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In his appearance before Congress last week, Fed Chairman Jerome Powell once again reiterated the central bank’s cautious stance: it is not rushing to cut interest rates, firstly because the economic situation allows it for now and, secondly, because it is concerned that the ongoing trade war could trigger a spike in inflation.

And indeed, the data is already showing the first signs of the negative impact of higher tariffs. Although the PCE price index rose by only 0.1% month-on-month and 2.3% year-on-year in May, core inflation was slightly higher than expected at 0.2% month-on-month and 2.7% year-on-year, with goods prices leading the way.

So why are investors still pricing a 21% chance of a rate cut in July, which has supported the S&P 500? First, there is still hope for progress in trade negotiations. Second, there is a growing belief that further deterioration in the labor market could finally force the Fed to make the long-awaited move.

Market expectations for interest rates could also be shaped by Trump’s attacks on Powell and reports that he’s considering potential replacements. Trump has argued that the Fed should cut rates to 1%, claiming it would save the U.S. hundreds of billions of dollars in interest on the national debt.

For reference, the U.S. spent $1.1 trillion on debt interest in 2024, nearly double what it paid five years earlier.

The problem is that if the Fed’s independence is undermined, investors could start demanding a higher risk premium, especially for 10-year and 30-year treasuries, thus we could see higher yields. And the damage won’t be limited to just bonds. Trump’s political meddling could also hurt the dollar.

The effect already seems to be affecting the dollar index, which has slipped toward the 97-point mark. Sentiment could be further clouded by an OMFIF survey showing that many central banks plan to increase their exposure to the euro and the yuan, reducing their dependence on the dollar.

That said, it would be far better for the economy if the Fed made its decisions based on economic fundamentals rather than political pressures, which could create more problems than they solve. Ultimately, much will depend on whether real progress is made in the trade talks with key partners.

European equities faced a lack of clear direction on Monday as investors closely monitor ongoing international trade discussions ahead of the looming July 9 deadline for U.S. reciprocal tariffs.

Tensions eased somewhat after Canada decided to withdraw its previously planned Digital Service Tax (DST) targeting U.S. tech companies.

Meanwhile, U.S. President Donald Trump criticized trade conditions involving automobiles between the U.S. and Japan, labeling them as imbalanced, and suggested that the 25% tariffs on imported Japanese cars might remain in place.

In a related development, a new trade pact between the United States and the United Kingdom officially took effect today, lowering U.S. tariffs on British-manufactured cars and aircraft components.

At midday, the French CAC 40 Index edged up slightly by 0.1%, whereas the U.K.’s FTSE 100 Index and Germany’s DAX Index each retreated by 0.2%.

On the corporate front, Skanska AB (USOTC:SKSBF) saw its shares dip following the announcement of a significant investment, approximately SEK 700 million (about CZK 1.6 billion), in a residential development named D.O.K. Radlice situated in Prague’s Radlice neighborhood.

Defense technology company Chemring (LSE:CHG) gained ground after revealing its plan to acquire Landguard Nexus Limited in a deal valued at up to £20 million.

Shares of STMicroelectronics (NYSE:STM) and Infineon Technologies (TG:IFX) also rose, buoyed by J.P. Morgan placing both on a positive catalyst watchlist.

U.S. stock futures are pointing toward a higher open on Monday, following a mostly positive yet volatile finish to last week’s trading session.

Investor confidence is buoyed by optimism over potential trade agreements as the deadline for reciprocal U.S. tariffs approaches early next month.

Further encouraging sentiment is Canada’s recent decision to scrap its digital services tax on U.S. tech companies—a tax originally slated to take effect today.

This development comes after President Donald Trump announced last Friday that trade negotiations with Canada had ended due to the tax.

“Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the United States to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians,” stated Canadian Finance Minister Francois-Philippe Champagne.

Friday’s trading session featured wide swings, with major indexes oscillating between gains and losses. Despite the turbulence, both the S&P 500 and Nasdaq closed at fresh record highs.

