Global Stocks Soar to New Heights Despite Trade War Tensions
Markets Surge Amid Hopes for Trade Deals and Interest Rate Cuts
Despite ongoing trade tensions and geopolitical uncertainty, global markets are experiencing a surge in optimism as investors hope for the emergence of bilateral tariff deals between the US and its trading partners. This optimism is further fueled by expectations that interest rates will fall in Europe and signs of economic resilience and tech demand in the US.
The U.S. Tariff Rate on Steel and Aluminum Doubles
On Wednesday, the U.S. doubled its tariffs on most imported steel and aluminum, exempting Britain for now. The Trump administration is also expecting negotiating countries to make their "best offers" by today to avoid additional import levies kicking back in next month. This development has sparked concern about auto sector disruption from the US-China trade standoff.
Global Automakers Express Concern Over Rare Earth Alloys Restrictions
Global automakers have joined their US counterparts in expressing concern over China’s restrictions on exports of rare earth alloys, mixtures, and magnets. These restrictions could cause production delays and factory outages if not addressed quickly. The US is set to use emergency powers and slash legal requirements relating to the Defense Production Act to lift US production of critical minerals and weapons.
The Wider US Economy Shows Resilience
Despite the disruption in manufacturing, there are signs that the wider US economy is weathering the storm reasonably well. Job openings unexpectedly increased in April as a week of labor market updates unfolds. This has helped Wall Street stocks move higher on Tuesday, with Big Tech leading the rally once again.
Global Stocks Hit Record Highs
MSCI’s all-country equity index hit a record high on Wednesday, a whopping 23% surge from the intraday trough of April 7 hit after the initial US tariff sweep. The world index is now almost 6% higher for the year. Wall Street continues to lag, but the S&P 500 is positive again for the year and the Nasdaq is within a whisker of breaking even in 2025.
European Stocks and the Euro Rise
European stocks and the euro are higher ahead of the expected European Central Bank rate cut on Thursday. This decision is now seen as a done deal as euro zone inflation fell back below target in May. Markets reckon there’s a 50-50 chance the Bank of Canada also cuts rates later today.
South Korea’s Stocks Jump After Presidential Election
South Korea’s stocks jumped almost 3% and the won rallied 1% after the victory of liberal candidate Lee Jae-myung in the presidential election there.
The Euro Could Generate Significant Capital Flows
In today’s column, I consider how a global reserve holdings shift in favor of the euro could generate massive amounts of additional investment in euro assets, even if the euro doesn’t supplant the dollar. This is an important consideration as investors look for alternative safe-haven currencies and asset classes.
Chart of the Day: Switzerland Flirts with Deflation
Switzerland is flirting with deflation yet again as a supercharged Swiss franc feeds off rising global tensions and depresses import prices. Swiss consumer prices fell 0.1% on an annual basis in May, the first negative print for more than four years.
Today’s Events to Watch
- Bank of Canada policy decision (9:45 AM EDT)
- U.S. May private sector payrolls from ADP (1:15 PM EDT), May service sector business survey from ISM (10:00 AM EDT)
- Federal Reserve publishes Beige Book on economic conditions
- Atlanta Fed President Raphael Bostic speaks
- NATO Secretary General Rutte convenes NATO Defence Ministers meeting in Brussels
- European Commission President Ursula von der Leyen speaks in Brussels
- U.S. corporate earnings: Dollar Tree
