rates steady pending more clarity on the impact of tariffs on inflation, even with constant demands from U.S. President Donald Trump for rate cuts.
"We're waiting on the technology earnings and the Fed and what the White House might say about what the Fed does or likely does not do," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.
While traders have been betting that the Fed will make its next rate cut in September, they will be watching for confirmation from a slew of data this week including inflation and payroll reports. Canada's central bank also convenes on Wednesday and is widely expected to also hold rates steady.
On Wall Street, the S&P 500 and the Nasdaq turned slightly lower after touching fresh record highs earlier in the day. At 10:53 a.m. local time, the Dow Jones Industrial Average (.DJI), opens new tab was down 141.93 points, or 0.32%, to 44,695.08, the S&P 500 (.SPX), opens new tab slid 2.27 points, or 0.03%, to 6,387.65 and the Nasdaq Composite (.IXIC), opens new tab fell 0.97 points, or 0.01%, to 21,177.39.
MSCI's gauge of stocks around the world (.MIWD00000PUS), opens new tab fell 1.97 points, or 0.21%, to 937.40.
European shares recovered after Monday's sell-off, with the pan-European STOXX 600 (.STOXX), opens new tab index rising 0.3% in line with the gain for Europe's broad FTSEurofirst 300 index (.FTEU3), opens new tab.
The U.S.-EU trade deal, announced on Sunday, included 15% tariffs on EU imports to the U.S. and bolstered expectations that more such agreements will follow ahead of Trump's August 1 deadline for trade deals.
Trump also flagged a "world tariff" rate of 15%-20% on all trading partners that were not negotiating a deal - among the highest rates since the Great Depression of the 1930s.
"While the worst-case scenario was averted, the implied EU tariff increase from 1% in January is a significant tax increase on EU exports," economists from JPMorgan wrote in a note.
"This is a very big shock that unwinds a century of U.S. leadership in global free trade. While we no longer see a U.S. recession as our baseline from this shock, the risk is still elevated at 40%."
In currencies, the dollar index , which measures the greenback against a basket of currencies including the yen and the euro, rose 0.47% to 99.08.
The euro was down 0.54% at $1.1526 while sterling weakened 0.28% to $1.3318.
Against the Japanese yen , the dollar strengthened 0.03% to 148.57 while the Canadian dollar weakened 0.27% versus the greenback to C$1.38 per dollar.
In Treasuries, the yield on benchmark U.S. 10-year notes fell 6.2 basis points to 4.358% from 4.42% late on Monday, while the 30-year bond yield fell 7.2 basis points to 4.8928%.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 2.4 basis points to 3.898% from 3.922%.
A further risk to world growth came from a sudden spike in oil prices after Trump threatened a new deadline of 10 or 12 days for Russia to make progress toward ending the war in Ukraine or face tougher sanctions on oil exports.
U.S. crude rose 1.15% to $67.48 a barrel and Brent rose to $70.83 per barrel, up 1.13% on the day.
In precious metals, gold prices held nearly steady on Tuesday as markets turned their focus to upcoming U.S.-China talks and the Federal Reserve's policy decision.
Spot gold rose 0.41% to $3,327.56 an ounce.
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