Tariffs & Inflation Shape Markets; European Stocks Dip

The euro came under pressure on Tuesday, with EUR/USD falling 0.50%  after hotter-than-expected US inflation data reinforced expectations that the Federal Reserve will keep interest rates steady in the near term.

June’s Consumer Price Index (CPI) report showed a 2.7% year-on-year rise in headline inflation, in line with forecasts, while core CPI increased 2.9%, slightly below the 3.0% expected but still well above the Fed’s 2% target.

Boston Fed President Susan Collins added to the cautious tone, noting there's “no urgency” to cut rates given inflationary pressures, particularly from rising trade duties.

Meanwhile, US President Donald Trump ramped up pressure on the Fed to ease policy. He also unveiled a new trade agreement with Indonesia, featuring a 19% duty on Indonesian goods while exempting US exports from tariffs.

Trump also threatened further tariffs on Russia, raising concerns about broader trade tensions. According to the Wall Street Journal, the EU is preparing retaliatory tariffs targeting American-made aircraft and alcohol, should a deal with Washington fail to materialize. EU Trade Commissioner Maroš Šefčovič is set to meet with US Trade Representative Jamie Greer later today.

The trade tensions come amid growing uncertainty around EU-US relations and add to the bearish pressure on the euro. The European Central Bank (ECB) is expected to hold rates steady at its next meeting, although sources suggest it may present a more downbeat outlook compared to June.

On the data front, the German ZEW Economic Sentiment Index surged to 52.7 in July, topping estimates of 50.4 and marking the highest reading since February 2022. The rise reflects growing optimism about the eurozone’s largest economy, even as broader geopolitical risks weigh on sentiment.

Gold prices fell more than 0.40% on Tuesday, pressured by stronger-than-expected US inflation data that lifted the US dollar and US Treasury yields, reducing the appeal of non-yielding assets like bullion.

CPI figures fueled expectations that the Fed will keep interest rates steady, rather than initiate cuts in the near term.

This policy outlook boosted the US Dollar Index and pushed the 10-year US Treasury yield up five basis points to 4.487%, both of which weighed on gold prices.

Despite geopolitical uncertainties, including new tariffs and trade talks, gold failed to find support from safe-haven demand. The market appeared hesitant to chase gold higher, especially after US President Donald Trump announced 30% tariffs on the European Union and Mexico over the weekend. Although gold initially climbed on the news, traders quickly sold into strength, wary that a resolution could be announced soon.

President Trump was also active on social media, commenting on inflation and urging the Fed to cut interest rates. He further disclosed a new trade agreement with Indonesia, under which Indonesian goods will face 19% duties, while US exports will be exempt.

Looking ahead, traders are eyeing key US data releases this week, including Producer Price Index (PPI) inflation, Retail Sales, jobless claims, and the University of Michigan Consumer Sentiment report. These figures will be closely watched for further clues about the Fed’s path ahead, particularly in the lead-up to the Jackson Hole Symposium in late August.

Oil prices remained almost unchanged on Tuesday after OPEC+ reaffirmed its global demand forecast, despite ongoing output increases. Investors also digested a modest rise in U.S. crude inventories, which tempered bullish momentum.

The early-week volatility was driven in part by comments from U.S. President Donald Trump, who warned of a potential “major statement” on Russia, raising concerns of supply disruptions. However, the market reaction faded after Trump refrained from immediate action, instead issuing a 50-day ultimatum for Russia to end the war in Ukraine.

In its latest monthly report, the Organization of the Petroleum Exporting Countries (OPEC) held firm on its global oil demand forecast for 2025 and 2026, citing expectations of stronger economic growth in the second half of the year. The group expressed cautious optimism that global trade tensions, particularly those involving the U.S., would begin to ease.

Despite recently imposing new tariffs set to take effect on August 1, President Trump’s moves have raised concerns about inflationary pressures and potential demand destruction in the energy markets. However, OPEC+ emphasized that refinery throughput remains strong, particularly in the U.S., to meet seasonal demand for gasoline, jet fuel, and other transport fuels.

According to a Reuters preview of the American Petroleum Institute (API) report, U.S. crude oil inventories rose by 839,000 barrels in the week ending July 11, a modest gain compared to the 7.1 million-barrel surge the prior week.

U.S. stock index futures edged lower on Tuesday, mirroring a weak Wall Street session as stronger-than-expected inflation data and renewed tariff threats from President Donald Trump rattled investor sentiment.

The dip follows a session in which major indexes closed off their intraday highs, with the US 500 down 0.5%, the US 30 falling 1.07%, and the US Tech 100 inching 0.01% higher, buoyed only slightly by gains in technology shares.

Investor caution grew after June's Consumer Price Index (CPI) came in mildly above expectations, reinforcing concerns that inflation could remain sticky—especially with Trump’s new wave of tariffs poised to hit by month-end.

Markets were already nervous over the inflationary impact of existing tariffs, and the latest CPI figures only added to speculation that the Federal Reserve will keep interest rates unchanged in the near term.

Investors also digested a wave of major U.S. bank earnings, which painted a mixed picture of corporate health. While JPMorgan Chase , Citigroup, and Wells Fargo all beat Q2 profit expectations, executives voiced growing concerns about the economic outlook.

The tech sector offered some support to the broader market, particularly after NVIDIA announced it had received approval to resume sales of a key AI chip in China, fueling gains in chipmakers. Still, broader tech gains were offset by losses across other sectors.

Markets now turn their attention to a busy week of earnings. On deck for Wednesday are Bank of America, Goldman Sachs, Morgan Stanley, Johnson & Johnson, and ASML Holding.