Shares rise in Asia as US-Canada trade talks revived
By Wayne Cole
SYDNEY (Reuters) -Shares indices rose in Asia on Monday as the revival of trade talks between the United States and Canada helped risk sentiment, while the dollar dipped on concerns U.S. jobs data could show enough weakness to justify larger rate cuts.
Canada on Sunday said it had rescinded its digital services tax in a bid to advance trade negotiations, bowing to pressure from President Donald Trump.
The talks are aimed at getting a deal done by July 21, extending Trump's original July 9 deadline for his "reciprocal" tariffs. Officials have suggested most deals could now be done by the September 1 Labor Day holiday.
Investors were also keeping a wary eye on the progress of a huge U.S. tax-cutting and spending bill slowly making its way through the Senate, with signs it may not make it by Trump's preferred July 4 deadline.
The Congressional Budget Office estimated the bill would add $3.3 trillion to the nation's debt over a decade, testing foreign appetite for U.S. Treasuries.
There was no doubting the demand for the U.S. tech sector and megacap growth stocks including Nvidia, Alphabet and Amazon. Nasdaq futures rose another 0.4%, while S&P 500 e-minis added 0.3%.
EUROSTOXX 50 futures rose 0.3%, while FTSE futures were flat and DAX futures gained 0.4%.
The bullish sentiment spilled over into Japan's Nikkei which rose 1.0%, while South Korean stocks gained 0.7%. MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.2%.
Chinese blue chips edged up 0.1%, as surveys showed manufacturing improved slightly in June while service activity picked up.
A holiday on Friday means U.S. payrolls data will come a day early, with analysts forecasting a rise of 110,000 in June with the jobless rate ticking up to the highest in almost a year at 4.3%.
The resilience of the labour market is a major reason the majority of Federal Reserve members say they can afford to wait on cutting rates until they can gauge the true impact of tariffs on inflation, so a weak report would stoke speculation of a rate cut in July rather than September.
"While initial jobless claims retreated somewhat from their recent high, continuing claims jumped higher yet again," noted Michael Feroli, head of U.S. economics at JPMorgan. "Consumers' assessment of labor market conditions also deteriorated in the latest confidence report."
"Both of these developments suggest that the unemployment rate in June should tick up to 4.3%, with a significant risk of reaching 4.4%."
The latter outcome would likely see futures push up the chance of a July easing from the current 18% and price in more than the present 63 basis points of cuts for this year.
DOLLAR DOLDRUMS
Fed Chair Jerome Powell will have an opportunity to repeat his cautious outlook when he joins several other central bank chiefs at the European Central Bank forum in Sintra on Tuesday.
The prospect of an eventual policy easing has helped Treasuries weather worries about the U.S. budget deficit and the huge amount of borrowing it entails.
Yields on 10-year Treasuries were steady at 3.28%, having fallen 9 basis points last week.
The dollar has not fared so well, in part due to concerns tariffs and chaotic policies from the White House will drag on economic growth and erode the country's claim to exceptionalism.
The euro was near its highest since September 2021 at $1.1735, having climbed 1.7% last week, while sterling stood near a similar peak at $1.3733.
The dollar was down 0.5% on the yen at 143.86, and slipped 0.1% on the Canadian dollar to 1.3665 following the trade news. The dollar index eased to 97.075, a whisker above three-year lows.
James Reilly, a senior markets economist at Capital Economics, noted the dollar had fallen by more at this stage in the year than in any previous year since the U.S. moved to a free-floating exchange rate in 1973.
"At this point, further weakness could become self-reinforcing as underhedged European/Asian portfolios chase the move," he added.
"So, we suspect that this could be a pivotal period for the greenback – either it turns around here or there is another 5% or so fall around the corner."
In commodity markets, the general revival in risk sentiment has undermined gold, which hovered at $3,284 an ounce and further away from April's record top of $3,500. [GOL/]
Oil prices continued to struggle on concerns about plans for increased output from OPEC+, which contributed to a 12% slide last week. [O/R]
Brent dropped a further 14 cents to $67.63 a barrel, while U.S. crude eased 28 cents to $65.24 per barrel.
