Tariff Deadline Looms

STOCK INDEX FUTURES

Stock index futures are lower after President Trump confirmed that tariffs will take effect on August 1 while he confirms the final tariff rates set for other countries ahead of the July 9 deadline. The president said Sunday that a dozen or more letters could go out this week and that letters will be delivered starting at noon Monday. President Trump also threatened an additional 10% tariff on countries that align themselves with the BRICS group. Treasury Secretary Scott Bessent said that the tone of the letters sent out might not be a declaration of immediate tariffs; instead, the letters will feature another deadline that trading partners will have to meet to reach a deal with the US.

Last week the US announced a trade deal with Vietnam, which would lower the tariff on Vietnamese goods imported to the US from 46% to 20%, while US goods entering Vietnam would not face any levies. Additionally, any Vietnamese goods would face a higher 40% tariff on any “transshipping,” where goods shipped from Vietnam originate from another country, like China.

Thursday’s strong jobs report helped boost the S&P and Nasdaq to all-time closing highs; with equities at record levels, investors are worried that any negative news on the trade front could trigger volatility.

INTEREST RATE MARKET FUTURES

Futures are relatively flat across the curve, with prices lower at the long end as markets await news about reciprocal tariffs this week.

Yields jumped across the curve last week following the better-than-expected jobs report for June, which dulled any hopes for a July rate cut from the Fed. Nonfarm payrolls grew by 147,000, sharply beating expectations of 110,000 and higher than May’s revised figure that rose to 144,000 from 139,000. The unemployment rate fell to 4.1% from 4.2%, while weekly initial jobless claims came in lower than expected at 233,000 vs. 240,000. Average hourly earnings in the US grew slower than expected, with a 0.2% growth, lower than expectations of 0.3%. Despite the slower than expected growth, wage growth still remains above inflation levels. The solid jobs report added to expectations that the Fed will likely not cut rates at its July meeting, further reinforcing its wait-and-see approach to monetary policy while they await further clarity on the impact of tariffs on prices.

The 10-year Treasury yield is 4.36%, and the 30-year yield is 4.89%. The spread between the two- and 10-year yields is 48 bps.

CURRENCY FUTURES

The USD index is higher as President Trump confirmed Sunday that his reciprocal tariffs would go into effect on August 1. Treasury Secretary Scott Bessent stated that tariffs could go back to their April 2 levels for countries that have not reached a trade agreement with the US by then. The dollar touched three-year lows last week, pressured by rising tariff risks, increased fiscal concerns, and expectations of a sooner-than-expected Fed rate cut. However, a strong jobs report eased some of those worries, with the US economy adding 147,000 jobs in June, beating forecasts of 110,000.

Euro futures are lower on dollar strength as investors await further clarity on the US tariff picture ahead of a light week of economic data for the eurozone. Markets now expect only one additional rate cut from the ECB this year. ECB officials have signaled that rates will likely be held steady at this month’s meeting following eight consecutive cuts since June 2024. With inflation aligning with the 2% target, policymakers are taking a cautious stance amid persistent global trade tensions and the euro’s recent appreciation. German industrial production figures for May showed a 1.2% month-over-month growth in May.

British pound futures are lower following the release of the UK Halifax House Price Index for June, which showed no monthly change, beating out expectations of a -0.1% decline. The Office for Budget Responsibility will publish the fiscal risks and sustainability report on Tuesday. The report will focus on three current pressures on public finances: climate change, public balance sheets, and pensions. The report will also provide an update on the risk register. The UK monthly GDP data is set to be released on Friday. The latest release showed the economy contracted by 0.3% month on month in April. Industrial production data for May is due to be published on Friday as well as UK trade balance data. UK inflation remains sticky. Core inflation has shown little movement over the past year, causing concern among BoE officials and complicating rate cut decisions. UK money markets are pricing in a 66% chance of a rate cut in August.

Japanese yen futures are lower after wage data came in below expectations, with figures for May showing a 1.0% increase in wages, below an expected 2.4% increase, dampening hopes for a rate hike from the Bank of Japan. Real wages, a key gauge of consumer purchasing power, fell -2.9%, the sharpest drop in nearly two years and the fifth straight monthly decline. The broader wage figures have yet to reflect the record pay hikes negotiated during this year’s spring labor talks, as many smaller, non-unionized firms lag in implementation. Current account data for May and bank lending figures for June are due on Tuesday. On Friday, the Bank of Japan is set to conduct outright purchases across four segments of the Japanese Government Bond yield curve, including JGBs with maturities of more than five years up to 10 years and those exceeding 25 years. These purchases are expected to help support the domestic bond market.

Australian dollar futures fell lower, weighed down by expectations of a rate cut from the Reserve Bank of Australia and concerns over the tariff rate the country will face from the US. The RBA will hold its policy meeting this week; money markets have fully priced in a rate cut on Tuesday, which would bring the benchmark interest rate down to 3.6% from 3.85%. The RBA has only cut rates by 50 basis points so far this cycle, leaving the official cash rate in slightly restrictive territory at a time when inflation has returned to target.

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