Trump did leave the door open for further negotiations and some fine-tuning, but given the level of tariffs unveiled since last week, you have to wonder whether it's worth the time and energy to negotiate with a government that appears to have lost the plot — or if it's better to pursue other deals with other nations. That's what the Europeans are now discussing: finding new friends.
So, US and European futures are in the red this morning. DAX futures are the hardest hit as of writing — down 0.60%, while FTSE futures are flat. It's becoming increasingly clear that the UK will be one of the rare privileged partners to retain 10% tariff access to US markets. But even that doesn't seem to help much.
Friday's UK production and growth figures were weak: GDP declined for the second month, and both industrial and manufacturing production dropped more than expected, dragged down by rising energy prices, property taxes, and trade uncertainty. This sent Cable below the 1.35 level, which also coincides with the 50-day moving average. Trend and momentum indicators in sterling remain firmly negative, reflecting weakening growth expectations and a shrinking fiscal headroom — pointing to higher taxes and lower spending, both of which are growth-negative. As such, the EURGBP is also marching higher, targeting the 88–89 cents range in the next three months.
Zooming out, the US dollar starts the week weaker, with renewed trade tensions limiting dollar appetite. However, the USDJPY is pushing higher, as political uncertainty in Japan is weighing more heavily than dollar softness. Japanese yields are once again under solid upside pressure this morning ahead of Sunday's Upper House elections. Investors worry that if the LDP retains its majority, it will proceed with ample fiscal spending to support the economy, including a possible consumption tax cut. Remember, the Japanese pension funds and insurers are among the biggest buyers of US Treasuries, and rising Japanese yields could encourage them to repatriate funds back to Japan, potentially impacting global flows and causing volatility in global bond and stock markets.
In China, the new week begins with some encouraging data: exports rose 5.8% in May, beating expectations of 5%, partly thanks to partial tariff relief with the US. The CSI 300 looks better, while the Hang Seng Index is approaching its 2025 highs. If China can leverage US weakness to repair global relations, it could be a win for Beijing.
"But note that tensions between the EU and China are rising, as Europeans accuse China of undermining their industries — because they can't match Chinese prices. There is, of course, a structural reason: basic salaries on a Chinese production line range from $500–800/month, while a similar worker in Germany may earn €2,500–3,000, €1,000–1,500 in Southern Europe, and around €600 in Bulgaria. But lower labour costs often come with capacity constraints. China has earned its 'factory of the world' status over the last two to three decades, and shifting that dynamic — by reshoring jobs to Europe or the US — would dent Western purchasing power with a structurally higher inflation and also weaker central bank support.
Anyway, the EURUSD is slightly better bid this morning on the back of a softer dollar. Interestingly, 30% tariffs on EU goods should, in theory, dampen euro demand, but the dollar's weakness is dominating the narrative for now — not euro strength.
Elsewhere, gold is no longer reacting positively to trade turmoil, while silver is catching up on dollar softness, trading at $39/oz. Meanwhile, Bitcoin is extending its rally to fresh records, pushing above $120K this morning. It's now back in overbought territory, suggesting that a correction to the $105K–$110K range wouldn't be surprising. Still, the rally is underpinned by a crypto-friendly US policy shift and growing emerging market adoption — both remain intact.
This week, investors will keep an eye on trade news and shift focus to earnings, with big US banks and Netflix reporting Q2 results. Meanwhile, US and UK inflation figures will offer more insight into how tariffs and fiscal policies are feeding into prices. It's shaping up to be a busy week.
