by Andre Janse van Vuuren
Stocks fell as the Trump administration escalated its trade war, with investors bracing for a flurry of economic reports this week that is expected to offer an early read on the impact of tariffs.
Europe’s Stoxx 600 dropped 0.5%, with trade-sensitive automakers leading the losses. S&P 500 futures retreated 0.4%. Bitcoin soared past $120,000 for the first time. Japanese long-term bonds extended their declines on fiscal worries before local elections. The dollar and US Treasuries were little changed.
US President Donald Trump’s weekend threat to impose 30% tariffs on the European Union and Mexico is testing market resilience, following a series of escalated trade measures against multiple partners. While traders largely view it as a negotiating tactic and expect any final tariffs to be softer, the moves have injected uncertainty just as the S&P 500 was trading near record highs.
Economic data due Tuesday is expected to show US inflation edged higher in June, as companies began passing on the rising cost of imported goods. The figures could shape the Federal Reserve’s wait-and-see stance on rate cuts, with swaps still pricing in nearly two quarter-point reductions this year.
“It is important to note that investors are already pricing in rate cut expectations,” noted Linh Tran, market analyst at XS.com. “If the data points to stronger-than-expected inflationary pressures or a tight labor market, the Fed may be forced to delay rate cuts — potentially triggering a valuation shock for equity markets.”
Separately, Trump and his allies stepped up their criticism of Federal Reserve Chair Jerome Powell’s handling of the expensive renovation of the Fed’s headquarters. Some administration officials are attempting to build a case to remove Powell from the Fed’s Board of Governors.
Late on Sunday, Trump repeated his criticism of Powell and said if the Fed chair stepped down, that would be a “good thing.” Deutsche Bank AG strategist George Saravelos said the potential dismissal of Powell is a major and underpriced risk that could trigger a selloff in the US dollar and Treasuries.
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This story was produced with the assistance of Bloomberg Automation.
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