Global Markets Update

By Ankur Banerjee and Johann M Cherian
SINGAPORE (Reuters) – Global stocks edged higher while the dollar traded near a three-year low on Wednesday. Investors were considering the potential for U.S. interest rate cuts and trade deal negotiations before President Donald Trump’s July 9 deadline for tariffs.

Trump stated he is not extending the deadline for countries to negotiate trade deals with the U.S. Negotiations with Japan showed no progress, but he anticipated a deal with India. Meanwhile, the European Union’s trade chief was expected to meet in Washington this week to prevent higher U.S. tariffs.

Europe’s STOXX 600 rose by 0.6%, with Germany’s DAX gaining 0.4%. In the U.S., futures for the S&P 500 suggested a slight increase after a record high in the previous session. MSCI’s index of Asia-Pacific shares, excluding Japan, settled 0.1% higher, while Japanese stocks fell 0.5% due to trade uncertainties.

Senior market analyst Daniela Hathorn at Capital.com commented on the pressure surrounding trade deals, suggesting market optimism may improve, despite not returning to pre-tariff conditions. Economic data was closely watched with a private payroll survey expected later. A Tuesday report indicated labor market resilience, heightening interest in Thursday’s U.S. nonfarm payrolls data as investors assess the Fed’s rate-cut timeline.

Fed Chair Jerome Powell, responding to Trump’s calls for immediate rate cuts, emphasized a need to understand tariff impacts on inflation before making decisions. Traders predict about 64 basis points of cuts this year, with a 19% chance of movement in July.

The dollar index rose 0.3% but remained close to early-2022 lows, with analysts noting that labor market weaknesses could further affect the dollar. Hathorn described the market situation as poor, with recession concerns lingering without bullish markers.

Trump’s Tax and Spending Bill

Recent investor focus has shifted to Trump’s extensive tax and spending bill aiming to add $3.3 trillion to the national debt, reduce taxes, and cut social safety programs. Currently, the legislation returns to the House of Representatives for an initial procedural vote set at 1300 GMT.

Although it has raised fiscal concerns, bond markets reacted relatively mildly after the Senate approved it. In equities, futures for the U.S. small-cap Russell 2000 index rose by 1%, with Barclays strategists suggesting potential boosts to small-cap earnings due to proposed changes in interest expense tax deductions for corporations.

Despite these developments, uncertainties about public financial repercussions, trade, and interest rates led investors to seek alternatives to U.S. assets, as reflected in a 10% decline of the dollar in the first half of the year, marking its worst performance since the 1970s.

In commodities, spot gold increased by 0.2%, surging 27% this year due to safe-haven demand. Oil prices also gained over 1% following Iran’s suspension of cooperation with the UN nuclear watchdog.