Morning Bid: 'Tariffs - use this version, please'
It is tariff deadline day and President Donald Trump delivered by slapping fresh levies on imports from dozens of countries, including those that do not have a trade deal yet.
Rates were set at 35% for Canada, 25% for India, 20% for Taiwan and 19% for Thailand. Switzerland got a whopping 39% -- one of the steepest -- raising the question: what's Trump got against the Swiss? Not buying enough American chocolate or watches?
The big day comes after months of posturing, meetings, delays and truces, which prompted some investors to question what was a real threat and what was a bluff. Indeed, there is still much to be resolved.
Arguably, most levies are lower than those threatened on April 2, which back then sent markets into a tailspin. Plus the big trade deals with Japan and the European Union have been reached while talks with China and Mexico are still ongoing.
That is probably why market reaction this time has been much more muted. Sure, most Asian shares fell, but only modestly. South Korea is an exception, tumbling over 3%, in part due to domestic tax cuts being rolled back.
Taiwan's president said the 20% levy is only temporary and is expected to be reduced further when a deal is reached.
Wall Street and European shares did not seem to be too bothered by the tariff news. EUROSTOXX 50 futures slipped 0.3%. Both Nasdaq futures and S&P 500 futures fell 0.2%, thanks to a 6% tumble in Amazon (AMZN.O), opens new tab after its earnings failed to meet lofty expectations.
Now, with the tariff news out of the way, euro zone flash CPI is due later in the day and expectations are for a slight easing to 1.9% in July from 2.0% in annual terms. Markets have only priced in half a cut from the European Central Bank by early next year.
And then it's all about waiting for payrolls, which will be pivotal for hopes for a rate cut from the Federal Reserve in September, which is now priced at just 40%, way off 75% a month ago.
Forecasts are centred on a 110,000 rise in July, while the jobless rate likely ticked up to 4.2% from 4.1%. Any upside surprises could price out the chance of a move next month, giving dollar bulls another reason to rally.
The greenback is headed for the best week - with a gain of 2.5% against its peers - in nearly three years, solidifying its recent uptrend from a three-year low.
It has found support from a hawkish Fed that has held off policy easing on tariff risks. And indeed, the Fed's preferred gauge of inflation came in a tad hotter overnight, showing some tariff impact.
Key developments that could influence markets on Friday:
-- Euro zone flash CPI for July
-- U.S. payrolls for July, ISM Manufacturing survey
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Switzerland could revise offer on Trump tariffs, business minister says
ZURICH, Aug 3 (Reuters) - The Swiss government is open to revising its offer to the United States in response to planned heavy tariffs, Business Minister Guy Parmelin said, as experts warned the 39% import duties announced by President Donald Trump could trigger a recession in Switzerland. Switzerland was left stunned on Friday after Trump hit the country with one of the highest tariffs in his global trade reset, with industry associations warning of tens of thousands of jobs being put at risk. The country's cabinet will hold a special meeting on Monday to discuss its next steps, with Parmelin telling broadcaster RTS that the government would move quickly before the U.S. tariffs are imposed on August 7. "We need to fully understand what happened, why the U.S. president made this decision. Once we have that on the table, we can decide how to proceed," Parmelin said. "The timeline is tight, it may be hard to achieve something by the 7th, but we'll do everything we can to show goodwill and revise our offer," he added. Parmelin said Trump was focused on the U.S. trade deficit with Switzerland, which stood at 38.5 billion Swiss francs ($48 billion) last year, with Switzerland buying U.S liquefied natural gas (LNG) among the options under consideration. Another option could be further investments by Swiss companies in the United States, Switzerland's biggest export market for its pharmaceuticals, watches and machinery. "Look at the European Union, they promised to buy LNG. Switzerland imports LNG too — maybe that's one path," Parmelin said. "Maybe more investments. But to be sure it's a strong enough basis for continuing talks, we have to fully understand what the U.S. expects." Both Parmelin and Swiss President Karin Keller-Sutter were also ready to travel to Washington to pursue talks if necessary, he added. Swiss officials rejected reports that the higher than expected tariffs were imposed after a bad-tempered telephone call between Keller-Sutter and Trump late on Thursday. "The call was not a success, there was not a good outcome for Switzerland," a government source told Reuters. "But there was not a quarrel. Trump made it clear from the very beginning that he had a completely different point of view, that 10% tariffs were not enough. "We are working hard to find a solution and are in contact with the American side," the source added. "We hope we can find a solution before August 7." Tariffs would have a huge impact on Switzerland's export-orientated economy and raised the risk of a recession, said Hans Gersbach, an economist at ETH, a university in Zurich. Swiss economic output would be reduced by 0.3% to 0.6% if the 39% tariff was imposed, a figure which could rise to above 0.7% if pharmaceuticals - which are currently not covered by the U.S. import duties - were included. Prolonged disruptions could shrink Swiss GDP by more 1%, Gersbach said. "There would be a risk of a recession," Gersbach said. Swiss shares are expected to be hit by the tariffs news when the stock market reopens on Monday after being closed during the Swiss National Day holiday on Friday. The tariffs could also see the Swiss National Bank cut interest rates in September, said Nomura. "We expect one more 25bp policy rate cut from the SNB in September, which would take the rate to -0.25%," the bank said. "A hit to growth from U.S. tariffs on exports would likely weaken economic growth and cause further deflation pressures, adding to the likelihood of easing to a negative policy rate."
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Top Trump aide accuses India of financing Russia's war in Ukraine
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an hour ago
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Trump, Carney to speak in coming days, Canadian official says
WASHINGTON, Aug 3 (Reuters) - U.S. President Donald Trump and Canadian Prime Minister Mark Carney will likely talk "over the next number of days" after the U.S. imposed a 35% tariff on goods not covered by the U.S.-Mexico-Canada trade agreement, a Canadian official said on Sunday. Dominic LeBlanc, the federal cabinet minister in charge of U.S.-Canada trade, also told CBS News' "Face the Nation" that he was "encouraged" by recent discussions and believed a deal to bring down tariffs remained an option. "We're encouraged by the conversations with Secretary Lutnick and Ambassador Greer, but we're not yet where we need to go to get the deal that's in the best interest of the two economies," LeBlanc said, referring to U.S. Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer. The trade minister said he expected Carney and Trump to speak "over the next number of days." "We think there is an option of striking a deal that will bring down some of these tariffs provide greater certainty to investment," LeBlanc said. Washington linked Friday's tariff announcement in part to what it said was Canada's failure to stop fentanyl smuggling. It was the latest blow in a months-long tariff war which Trump initiated shortly after returning to power this year. Carney says Canada accounts for just 1% of U.S. fentanyl imports and has been working intensively to further reduce the volumes.