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"In other words, we'll just be sending them a letter, and we love having them as a Trading Partner for many years to come." Trump's statement that he would send a letter to Japan outlining the new tariff rate comes a little more than a week before a July 9 deadline and after months of being locked in trade talks with Japanese leaders. Trump has threatened to send letters to trading partners should negotiations break down. During trade talks, Japan has sought an exemption from the Trump administration's 25% auto duties. Broad tariffs on Japanese goods were set to jump back up to 24% on July 9 if no deal is reached and the tariff pause is not extended. Read more here. Treasury Secretary Scott Bessent warned "recalcitrant" countries that their tariff levels could soon snap back to "Liberation Day" levels, the latest sign of ambiguity in President Trump's firmness around a July 9 deadline. Via Reuters: Administration officials — and Trump himself — have sent mixed signals on whether he may look to extend that deadline. Trump on Sunday suggested he didn't think he'd "need to" extend it. Tariffs pressures have started to hit goods, with prices on products made in China sold on Amazon (AMZN) rising faster than overall inflation, according to 1,400 different items which were analysed by DataWeave and provided exclusively to Reuters. Reuters reports: Read more here. CNN reports: Read more here. The European Union is pushing back against the US and its criticism of the bloc's tech rules, which many feared may have been included as part of trade negotiations. Reuters reports: Read more here. There is a belief among economists that President Trump's tariffs will help boost inflation over the next few months. But so far, muted price increases have called that belief into question. This has helped to embolden Trump, causing divisions with the Fed. Bloomberg News reports: Read more here. South Korea is looking for an extension to the July 9 tariff deadline as talks continue. The US has raised concerns over non-tariff barriers and broader defence. South Korea is not the only country looking to reach a deal with the US before the tariff deadline on July 9. "It seems some countries will reach a deal by July 8, some might be granted an extension to continue negotiations, while others will decide if they want to continue negotiating under tariffs or not," the South Korean official told a briefing. Here's how some of the other trading partners are managing the deadline. China The US and China reached a deal to resume rare earth exports in London this month, resolving delays in implementing the Geneva agreement, which was established in May. Both sides are keen to ease tensions before tariffs rise further on August 9, when broader duties could rise 50%. Canada Canada scrapped its planned digital services tax targeting US tech firms on Sunday in an attempt to revive stalled talks. President Trump threatened new tariffs within a week if no deal is reached. According to Reuters, talks aim for an agreement by July 21. EU EU negotiators are pushing to keep reciprocal tariffs below 10% but Washington is pursuing a 10% baseline rate on most goods. Talks continue as the EU faces a looming deadline of July 9. UK The US-UK trade deal was cemented at the G-7 Summit this month. The deal came into force this week, reducing levies on cars and aircraft parts but keeping 10% tariffs on exports. Steel and aluminium tariffs remain unresloved ahead of the July 9 deadline. Japan Japan is seeking exemption from US auto tariffs, which currently stand at 25%, while also facing a new 24% reciprocal tariff from July 9. Trump wants Japan to import more US energy to reduce its trade surplus. Mexico The US and Mexico are negotiating a quota deal to reduce Trump's 50% steel tariffs. An agreement may allow for lower import rates. As earning season approaches, Goldman Sachs (GS) said on Monday that US profit margins will be tested as investors await to see how President Trump's war has hurt companies. Goldman's David Kostin said Q2 earnings will show the immediate impact of tariffs, which have risen about 10% this year. Most costs will be passed on to consumers, but margins will suffer if firms absorb more than expected. Early results are mixed: General Mills (GIS) stock fell 5% last week due to a weak forecast and tariff warning, while Nike (NKE) rose 15% after announcing it will offset higher duties. Bloomberg News reports: Read more here. Canada scrapped its planned digital services tax on US tech firms late Sunday, just hours before it was due to start. The move aims to revive stalled trade talks with the US, which halted on Friday over the tax, with President Trump calling it a "blatant attack." Canada's finance ministry said Prime Minister Mark Carney and Trump plan to reach a deal by July 21. Trump warned on Friday he would set new tariffs on Canadian goods within a week, risking fresh tension between the two countries. The 3% tech tax would have hit firms like Apple (AAPL), Google (GOOG), and Amazon (AMZN), but Canada will now bring forward legislation to cancel it. "The DST was announced in 2020 to address the fact that many large technology companies operating in Canada may not otherwise pay tax on revenues generated from Canadians," a statement from the Canadian finance ministry said. "Canada's preference has always been a multilateral agreement related to digital services taxation." Despite predictions from members of President