Morning Bid: Deadline? What deadline?

Reuters

9 hours ago

LONDON, July 2 (Reuters) - Global stocks are tiptoeing higher, while the U.S. dollar continues to struggle at three-year lows against a basket of currencies. Federal Reserve Chair Jerome Powell says the central bank is in no rush to raise rates - despite pressure from President Donald Trump. With a week to go until the July 9 deadline tariffs and a raft of key employment data in the next two days, market activity is, for the most part, pretty subdued for now.
Mike Dolan is enjoying some well-deserved time off over the next two weeks, but the Reuters markets team is here to provide you with all the information you need to start your day.
Today's Market Minute
* U.S. Senate Republicans passed President Donald Trump's massive tax-cut and spending bill on Tuesday by the narrowest of margins. The legislation now heads to the House of Representatives for possible final approval, though a handful of Republicans there have already voiced opposition to some of the Senate provisions.
* The Iranian military loaded naval mines onto vessels in the Gulf last month, a move that intensified concerns in Washington that Tehran was gearing up to blockade the Strait of Hormuz following Israel's strikes on sites across Iran, according to two U.S. officials.
* The United States could reach a trade deal with India that would help American companies compete in the South Asian country and leave it facing far lower tariffs, President Donald Trump said on Tuesday, while casting doubt on a possible deal with Japan.
* A core tenet of sovereign debt investment is that strong institutions keep down a country's borrowing costs and vice versa. So then why, ask professors Ugo Panizza and Mitu Gulati, has the bond market's response to U.S. President Donald Trump's institutional norm-busting been so tame?
* It's easy to come up with reasons to be bearish about U.S. equities given elevated valuations and the uncertainty surrounding the country's economic outlook. But Stephanie Guild, Chief Investment Officer of Robinhood Markets, claims there is a positive trend cutting across all this negativity: capital expenditure growth.
Deadline? What deadline?
Blink and you'll miss it. Two weeks ago, markets were fretting about the prospect of all-out war in the Middle East, as Israel and Iran bombed one another. One week ago, global markets were rallying in relief as the oil price cratered following the U.S. attack on Iran's nuclear facilities, and a fragile ceasefire that appeared to be holding.
Now, with a week to go until Trump's July 9 deadline on tariffs, markets have moved on to how long Federal Reserve Chair Jerome Powell can resist pressure from the president to cut interest rates.
Markets are already preparing for a Trump loyalist to replace Powell when his term expires next May. Almost four quarter-point cuts over the next year are now priced into the equation in 2026, up from closer to three just a month ago.
Investors have largely expressed their views on tariffs through the currency market and, as far as forex is concerned, July 9 is shaping up to be just another day at the office.
Implied currency options volatility - a measure of demand from traders to buy protection against large price swings - surged in early April, when Trump unveiled his raft of tariffs on practically every country on the planet, and continued to do so even after he'd hit the pause button on April 9, peaking shortly afterwards.
Since then, volatility has subsided, whether for stocks, bonds or currencies, as investors have become more immune to the president's on-again-off-again approach to trade policy.
And that's no surprise. Having said he would secure 90 deals in 90 days, so far there is just one fairly limited deal in the bag, with the UK.
In fact, Trump's to-ing and fro-ing on tariffs has been so frequent, it's given rise to the acronym TACO, which stands for "Trump Always Chickens Out", something many investors now factor in when placing trades.
Last Friday, Trump said the July 9 deadline was not fixed. "We can do whatever we want," he told reporters at the White House. Then, on Tuesday, he said he wasn't thinking of extending it at all, mentioning Japan as his latest bugbear.
In the face of such dizzying switches, forex traders are assuming there will ultimately be some kind of market-soothing pause, reversal, compromise or general can-kicking while the U.S. administration attempts to hash out agreements.
Implied volatility for euro options expiring on July 9 is around 8.5%, very much in line with its recent range. For comparison, a month ago, the one-month options - which then expired on July 9 - were at exactly this level, while two-month options two months ago were above 9%. Back in early April, at the time of the pause, three-month euro implied volatility topped 10%.
The pattern is virtually identical for all the major currencies that are exposed to tariffs, including the Canadian dollar, Japanese yen and Mexican peso.
It's not just currencies either. The VIX volatility index, known as Wall Street's "fear index", has been trading below the attention-grabbing 20 mark, for much of the last two months following a spike to 60 in early April.
Drilling down, weekly VIX futures that expire on July 9 have drifted into "sanguine" territory, at around 18.65 from a peak above 20 in mid-June, when Israel/Iran hostilities boiled over.
In the run-up to Liberation Day, the weekly VIX futures contract that expired on April 2 hit a top of around 25.
Central bankers, major asset managers, private equity giants, politicians, the heads of the world's largest companies and just about everyone has cited tariffs as the biggest uncertainty facing the world right now.
As always with markets, someone will be right and someone will be wrong. There is still some time to go before July 9.
Chart of the day
The monthly ADP private payrolls report is due later in the day and, based on a survey of economists by Reuters, is expected to have risen by 95,000 in June, up from May's three-year low of 37,000, but below June 2024's 150,000 rise.
The ADP report usually lands two days before the more comprehensive monthly non-farm payrolls report and, although there is no correlation between the two, investors inevitably use ADP as some form of steer on what to expect from the upcoming government report.
Since hitting a COVID-era peak of 807,000 in late 2021, private sector payrolls growth has been moderating.
Today's events to watch
* June ADP payrolls report
* Tesla second-quarter deliveries
* ECB Forum on Central Banking 2025 in Sintra, Portugal wraps up
* EIA weekly crude inventories
* World UFO Day on the anniversary of the Roswell incident
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, opens new tab, is committed to integrity, independence, and freedom from bias.
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