By day’s end, the Dow surged 432.43 points (1.0%) to 43,819.27, the Nasdaq rose 105.55 points (0.5%) to 20,273.46, and the S&P 500 advanced 32.05 points (0.5%) to 6,173.07.

Over the course of the week, the Nasdaq led with a 4.3% gain, while the Dow and S&P 500 rose 3.8% and 3.4%, respectively.

The rally kicked off after President Trump hinted at a new deal with China.

A White House official later clarified that the U.S. and China had reached “an additional understanding of a framework to implement the Geneva agreement.”

China’s Ministry of Commerce confirmed that both parties “have confirmed the details of the framework,” with the U.S. agreeing to lift “restrictive measures” and China set to “review and approve” export control items.

Commerce Secretary Howard Lutnick told Bloomberg that the administration expects to soon finalize agreements with ten major trading partners.

However, the markets pulled back in afternoon trading after Trump said he was ending trade talks with Canada over its digital services tax on U.S. technology firms.

“We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period,” Trump posted on Truth Social.

Economic data released by the Commerce Department showed consumer prices in May increased roughly as expected, though core inflation was slightly higher than forecasts.

“Today’s release revealed a little more core inflation than expected based on CPI and PPI data, but not enough to concern anyone,” commented FHN Financial Chief Economist Chris Low.

Additionally, a University of Michigan report showed consumer sentiment improved more than anticipated in June.

Retail stocks performed strongly, lifting the Dow Jones U.S. Retail Index by 1.8% to its best close in over four months.

Airline stocks also gained, with the NYSE Arca Airline Index up 1.5%.

Conversely, gold stocks fell sharply, dragging the NYSE Arca Gold Bugs Index down 4.0% alongside the precious metal.

Shares of British defense companies edged higher on Monday as a new trade pact between the U.K. and the United States officially went into force, offering a boost to industries expected to benefit from improved market access and reduced tariffs.

Among the top gainers, Rolls-Royce Holdings PLC (LSE:RR.) rose 2.2% as of 09:08 GMT, while Chemring Group PLC (LSE:CHG) gained 1.5%, and Qinetiq Group PLC (LSE:QQ.) advanced 2%. BAE Systems PLC (LSE:BAES) also traded up by approximately 1%.

These moves build on prior gains made after the initial announcement of the agreement. Meanwhile, the broader FTSE 100 index was slightly lower, down 0.2% at the time of reporting.

The newly implemented U.K.-U.S. trade agreement introduces a preferential tariff structure, most notably cutting U.S. import duties on British-built automobiles. Under the deal, the first 100,000 U.K.-made cars exported to the U.S. each year will face a 10% tariff, significantly down from the previous 27.5%. Any units beyond that threshold will be subject to a 25% rate.

In a press release on Monday, the U.K. Department for Business and Trade noted: “The U.K. is the only country to have secured this agreement with the U.S., reducing car export tariffs from 27.5% to 10%, saving manufacturers hundreds of millions annually and safeguarding hundreds of thousands of jobs.”

This trade accord is the first signed with the U.S. since President Donald Trump launched a strategy of reciprocal tariffs in April. The final terms were settled in May. The U.S. currently maintains a trade surplus in goods with the U.K., but automobiles remain Britain’s largest export to the U.S., making up 27.4% of all British vehicle exports in the past year.

In addition to automotive benefits, the agreement also eliminates duties on aerospace products, providing support to one of the U.K.’s most prominent manufacturing sectors. However, some uncertainty remains regarding the treatment of British metal exports, which are not yet fully clarified under the new trade framework.

As the deal takes effect, investors appear optimistic that defense and industrial exporters like RR., CHG, QQ., and BAES could capitalize on improved trade conditions and enhanced global competitiveness.

U.S. stock futures advanced on Monday, lifted by a surprise policy shift from Canada to scrap a controversial digital services tax. Meanwhile, the U.S. Senate, under Republican control, has kicked off deliberations on a far-reaching tax and spending proposal backed by former President Donald Trump. In Asia, Chinese manufacturing data showed a softer-than-expected contraction, helping ease concerns about global growth.

