• Markets in Europe and Asia are broadly up this morning with the exception of China, where stocks fell on news of an unexpected deterioration in manufacturing. S&P 500 futures are up nearly a full percentage point, premarket, suggesting that Wall Street very much liked Fed chair Jerome Powell’s rate-setting speech yesterday. The fly in the ointment? “Downside risks” to the labor market.

U.S. Federal Reserve Chairman delivered an entirely predictable press conference yesterday as he kept interest rates on hold at the 4.25% level and said he would await for more data before considering a possible move downward.

Markets liked it: Europe and Asia are broadly up this morning with the exception of China, where stocks fell on news of an unexpected deterioration in manufacturing. More importantly, S&P 500 futures are up nearly a full percentage point, premarket.

But there was one theme that Powell kept returning to, which isn’t so positive: “Downside risks” to the labor market. Powell referenced this phrase no fewer than six times in his press conference.

“We do see downside risk in the labor market,” he told reporters. “The labor market looks solid. Inflation is above target. And even if you look through the tariff effects, we think it’s still a bit above target. And that’s why our stance is where it is. But, as I mentioned, you know, downside risks to the labor market are certainly apparent.”

That’s actually a pretty good summation of what economists are seeing in the employment data right now. There is close to full employment, but the hiring market is sluggish and some of the good headline numbers are masked by one-off moves in government and education hiring.

Some analysts see U.S. employment getting weaker, not stronger, in the coming months.

“Chair Powell’s reading of the economic data was similar to ours—he highlighted the softer growth pace in the first half of the year, noted that the labor market remains solid but said six times that it faces ‘downside risks,’ and said that inflation is most of the way back to 2% and that a ‘reasonable base case’ is that tariffs will have only a one-time impact on the price level. This suggests that lowering rates soon could be reasonable but is not yet essential,” Goldman Sachs’ Jan Hatzius and his team told clients in a note this morning.

Lawrence Werther and Brendan Stuart at Daiwa Capital Markets noticed the same thing: “We found it interesting that he returned several times to the idea that officials are attentive to risks to the employment side of the dual mandate. He noted that unemployment remained low and that deceleration in hiring and growth of labor force participation suggest that the labor market is in balance, but we did read his comments as pointing to increased concern versus previous statements.” 

The jobs number (nonfarm payrolls, to give its technical name) is due out tomorrow. If it comes in weak, expect stocks to react strongly.

“Our forecast is for job growth to weaken in July and for the unemployment rate to tick higher. This will probably increase Federal Reserve concerns about the risks to the labor market, potentially throwing more support behind an earlier rate cut than is in our baseline,” Oxford Economics’ Nancy Vanden Houten told clients.

UBS’s Paul Donovan has a typically pithy observation on why it might be that U.S. companies are moving factories back to America but not actually creating jobs: The new factories are full of robots, not humans: “Several advanced economies, including the US and the UK, have experienced a boom in factory building in recent years. Increasing the size of factory buildings implies more manufacturing activity is taking place inside those buildings. [But] manufacturing employment is not increasing—this investment appears to represent capital for labor substitution,” he said.

Here’s a snapshot of the action prior to the opening bell in New York:

• S&P 500 futures were up 1% this morning, premarket, after the index closed down 0.12% yesterday. 
• STOXX Europe 600 was up 0.14% in early trading. 
• The U.K.’s FTSE 100 was up 0.52% in early trading. 
• Japan’s Nikkei 225 was up 1.02%. 
• China’s CSI 300 Index was down 1.82%. 
• The South Korea KOSPI was down 0.28%. 
• India’s Nifty 50 was up 0.08%. 
• Bitcoin is still above $118K.

This story was originally featured on Fortune.com

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• S&P 500 futures traded up this morning on news that the U.S. and the EU, America’s largest trading partner, have struck a deal that imposes 15% tariffs on imported goods. The U.S. markets love that certainty. But the devil is in the details—which is why European stocks are rising faster than U.S. futures this morning.

Stocks are up this morning on the certainty of a new trade deal between the U.S. and the EU. American businesses and consumers will now face a 15% tariff on all imports from Europe, while President Trump confirmed the EU tariff level has been reduced to zero. Previously, the tariff level on both sides was just under 3%.

President Trump, visiting his golf courses in Scotland, is positioning the deal as a win. The agreement includes a large amount of direct investment into the U.S. by Europe, including: $750 billion of energy purchases, $600 billion in extra direct investment, and the purchase of “a vast amount of military equipment,” the president said.

S&P 500 futures moved up 0.27% this morning but the STOXX Europe 600 rose by more than double that in early trading.

Why are investors in Europe so happy about Trump’s great victory over them? The devil is in the details, and the pact seems to contain several advantages for the EU. 

The auto tariffs, for instance, now benefit European manufacturers over North American competitors. The 15% level is lower than that faced by Canada and Mexico, which are much nearer the U.S. auto market. “How can the administration square a 15% tariff on cars from Europe and Japan, while manufacturers in the U.S., Canada and Mexico are laboring under 25% tariffs?” Patrick Anderson, CEO of the Anderson Economic Group, told The New York Times.

