Stock Market Pressured by Tariff Threats Amid Hawkish Fed Comments

Stock indexes are pressured by new tariff threats from President Trump, who announced 30% tariffs on US imports from the EU and Mexico, effective August 1. He also threatened tariffs on Canadian products and drug companies if they don't relocate production to the US within a year. Hawkish comments from Cleveland Fed President Beth Hammack weighed on stocks and bonds. Trade news from China was positive, with June exports up 5.8% y/y and imports up 1.1% y/y.

Stock indexes are under pressure today as President Trump's aggressive tariff regime continues to unfold. The S&P 500 Index ($SPX) (SPY) is down by -0.12%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.13%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +0.09% [1]. September E-mini S&P futures (ESU25) are down by -0.6%, while September E-mini Nasdaq futures (NQU25) are up by +0.12%.

Over the weekend, President Trump announced a 30% tariff on US imports from the European Union and Mexico, effective August 1. He also threatened a 35% tariff on Canadian goods and up to 200% tariffs on drug companies if they don't relocate production to the US within a year [1]. These tariffs are part of a broader strategy to protect domestic industries and reduce trade deficits.

Hawkish comments from Cleveland Fed President Beth Hammack have also weighed on stocks and bonds. She stated that she wants to see inflation lowered further before she'd support cutting interest rates [1]. This stance is likely to influence market expectations for future monetary policy.

Trade news from China was more positive, with June exports up by +5.8% y/y and imports up by +1.1% y/y [1]. This indicates a strengthening in China's economy, which could have a positive impact on global economic growth.

The markets this week will focus on any fresh news on tariffs or trade deals. Key economic indicators such as June CPI, June PPI, and June manufacturing production are expected to be released, which could provide further insights into the state of the economy [1].

Another concern for investors is the upcoming earnings season, which begins in earnest this week. Bloomberg Intelligence data shows that the consensus for Q2 earnings of S&P 500 companies is for a rise of +2.8% year-over-year, the smallest increase in two years [1]. Only six of the eleven S&P 500 sectors are projected to post an increase in earnings, the fewest since Q1 of 2023 [1].

Federal funds futures prices are discounting the chances of a -25 bp rate cut at the July 29-30 FOMC meeting at 5% [1]. This suggests that the market expects the Federal Reserve to maintain a hawkish stance on interest rates.

Overseas stock markets today are mixed, with the Euro Stoxx 50 down by -0.44%, China's Shanghai Composite up by +0.27%, and Japan's Nikkei Stock 225 down by -0.28% [1].

Interest rates have been influenced by President Trump's tariff announcements. September 10-year T-notes (ZNU25) are down by -2 ticks, and the 10-year T-note yield is up by +2.2 bp to 4.432% [1]. Rising US inflation expectations are also weighing on T-notes as the 10-year breakeven inflation rate rose to a 3.5-month high of 2.398% [1].

European government bond yields are mixed, with the 10-year German bund yield rising to a 3.5-month high of 2.739% and the 10-year UK gilt yield falling to 4.605% [1]. Swaps are discounting the chances of a -25 bp rate cut by the ECB at the July 24 policy meeting at 2% [1].

Semiconductor chip stocks are leading the market down, with Micron Technology (MU) down more than -4% [1]. Energy producers and energy service providers are also sliding, with Haliburton (HAL) down more than -4% [1]. Cryptocurrency-exposed stocks are moving higher, with MARA Holdings (MARA) up more than +6% [1].

The upcoming earnings season and tariff announcements will continue to influence market sentiment. Investors should closely monitor these developments for potential impacts on their portfolios.

References:
[1] https://www.barchart.com/story/news/33387992/stocks-pressured-by-new-tariff-threats