Markets Open on a Positive Note

Wall Street looked set for a stronger start to the week, with futures climbing across major indexes as investors cheered the Canadian government’s decision to withdraw a planned tax on tech giants’ digital revenues.

By 03:30 ET (07:30 GMT), futures tied to the Dow Jones Industrial Average were up 250 points, or 0.6%. S&P 500 futures rose by 23 points (0.4%), while Nasdaq 100 futures added 109 points (0.5%).

This comes after the S&P 500 and Nasdaq Composite both finished at record highs on Friday. The Nasdaq has officially entered a bull market, defined by a 20% gain from recent lows, reinforcing optimism in tech-heavy sectors.

Investor sentiment was further buoyed by data showing a dip in consumer spending in May, even as inflation remains above the Federal Reserve’s 2% goal. The unexpected decline in spending raised hopes that the Fed might cut interest rates as early as September. Market odds now price in a 74% chance of a rate cut by then, though some expect action could come even sooner in July.

Canada Withdraws Digital Services Tax

In a surprise weekend decision, Canada announced it would no longer implement a planned digital services tax, which was slated to take effect Monday. The move, seen as an effort to break a trade stalemate with the U.S., removed a major source of friction between the two nations.

The tax, which targeted tech companies with over $20 million in Canadian digital revenue, was meant to apply retroactively to 2022. Its repeal followed threats from President Trump to impose retaliatory tariffs on Canadian exports, calling the policy “unacceptable.”

Ottawa now aims to reset the trade relationship, with talks between Canadian Prime Minister Mark Carney and President Trump scheduled ahead of a self-imposed July 21 deadline to strike a deal.

U.S. Senate Debates Sweeping Economic Legislation

In Washington, the Senate has opened formal debate on a major tax and spending bill championed by Trump, though internal divisions within the Republican Party and pushback from Democrats pose hurdles to quick passage.

The proposal would extend key provisions from Trump’s 2017 tax cuts, while also increasing funding for defense and border security. The Congressional Budget Office projects the plan could add approximately $3.3 trillion to the national debt over the next ten years.

Despite these concerns, the bill is expected to clear the Senate, possibly as early as Monday. Lawmakers hope to finalize the legislation and deliver it to President Trump for signature by July 4.

China’s Factory Activity Shrinks, but Signs of Improvement Emerge

Chinese manufacturing data for June indicated continued contraction, though at a slower pace than analysts had expected. The manufacturing purchasing managers’ index (PMI) came in at 49.7, slightly ahead of projections and up from 49.5 in May.

This marks the third consecutive month of contraction in China’s manufacturing sector, largely due to weak international demand and lingering U.S. tariffs. However, the slight uptick in the PMI reflects modest gains in conditions following a May agreement between Washington and Beijing to cut tariffs on some goods.

Efforts to solidify that agreement into a broader trade framework continued in June, raising hopes that improved bilateral relations will support Chinese exporters.

Oil Prices Slip Amid Easing Middle East Tensions and OPEC+ Expectations

Crude oil prices edged lower to start the week as geopolitical risk premiums faded and traders anticipated a potential output increase from OPEC+.

At 03:35 ET, Brent crude futures were down 0.2% at $66.66 per barrel, while West Texas Intermediate (WTI) fell 0.4% to $65.26.

Despite last week’s sharp decline—the steepest weekly drop since March 2023—both oil benchmarks remain on track to post a second straight monthly gain of over 5%.

The OPEC+ alliance is due to meet on July 6, with markets widely expecting the group to approve another increase in production—the fifth such move since April’s decision to gradually unwind output curbs.

The U.S. dollar slipped on Monday, hovering near its lowest levels in years, as investors grew increasingly optimistic about potential trade agreements and the likelihood of the Federal Reserve easing interest rates soon.

By 04:10 ET (08:10 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, declined 0.2% to 96.81, approaching its weakest point since March 2022. The index is on track for a sharp 2.6% drop over June.

Trade Deal Progress Spurs Rate Cut Expectations

Market sentiment has improved following announcements of key trade developments: the U.S. and China finalized a deal last week, and Canada scrapped its digital services tax to revive stalled negotiations.

