Benchmarks in Tokyo, Hong Kong and Sydney were set to decline as the buoyant mood from the tariff deal between President Donald Trump and the European Union ran out of steam, even as hopes were bolstered for an extension of a China trade truce. The dollar steadied Tuesday after climbing the most since May. Treasuries edged lower.
The euro slid the most in over two months as European leaders defended the US deal as Germany voiced concerns. The S&P 500 briefly topped 6,400 to close little changed. Oil rose as Trump said he’d shorten his timeline for Russia to reach a truce with Ukraine.
In the run-up to the Aug. 1 US tariff deadline, traders will go through a raft of key data from jobs to inflation and economic activity. The big event comes Wednesday, when the Federal Reserve is expected to keep rates unchanged. Then there’s a string of big-tech earnings, with four megacaps worth a combined $11.3 trillion reporting results.
“This is about as busy as a week can get in the markets,” said Chris Larkin at E*Trade from Morgan Stanley. “This week could make or break that momentum in the near term.”
European capitals defended the trade deal struck with Trump while industry officials in Germany warned that the deal leaves the auto industry exposed and will make companies in Europe less competitive. Dutch Minister for Foreign Trade Hanneke Boerma said the deal was “not ideal” and called on the commission to continue negotiations with the US. Meanwhile, US and Chinese officials finished the first of two days of talks aimed at extending their tariff truce beyond a mid-August deadline and hashing out ways to maintain trade ties while safeguarding economic security.“Whether we agree or not with the use of tariffs and the deals announced, we are getting the big ones out of the way which will allow American businesses to adjust and plan, for better or worse,” said Peter Boockvar at the Boock Report. “And we can now focus on how this all plays out.”
Separately, the US Treasury jacked up its estimate for federal borrowing for the current quarter to $1 trillion, mainly due to distortions from the debt limit. On Wednesday, the department will announce its plans for note and bond sales over coming months — which dealers widely see as staying unchanged.
Elsewhere in Asia, Trump said he had asked US officials to resume trade negotiations with Cambodia and Thailand after the countries agreed to halt fighting along a disputed border.
In Japan, Prime Minister Shigeru Ishiba is fighting to stay in power, and insisted he would stay on after some ruling party lawmakers stepped up their calls for his resignation following last week’s historic election setback.
The key for markets this week is a rate decision by the Fed.
Chair Jerome Powell and his colleagues will step into the central bank’s board room for a two-day meeting starting Tuesday to deliberate on rates at a time of immense political pressure, evolving trade policy, and economic cross-currents.
In a rare occurrence, policymakers will convene in the same week that the government issues reports on gross domestic product, employment and the Fed’s preferred price metrics. Forecasters anticipate the heavy dose of data will show economic activity rebounded in the second quarter.