Trump's administration that it could complete "90 deals in 90 days," the White House doesn't appear to be anywhere close to the sweeping global trade reform it was seeking, Bloomberg reports: Read more here In a wide-ranging interview during which he also said he had a buyer for TikTok (whom he did not name), President Donald Trump he did not think he would need to extend a July 9 tariffs deadline, Bloomberg reports: Read more here As the Independence Day holiday approaches, the fireworks used in displays across the US likely won't be affected by President Trump's tariffs, at least, not yet. A 90-day pause on the levies slated for imports from China is in effect, but such tariffs would hit the fireworks industry hard. Nearly all the fireworks used in the US are imported from China, the Associated Press reports. The price tag on future fireworks displays, however, are up in the air: Read more here The market's task of planning for how tariff developments will play out this summer got more complicated Friday as President Trump and his team offered a host of options for what to expect in the months ahead. First, Treasury Secretary Scott Bessent raised eyebrows when he suggested that his focus could be on an end-of-summer deadline, saying, "I think we could have trade wrapped up by Labor Day." But any hopes for a summer lull between now and then were short-lived when, just a few hours later, Trump offered multiple other scenarios during a wide-ranging press conference. At one point, the president reiterated his plan to send letters to dictate tariff rates for at least some countries, perhaps as soon as next week, saying, "It's going to go very quickly." Minutes later, he said that a July 9 deadline to raise "reciprocal" tariffs is not set and perhaps could move, but in an unpredictable direction. "We can do whatever we want," he told reporters of that deadline. "We could extend it, we could make it shorter," adding that his preference was to make it shorter. Read more here President Trump on Friday said he is cutting off all trade talks with Canada, threatening to set a new tariff rate on goods imported from the country within the next week. The reason, according to Trump: Canada's plan to implement a digital services tax, which could affect US tech companies. Trump's about-face throws a potential wrench in weeks of trade progress. Just hours earlier, the US and China cemented the trade truce first agreed to last month in Geneva. Here's Trump's Truth Social post on Canada, in full: On Friday afternoon, President Trump touted tariff revenue and an influx of domestic manufacturing but offered few details on the state of tariff negotiations ahead of the July 9 deadline, when the tariff pause expires. The president acknowledged that the administration won't be able to reach deals with 200-plus countries over the next week and a half. But he did not definitively say whether tariff rates would jump back up to "Liberation Day" levels. "We can do whatever we want," Trump told reporters in a press briefing, referring to the tariff pause. "We could extend it. We could make it shorter — I'd like to make it shorter. I'd like to just send letters out to everybody: 'Congratulations, you're paying 25%'" So far, the Trump administration has confirmed preliminary trade agreements with China (as of today) and the UK. Trump noted that officials are in the process of negotiating other deals, which he said are "going to go very quickly." In particular, Trump again teased a potential deal with India, which has faced roadblocks in recent weeks over some of the country's protectionist policies for certain sectors. "Some of the bigger countries, India, I think we're going to reach a deal where we have the right to go in and trade," Trump said. "Right now, it's restricted. ... We're looking to get a full trade barrier dropping, which is unthinkable, and I'm not sure that that's going to happen, but as of this moment, we've agreed to go into Indian trade." US and EU officials are confident of clinching a trade deal before a July 9 deadline, Bloomberg reported Friday. Amid continued progress on China, the US-EU talks have come in high focus ahead of that deadline, with US tariffs of up to 50% looming on EU imports. From the report: Read more here. Treasury Secretary Scott Bessent said on Friday that the US could wrap up its most important trade deals by Labor Day. "Secretary Lutnick said yesterday that he expects 10 more deals," Bessent told Fox Business Network in an interview. "So if we can ink 10 or 12 of the important 18, there are another important 20 relationships, then I think we could have trade wrapped up by Labor Day." Bessent's comments come after the US and China signed an interim trade agreement on Friday that would reduce tariffs while the two sides work toward a formal deal. Trump administration officials have softened their stance toward the July 9 deadline they set for themselves to hammer out trade pacts. On Thursday, White House press secretary Karoline Leavitt said the early July deadline "is not critical" while Trump's top economic adviser said he expected the US to extend the pause for countries negotiating "in good faith." The other shoe has dropped: Beijing has backed up the plans for trade easing laid out by the US, signaling warmer relations between the recently feuding sides. Bloomberg reports: Read more here. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Politico
25 minutes ago
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