Furthermore, European Commission President Ursula von der Leyen reportedly expressed confidence in reaching a U.S.-EU agreement before the July 9 deadline, when new tariffs could take effect on both sides. The avoidance of these tariffs—which could drive inflation higher—may encourage the Federal Reserve to lower rates.

Fed Chair Jerome Powell’s recent congressional testimony was viewed as dovish, suggesting rate cuts are likely if inflation does not surge due to tariffs this summer. According to CME Group’s FedWatch Tool, the probability of at least one quarter-point rate cut by September has climbed to 91.5%, up from 83% a week earlier.

The Fed’s next policy meeting is in July; no meeting is scheduled for August. Investors also remain watchful of a major tax-cut and spending bill pending in the Senate, which could add $3.3 trillion to the national debt over ten years, per the Congressional Budget Office.

European Currency Moves and Economic Data

The euro edged up 0.1% to 1.1730 against the dollar, close to last Friday’s peak of 1.1754, the highest since September 2021, benefiting from dollar softness. Domestic economic factors had a more modest influence on the euro’s climb.

German retail sales fell sharply by 1.6% in May compared to April, casting doubt on strong economic growth prospects for Europe’s largest economy this quarter. Meanwhile, upcoming inflation reports from Germany and Italy are expected to show a slight acceleration in eurozone inflation.

Analysts at ING noted that while markets currently price in the European Central Bank’s first rate cut in December, there’s a growing risk of a more dovish adjustment sooner.

The British pound dipped 0.1% to 1.3705 versus the dollar, just below last Thursday’s high of 1.3770—the highest level since October 2021. The UK economy grew 0.7% in Q1 2025, the fastest pace in a year, but the Bank of England forecasts slower growth of about 0.25% in Q2.

Asian Market Highlights

In Asia, the Japanese yen strengthened slightly, with USD/JPY falling 0.4% to 144.07, despite weaker-than-expected industrial production growth in May.

The Chinese yuan also gained, with USD/CNY down 0.1% to 7.1654, near its strongest level since November. Recent PMI data showed China’s manufacturing sector contracted at a smaller-than-expected rate in June, while non-manufacturing activity improved. This points to some recovery in business conditions, helped by reduced tariffs following recent U.S.-China trade agreements. However, manufacturing still shrank for the third month in a row, reflecting ongoing pressure from high U.S. tariffs and sluggish domestic demand.

Tesla (NASDAQ:TSLA) has officially begun operating its newest V4 supercharger stations across China, the electric vehicle maker confirmed on Monday. The initial rollout includes locations in Shanghai, Chongqing, Gansu, and Zhejiang provinces.

Tesla plans to extend the V4 supercharger network to more key regions, with Beijing and Guangdong among the upcoming expansion areas. Notably, these high-speed chargers will be open to electric vehicles from other manufacturers, marking a shift toward greater interoperability in China’s EV charging infrastructure.

This launch represents Tesla’s ongoing effort to enhance charging convenience and accelerate electric vehicle adoption across the country.

European equity markets opened higher Monday, buoyed by growing optimism over potential trade agreements as the July 9 deadline for U.S. tariffs approaches. By early trading at 07:05 GMT, Germany’s DAX index had gained 0.5%, France’s CAC 40 edged up 0.2%, and the UK’s FTSE 100 rose modestly by 0.1%.

Trade Optimism Drives Market Confidence

Investor sentiment was lifted following positive cues from Asia-Pacific markets overnight and last week’s confirmation that the U.S. and China finalized a trade agreement reflecting terms agreed upon in Geneva last month. Meanwhile, Canada’s announcement to repeal its Digital Services Tax (DST) paved the way for renewed trade and security talks with the U.S., aiming for a deal by July 21.

Canada’s Finance Minister François-Philippe Champagne confirmed that the government will stop collecting the DST after June 30 and introduce legislation to abolish the tax that primarily targeted major multinational tech companies. Washington had regarded the DST as a key barrier to broader trade negotiations.

