(Reuters) -A look at the day ahead in U.S. and global markets by Alun John, EMEA Finance and Markets breaking news reporter.
Markets are processing tariff news again today, after U.S. President Donald Trump on Tuesday broadened his trade war, saying he would impose a 50% tariff on imported copper and soon introduce long-threatened levies on semiconductors and pharmaceuticals.
Trump also said he is only days away from sending one of his tariff letters to the European Union, something the EU had been hoping to avoid.
So far, market reaction in stocks and U.S. Treasuries has been pretty muted, however.
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. President Donald Trump on Tuesday said he would impose a 50% tariff on imported copper and soon introduce long-threatened levies on semiconductors and pharmaceuticals, broadening his trade war that has rattled markets worldwide.
* Vietnam will devise measures to improve product quality to cope with potential risks from U.S. tariffs, as it seeks to expand exports to other markets and reduce its reliance on the United States, the country’s deputy trade minister said on Wednesday.
* Treasury Secretary Scott Bessent on Tuesday said the U.S. has taken in about $100 billion in tariff income so far this year, and this could grow to $300 billion by the end of 2025 as collections accelerate from President Trump’s trade campaign.
* Trump met Israeli Prime Minister Benjamin Netanyahu on Tuesday for the second time in two days to discuss the situation in Gaza, with the president’s Middle East envoy indicating that Israel and Hamas were nearing an agreement on a ceasefire deal after nearly two years of war.
* Turkey is one of the world’s fastest-growing power markets, and exporters of natural gas and LNG have eyed the country as a key potential growth market. But ROI columnist Gavin Maguire says Turkey’s rapid expansion of clean power supplies means gas producers could end of disappointed.
INVESTORS’ DILEMMA
How important were the stock market sell-off and ructions in the U.S. Treasury market in Trump’s decision to postpone tariffs in April?
That has become an important question for investors now that the first pause is over and Trump is ramping up duties again and sending letters to trading partners telling them what their tariffs will be – even if they don’t kick in until August 1.
That’s on top of the surprise copper announcement and pharmaceutical threats.
And, if the market reaction was even partly a factor in the April pause decision, investors now face a conundrum, and one that is somewhat reminiscent of the game theory classic prisoner’s dilemma.
Lots of big fund managers think tariffs are bad for the U.S. economy, and, as such, are a reason to sell stocks. If tariffs also lead to higher inflation, which many believe they will, that is also a reason to sell Treasuries.
However, as of now, the collective market wisdom seems to think the bulk of tariffs will be postponed, negotiated away, or fudged, therefore giving investors little reason to sell.
That helps explain why the S&P 500 is down less than 1% from its record peak last week. World shares are steady too, and the Treasury market is quiet.
But here’s the dilemma.
If there is no major market reaction to the newest tariff developments, maybe tariffs will not get postponed, negotiated, or fudged. Under such a scenario, the U.S. economy could take a hit, shares fall, and bond yields rise sharply, suggesting investors would have been better off selling in the first place.
At this point, it is worth noting that copper futures in the U.S. are at record highs after Tuesday’s announcement, but metal futures in Europe and Asia are down.
But despite the threats, pharma and semiconductor stocks haven’t moved much and, at the index level, the lack of concern at the moment seems remarkable.
According to a UBS model, the market is effectively pricing in zero tariff risks, and Bhanu Baweja, chief strategist at the investment bank, thinks this is a complacent position.
Baweja, in a client note, said the tariffs had both a “certain philosophical and ideological element”, and a certain practical element as they were needed to fill the gap left by fiscal spending. Hence, the market should expect at least some of them to be implemented.
Whether, and when, markets react is another question however. And what would that mean for policy?
Chart of the day
Tariffs might not be reflected in market action, but they are certainly there in some bits of data.
China’s producer deflation deepened to its worst level in almost two years in June, according to Wednesday numbers, as the economy grappled with uncertainty over a global trade war and subdued demand at home.
That piles pressure on policymakers to roll out more support measures.
Today’s events to watch
* Minutes of FOMC June meeting
* U.S. 10-year note auction
* Company earnings: Levi Strauss, Delta Air Lines
* Tariff developments
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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