Morning bid: Bad news is good news for markets craving Fed 'rocket fuel'
Markets are trying hard to see the bright side of bad news in the United States, anticipating dour data will trigger the economic "rocket fuel" of Federal Reserve interest rate cuts so craved by President Donald Trump.
Odds for a September cut now stand at about 94%, CME Fedwatch showed, from 63% last week. Market participants see at least two quarter-point cuts by year-end.
The odds shot up after disappointing non-farm payrolls data on Friday, causing equity markets to swoon and Trump to shoot the messenger, firing the head of labour statistics and promising to replace her within days.
Institutional independence is turning into a short bet in the U.S. The early resignation of Fed Governor Adriana Kugler will let Trump pick her successor, adding to concerns about partisan loyalty invading the staid world of central bank policy.
Asian markets followed gains on Wall Street, with MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), opens new tab up 0.4%. South Korea's Kospi (.KS11), opens new tab stood out with a 1% jump, while Vietnamese shares traded near a record high.
Data today from the region's two biggest economies showed resilience in their service sectors in the face of headwind from Trump's chaotic introduction of tariffs on goods from trading partners.
In Japan, the S&P Global final services purchasing managers' index (PMI) climbed to 53.6 in July from 51.7 in June for the strongest expansion since February. China's services activity last month expanded at its fastest pace in more than a year.
A slew of PMIs for July are due for release today across Europe.
In earnings, the second-quarter U.S. results season is winding down, but investors are still looking forward to reports this week from big names including Walt Disney (DIS.N), opens new tab and Caterpillar (CAT.N), opens new tab.
Equity futures are pointing to gains in European and U.S. markets, with the pan-region Euro Stoxx 50 futures up 0.13% and the S&P 500 e-minis rising 0.14%.
Key developments that could influence markets on Tuesday:
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The Independent
12 minutes ago
- The Independent
Crucial exemption allows majority of Canadian and Mexican goods to be shipped to US without tariffs
U.S. President Donald Trump raised the tariffs on Canadian goods to 35% last week, but a key exemption for Canada and Mexico shields the vast majority of goods from the punishing duties. Goods that comply with the 2020 United States-Mexico-Canada Agreement trade pact that Trump negotiated during his first term are excluded from the tariffs. Here's a look at Trump's tariffs on the two countries and their exemptions: Most Canadian exports reaching the U.S duty free Canada's central bank says 100% of energy exports and 95% of other exports are USMCA compliant. The Royal Bank estimated that almost 90% of Canadian exports appear to have accessed the U.S. market duty free in April. Canadian Prime Minister Mark Carney said the commitment of the United States to the core of USMCA, reaffirmed again last week, means the U.S. average tariff rate on Canadian goods remains one of its lowest, and over 85% of Canada-U.S. trade continues to be tariff free. 'Canada is better off than any of the trading partners right now because the Americans appear to be relying as a default on USMCA,' said Flavio Volpe, president of the Automotive Parts Manufacturers' Association. 'That gives them the tough tariff headline but also allows them the access to the stuff they need from us. Because of that we're in a relative better position.' Canadian and Mexican companies can claim preferential treatment under the USMCA based on where the products are made. 'The headline news is 35% tariffs but it's somewhat targeted,' said John Manley, Canada's former industry minister, finance minister, foreign affairs minister and deputy prime minister. Manley said Canada is doing okay despite the economic uncertainty. 'There is a lot of resilience I'd say. The Canadian economy has done relatively well, better than most of us expected, and remember that there is no tariffs on any of our energy exports," he said. 25% tariffs on Mexican goods target a small slice of trade Trump said last week he would enter into a 90-day negotiating period with Mexico, also one of America's largest trading partners. The current 25% tariff rates are staying in place, down from the 30% he had threatened earlier. But that 25% only applies to the fraction of Mexico's trade with the U.S. that isn't covered by the USMCA. Shortly after speaking with Trump on Thursday, President Claudia Sheinbaum said that within the 'new commercial world order,' Mexico was still the best positioned nation because of the free trade agreement. 'What's within (USMCA) has no tariff, with the exception of what we already know: autos, steel and aluminum; and what is outside the treaty has 25%,' Sheinbaum said. But Economy Secretary Marcelo Ebrard pointed out that under the USMCA no tariffs were paid on more than 84% of Mexico's trade with the United States. Most imports from Canada and Mexico are still protected by the USMCA, but the deal is up for review next year. U.S. Commerce Secretary Howard Lutnick said last month: 'I think the president is absolutely going to renegotiate USMCA." Preserving the free trade pact will be critical for Canada and Mexico. 'It would be an incredible disruption to lose it especially if you lost it to the levels of tariffs Trump is imposing, 30%, 25% or even 20%. You can absorb a single digit tariff level across the board but you can't adjust that kind of increase,' Manley said. More than 75% of Canada's exports go to the U.S. while more than 80% of Mexico's exports go there. Manley said that depending on how the trade war plays out the risk to the USMCA is very high. 