Closer to home, sources reported that European Commission President Ursula von der Leyen expressed confidence during a private EU summit that a trade deal with the U.S. could be finalized before the July 9 tariff deadline. Without an agreement, the U.S. plans to impose a 50% tariff on nearly all EU exports, while Europe stands ready with retaliatory measures.

German Retail Sales Highlight Consumer Pressure

Monday’s data revealed a 1.6% drop in German retail sales for May compared to April, underscoring ongoing consumer challenges in Europe’s largest economy amid trade uncertainties. Concurrently, China’s manufacturing sector contracted in June but at a slower pace than anticipated, as exporters grapple with weak global demand and persistent U.S. tariffs.

Japan also reported slower-than-expected factory output growth in May, largely attributed to the impact of American tariffs on automobile imports.

European investors are also awaiting inflation figures from Germany and Italy following a decline in eurozone inflation to 1.9% year-on-year in May, below the European Central Bank’s 2% target. Despite a 25 basis-point rate cut in June, ECB President Christine Lagarde suggested that the easing cycle might be nearing its conclusion.

Corporate Update and Commodity Markets

In corporate news, asset manager Polar Capital (LSE:POLR) announced a 27% rise in core operating profits for the fiscal year ending March 31, driven by a 17% increase in assets under management and higher net management fees.

On the commodity front, crude oil prices slipped amid reduced geopolitical tensions in the Middle East and anticipation of a further output increase by OPEC+ in August. At 03:05 ET, Brent crude futures fell 0.4% to $66.53 per barrel, while U.S. West Texas Intermediate crude declined 0.6% to $65.12 per barrel.

Last week saw both benchmarks record their largest weekly drops since March 2023, though they are poised to close June with over 5% gains for a second consecutive month. OPEC+ members are scheduled to meet on July 6, where another production hike—marking the fifth monthly increase since April—is widely expected.

Gold prices climbed during Asian trading on Monday, recovering from a recent one-month low as the U.S. dollar softened. However, safe-haven demand remained subdued due to easing tensions in the Middle East and hopeful progress on major U.S. trade agreements.

Spot gold increased by 0.5% to $3,290.25 per ounce, while August gold futures rose 0.4% to $3,300.00 per ounce as of 02:00 ET (06:00 GMT). The precious metal had dropped nearly 3% last week, marking its sharpest weekly decline since early May. Despite these losses, gold was on track to finish the month largely unchanged after early gains sparked by geopolitical conflicts were offset by the recent Israel-Iran ceasefire.

Dollar Weakness Supports Gold, Trade Deals Influence Market Sentiment

The ceasefire brokered last week by U.S. President Donald Trump between Israel and Iran eased geopolitical risks, dampening gold’s appeal as a safe haven. On the trade front, optimism was bolstered by a recently signed U.S.-China agreement in Geneva addressing rare-earth exports and reducing some key trade barriers.

Additionally, a U.S.-U.K. trade deal came into effect Monday, cutting car tariffs to 10% and removing duties on aircraft components entirely. Nevertheless, markets remain cautious ahead of the July 9 deadline when tariffs on other trading partners, as well as global steel and aluminum tariffs, may be reinstated.

Gold also benefited from a weaker U.S. dollar, which traders increasingly expect will prompt at least one Federal Reserve rate cut by September. The U.S. Dollar Index dipped 0.2% during Asian hours, hovering near a three-year low.

Other Metals See Mixed Movements; Platinum Poised for Monthly Surge

The decline in the dollar makes gold and other commodities more affordable to buyers using other currencies, driving demand upward. Platinum futures surged 1.9% to $1,377.00 following a recent pullback from a decade-high, positioning the metal for a gain exceeding 30% this month.

Silver futures remained relatively flat, trading around $36.05 per ounce. Copper futures on the London Metal Exchange held steady at $9,888.95 per ton, while U.S. copper futures edged up 0.7% to $5.13 per pound.

Copper gains were limited amid reports that China’s manufacturing sector contracted in June, signaling continued weakness in external demand against the backdrop of ongoing elevated U.S. tariffs impacting the world’s largest copper consumer.