The deal does not require the EU to alter its digital services tax on large tech companies.

There is also no current change in drug pricing rules. The pharma industry is one of Europe’s biggest, and Trump has long complained that Europeans get drugs cheap because companies inflate pricing in the U.S.

Meanwhile the “new” direct investment and military purchases may likely have happened anyway—Europe is fighting a war against Russia on its Eastern flank, after all.  

“Europe is already the largest foreign investor in the U.S., with European direct investment increasing by roughly $200 billion from 2023 to 2024. Three times that over an undefined period is hardly a great coup,” The Wall Street Journal’s editorial board noted.

Simon Nixon, who writes the Wealth of Nations Substack, said: “The real win from the EU’s perspective is that it has successfully fended off Trump’s demands that it rewrite its regulatory rulebook to benefit U.S. companies. In particular, Trump had been demanding changes to EU digital services rules, agricultural rules and pharmaceutical pricing.

“The irony is that this is the one thing that U.S. companies would have most wanted out of any trade deal. Instead, they have been hit with a massive hike in tariffs on imports … without any increase in EU market access.”

In Europe, analysts seem to be concluding that deal is mostly Scotch mist. The tariff level itself is much lower than what Trump previously threatened, and the accompanying investment will get lost in the mail.

“The EU and the U.S. agreed that U.S. consumers should pay more tax—levied at 15% for imports from the EU. EU President von der Leyen made vague pledges to buy stuff from and invest in the U.S., without the necessary authority to make those pledges reality. Pharmaceuticals and steel seem to be excluded from this deal. The result is better for the U.S. economy than the worst-case scenario, but worse for the U.S. economy than the situation in January this year,” UBS’s Paul Donovan told clients this morning.

Here’s a snapshot of the action prior to the opening bell in New York:

• S&P 500 futures were up 0.3% this morning, premarket, after the index closed up 0.4% on Friday, hitting a new all-time high at 6,388.64. 
• STOXX Europe 600 was up 0.67% in early trading. 
• The U.K.’s FTSE 100 was up 0.14% in early trading. 
• Japan’s Nikkei 225 was down 1.10%. 
• China’s CSI 300 Index was up 0.21%. 
• The South Korea KOSPI was up 0.42%. 
• India’s Nifty 50 was down 0.6%. 
• Bitcoin was flat at just under $119K.

This story was originally featured on Fortune.com

© Photo by Andrew Harnik/Getty Images

• U.S. stocks have soared, with the Wilshire 5000 market cap hitting a new all-time high of 212% of GDP, one of Warren Buffett’s key warning levels. Despite global indexes near record highs, we’re seeing mild sell-offs this morning. In addition, Goldman Sachs reported a high level of speculative trading activity.

The U.S. stock market has just blown through Warren Buffett’s favorite economic indicator, stock market cap to GDP, setting a new all-time high. The valuation of the Wilshire 5000—which hit a record high on July 23—is now somewhere north of 212% of U.S. GDP, the “Buffett Indicator” shows.

Chart via LongTermTrends.Net

Perhaps that’s one reason stocks are selling off globally this morning. While most indexes in Asia and Europe remain near their all-time highs, there is broad-based but mild selling in all of them.

Goldman’s froth indicator is high

There’s another sign the markets may be near their top: Goldman Sachs launched a new “Speculative Trading Indicator” that measures froth by gauging trade volumes in “unprofitable stocks, penny stocks, and stocks with elevated EV/sales multiples”—the kind of trades that only look good when the market is rising irrationally. Sadly, “The most actively traded stocks include most of the Magnificent 7 along with companies involved in digital assets and quantum computing, among others,” Ben Snider and his team told clients.

“The indicator now sits at its highest level on record outside of 1998-2001 and 2020-2021, although it remains well below the highs reached in those episodes,” they said.

S&P futures, by contrast, were flat this morning premarket—so who knows where the Americans are going today.

The Fed may delay

No one expects the Fed to lower interest rates next Friday, despite President Trump’s continued pressure on Chairman Jerome Powell. (The video of the face-off between the two yesterday, in which Trump humiliates Powell and Powell corrects a false assertion by Trump, is a cringey must-watch.)

So investors are focused on September, October, and December. Sixty percent of speculators in the Fed Funds futures market currently think Powell will cut interest rates by 0.25% to the 4% level in September—a move that would deliver new cheap money into equities.

The problem for Trump is that in order to deliver that cut, inflation needs to stay low and the jobs market needs to not get stronger. Currently, inflation is moving up and the jobs market is robust but not perfect. That combo might push a rate cut to October or December—which would explain why investors are taking profits today rather than staying in the market.

“The jobs market continues to hold up despite concerns about a cooling economy, while officials remain nervous about the effect of tariff-induced price hikes on inflation. We see no interest rate cut this month, but the Fed is expected to start laying the groundwork for a move, most likely in December,” ING’s James Knightley and Chris Turner said in a note this morning. “As long as the jobs picture holds up, firmer inflation may well delay the restart of the Fed easing cycle.”