'Uncertainty in business is the enemy of decision making," he said. Charging for access Carney said in a series of recent agreements with other countries that America is, in effect, charging for access to its economy. Manley said the investment thesis for Canada is pretty straightforward as Canada is rich in natural resources, has a skilled labor force, is open to immigration and has unfettered access to the U.S. market, the largest economy in the world. 'If that latter point is no longer the case, we've still got all the others, but we've got to really redevelop the investment thesis for attracting investment to Canada,' Manley said. Trump has some sector specific tariffs, known as 232 tariffs, that are having an impact. There is a 50% tariff on steel and aluminum imports and a 25% tariff on auto imports, though there is a carve-out for Canadian and Mexican made cars. 'Despite our advantages, certain major Canadian industries are being severely impacted by U.S. trade actions. These strategic sectors include autos, steel, aluminum, copper, pharmaceuticals, semiconductors, and of course, softwood lumber,' Carney said Tuesday. 'It is clear we cannot count or fully rely on what has been our most valued trading relationship for our prosperity.' ___
Reuters
12 minutes ago
- Reuters
Indexes end lower as investors consider tariff impact on company results
NEW YORK, Aug 5 (Reuters) - U.S. stocks ended lower on Tuesday as investors weighed the impact of tariffs after Yum Brands (YUM.N), opens new tab and other companies cited trade duties in their results or outlooks. In addition, U.S. President Donald Trump said the U.S. could impose a "small tariff" on pharmaceutical imports before increasing the rate subsequently. He also signaled an announcement on tariffs on semiconductors and chips in the "next week or so." Shares of KFC parent Yum Brands (YUM.N), opens new tab fell after the company missed estimates for the second quarter, as steep trade duties restricted consumer spending. Caterpillar (CAT.N), opens new tab warned of an up to $1.5 billion hit in 2025. The results come at the tail end of the U.S. reporting period for the second quarter. "If you look at results, they are trending above low-bar expectations," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis, Minnesota. "The impact of tariffs remains a work in progress. We're not seeing any meaningful impact on company profitability with tariffs. We do know, however, that they loom." According to preliminary data, the S&P 500 (.SPX), opens new tab lost 30.75 points, or 0.49%, to end at 6,299.19 points, while the Nasdaq Composite (.IXIC), opens new tab lost 136.92 points, or 0.65%, to 20,916.66. The Dow Jones Industrial Average (.DJI), opens new tab fell 61.56 points, or 0.14%, to 44,112.08. Earlier in the day, data showed ISM's nonmanufacturing purchasing managers index (PMI) slipped to 50.1 last month from 50.8 in June, as little changes in orders and weaker hiring, alongside rising input costs. "Today's market action reflects investors that are merely in pause mode," Sandven said. While the backdrop for equities remains constructive for the year, "clearly near-term there are some headwinds," he said, including elevated valuations given recent record highs in the S&P 500. In other company news, Marriott International (MAR.O), opens new tab cut its annual forecast on slowing travel demand. Stocks sold off on Friday after a disappointing July jobs data and sharp downward revisions to prior months, but indexes bounced back on Monday.
Reuters
12 minutes ago
- Reuters
Rivian loss bigger than expected on higher costs, lower credit income
Aug 5 (Reuters) - Rivian Automotive (RIVN.O), opens new tab reported a higher-than-expected quarterly loss on Tuesday as disruption in supply of rare earth metals used to make parts of its electric vehicles raised costs and income from credits sold to traditional automakers dwindled. China's curbs on the export of heavy rare earth metals —essential components for motors — sharply increased material costs and disrupted supply chains, driving up the cost of EV production in the U.S. The company reported an adjusted loss per share of 80 cents for the second quarter, compared with analysts' average estimate of 65 cents, according to data compiled by LSEG. Rivian also flagged a bigger adjusted core loss this year, expecting it to between $2 billion and $2.25 billion, compared with $1.7 billion to $1.9 billion previously forecast. The company largely blamed a tapering in the value of U.S. regulatory credits for the higher loss estimate. President Donald Trump administration's elimination of penalties for automakers not meeting fuel economy standards has drastically reduced demand for regulatory credits, which companies like Rivian previously sold to traditional automakers to help them avoid emissions fines. The company delivered 10,661 vehicles in the second quarter, marking a 22% decline from the same period a year earlier, as Rivian limited production to prepare for its 2026 model year launch. Earlier this year, the company slashed its 2025 deliveries forecast to 40,000 to 46,000 vehicles from an initial 46,000 to 51,000, citing U.S. tariffs resulting in cost pressures that dampened demand. The company shut down its plant for a week in the second quarter and will pause production in the second half of 2025 to integrate key production elements and prepare for the R2 SUV launch next year. The $7,500 federal EV tax credit expires at the end of September, eliminating a key competitive advantage that has driven electric vehicle demand, but analysts anticipate a surge in third-quarter sales as consumers rush to purchase EVs before losing access to the incentive. Revenue for the second quarter stood at $1.3 billion, surpassing analysts' average estimate of $1.28 billion, according to data compiled by LSEG. Cash and cash equivalents were $4.81 billion at the end of the June-quarter, compared with $4.69 billion in the preceding three-month period.
