Front and centre for markets next week is the tariff ‘Liberation Day’ pause deadline and what Washington’s next step will be in its trade war. US stocks markets have hit more record highs recently, with the benchmark S&P 500 a recognised crucial bellwether for President Trump. The economy has remained resilient with inflation still relatively benign and the most recent headline print in the jobs report wrong footed a more softly positioned market, even though the details showed the same sectors creating jobs.
Does this all mean Trump can play hard ball, with the knowledge and satisfaction of several big successes in the locker since his inauguration? The house passage of the OBBB (One Big Beautiful Bill) also got done by July 4 further emboldening the POTUS, though market reaction to that may only impact through time, with more bond issuance and higher yields. Lags to the softer economic data and higher inflation also need to be watched in the months ahead, as Fed Chair Powell has alluded to in recent comments.
Countries that have dodged the trade bullet so far are the UK and Vietnam, while the China truce lasts until mid-August. Talks with Japan are proving frustrating, and any EU deal is going down to the wire, with symbolic retaliation by the region still a risk. Needless to say, this could be a noisy period for (FX) markets as the White House again makes heavy threats in order to get trade deals over the line, in whatever form plays to the US audience.
As a reminder, the top G10 FX performers during the worst of April’s volatility were the Swiss franc, the euro and the yen – in that order. The greenback was broadly sold. Indeed, even with that solid non-farm payrolls report, FX price action suggests investors were more than happy to sell dollars into rallies. The long-term trendline from 2011 lows comes in around 96.47 on the Dollar Index.