Trump’s tariffs are starting to contribute to inflation, UBS’s Paul Donovan told clients. “Consumers in Europe, the UK, Mexico, and Canada are paying between 0.3% and 1.9% less for the consumer appliances they buy than was the case in March of this year. The US consumer, meanwhile, is paying (on average) 3.6% more for their appliances than they were before Trump’s trade taxes,” he said in an email.

The capex boost is coming

And then, according to Piper Sandler’s Nancy Lazar and her colleagues, there’s a secret weapon hidden inside Trump’s One Big Beautiful Bill which could supercharge GDP growth (and thus, by implication, deter the Fed from cutting): Capex. 

A provision within the OBBB halves the effective rate of corporate tax and incentivises capital expenditure by companies. “Capex’s GDP punch is triple that of housing. Upside capex shocks add 1%+ to GDP. And every related goods producing job creates 6 more – the multiplier. Our preliminary (very preliminary) forecast for 2026 real GDP is about 3%,” they told clients.

With robust growth and tariff inflation still very much in the picture, perhaps stock investors are sensing that Powell will dig his heels in and delay rate cuts even longer than the futures market is currently assuming.

Here’s a snapshot of the action prior to the opening bell in New York:

• S&P 500 futures were flat (+0.13%) this morning, premarket, after the index closed marginally up at a new all-time high of 6,363.35 yesterday. 
• Tesla declined 8.2% yesterday after a lousy earnings call. 
• STOXX Europe 600 was down 0.34% in early trading. 
• The U.K.’s FTSE 100 was down 0.39% in early trading. 
• Japan’s Nikkei 225 was down 0.88%. 
• China’s CSI 300 Index was down 0.53%. 
• The South Korea KOSPI was up 0.18%. 
• India’s Nifty 50 was down 0.86%. 
• Bitcoin fell 2.76% to $115K.

This story was originally featured on Fortune.com

© Elva Etienne via Getty Images

• Markets rallied as the U.S. moved closer to trade deals with Japan and the EU, bringing much-certainty after months of President Trump’s volatile tariff threats. The S&P 500 hit a new record and futures are up prior to the opening bell. Stocks rose across Europe and Asia this morning. With uncertainty easing, investor risk appetite has increased, according to Deutsche Bank and Goldman Sachs.

The S&P 500 delivered yet another new record high yesterday, closing up 0.8% at 6,358.91. S&P futures are calling for more gains this morning. Markets in Europe, Japan, and China are all up this morning.

Why the joy? Because the uncertainty caused by Trump’s tariff negotiations / threats / demands / letters is finally clearing away. Yesterday markets digested the proposed trade deal with Japan (15% tariffs plus some other stuff) and this morning there are reports that the EU is closing on a deal (again, 15% tariffs plus some other stuff). Those rates are half what Trump initially proposed.

The TACO trade (Trump Always Chickens Out) appears to be in full effect, for anyone who was long on stocks.

Japan and Europe are two of the U.S.’s largest trading partners and now that the markets have some certainty around trade, it’s back to “risk-on” for investors, according to Jim Reid’s team at Deutsche Bank.

“The risk-on tone has continued over the last 24 hours, with the S&P 500 (+0.78%) at a fresh record thanks to growing optimism that more trade deals would be reached before August 1. The initial catalyst was the US-Japan deal we woke up to this time yesterday, with both European and US risk assets rallying as they caught up to the news. But around the time that European markets were going home, an FT headline said that the EU and the US were closing in on a similar deal that would also put 15% tariffs in place,” he wrote. 

“If a 15% total rate inclusive of existing tariffs is agreed as suggested, this would mark only a marginal increase compared to the 10% additional tariffs that EU exports to the US have faced since Liberation Day but with certainty about the future.”

The key word there is “certainty”. It’s what the markets want. The other uncertain issue that’s now in the rearview mirror is Trump’s fiscal spending/debt bill. “The passage of the ‘One Big Beautiful Bill’ removes one major source of policy uncertainty by extending key expiring provisions of the Tax Cuts and Jobs Act (TCJA), thereby averting a fiscal cliff worth 1% of GDP in 2026–27,” Gregory Daco at Parthenon-EY told clients.

With certainty back on the table, “risk appetite is up,” according to Christian Mueller-Glissmann and Andrea Ferrario at Goldman Sachs. The bank’s proprietary “Risk Appetite Indicator” had been floundering below -1 on the scale for much of the year but has now poked its head back into positive territory.

Here’s a snapshot of the action prior to the opening bell in New York:

• S&P 500 futures were flat this morning, premarket, after the index closed up 0.78% yesterday.
• STOXX Europe 600 was up 0.58% in early trading.
• The UK’s FTSE 100 was up 0.85% in early trading.
• Japan’s Nikkei 225 was up 1.59%.
• China’s CSI 300 Index was up 0.7%.
• India’s Nifty 50 was down 0.51%.

This story was originally featured on Fortune.com

© Marcin Golba—NurPhoto via Getty Images