
Last week ended on a quiet note, with US markets closed for the Independence Day holiday. There was a whiff of risk aversion in the air as investors looked towards 9-July, the day when the 90-day pause in Trump’s reciprocal tariff policy expires. Ahead of this date, a number of tariff-related stories were doing the rounds on Friday, with follow-up reports during the weekend.
The threat of tariffs resulted in S&P500 futures falling 0.6%, while the Euro Stoxx 600 index closed down 0.5%. European rates showed little net movement. Net currency movements were small, but commodity currencies were on the weaker side of the ledger.
The NZD fell slightly lower in overnight trading on Friday, closing the week around the 0.6060 mark. The AUD showed a similar pattern, closing the week around 0.6550. NZD cross movements were flat to modestly weaker. Against the backdrop of weaker risk appetite, the yen outperformed, and NZD/JPY fell towards 87.5. The domestic rates market ended the week on a quiet note as well, with little net movement in yields.
Ahead of Independence Day, President Trump said his administration will probably start notifying trading partners Friday (4th July) of the new US tariffs on their exports, effective 1 August, adding “they’ll range in value from maybe 60 or 70% tariffs to 10% to 20% tariffs”. The market was unsure how seriously to take the higher figures quoted, as they were higher than the maximum 50% figure quoted on Liberation Day, hence traders adopted only a moderately cautious trading tone than outright panic. In a weekend update, Lutnick said the President has signed 12 letters that will be sent on Monday to various trading partners informing them of new tariff rates.
The FT reported Friday an escalation of US-EU trade tensions, with the US threatening to hit EU agriculture exports with 17% tariffs. The people briefed added that the two sides were working on a five-page draft “agreement in principle”, but this currently has very little agreed-upon text in it.
The article offered some hints of what to expect after the 9-July deadline expires, with diplomats relaying three scenarios that the US had sketched out: (1) countries with an “agreement in principle” would keep the 10% tariffs, with possible further tariff relief at a later stage; (2) for countries that failed to reach such an agreement, the tariffs would return to the level announced on Liberation Day until a deal was struck; and (3) higher tariffs would be applied to countries that the US believes are not negotiating in good faith.
Friday’s news was also peppered with articles noting rising trade tensions between China and the EU. The Chinese government intends to cancel part of a two-day summit with EU leaders planned later this month in China. Over the weekend, France’s Finance Minister said Europe must shore up its tariff barriers to counter Chinese imports that risk harming the continent’s industrial economy. Yesterday, China announced curbs on medical-device procurement for EU-based companies after the EU announced plans to restrict Chinese medical device manufacturers from accessing public procurement contracts.
Over the weekend, the outcome of the OPEC+ meeting was to increase oil production by 548,000 barrels a day next month. This was well above expectations, with the consensus believing the increase would be closer to the recent run rate of 411,000 extra barrels a day. The decision should see oil prices open the week on a softer note.
The economic calendar in the day and week ahead is light, with a dearth of top-tier releases. On the policy front, the RBA and RBNZ have policy meetings, with the former widely expected to cut rates again by 25bps (nearly fully priced) and the latter widely expected to take a pause in the easing cycle (just 3bps of cuts priced). Neither of these policy updates should perturb the market, with all eyes on what Trump announces after the 9-July deadline expires.
Traders should have learnt their lesson about over-reacting to tariff news after the Liberation Day shambles and everything is up for negotiation until the 1-August day hits, when new tariffs will apply. Yesterday, Treasury Secretary Bessent indicated that countries without a deal by 9-July will have the option of a three-week extension to negotiate.
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