High-Level Summary

This global markets and trade risks report highlights how markets were rattled by renewed U.S. tariff threats, with a proposed 25% duty on imports from Japan, South Korea, and potentially BRICS-aligned countries. This triggered risk-off sentiment, equity declines, and a modest flight to safe-haven assets. Tesla fell nearly 7% after Elon Musk announced the creation of the “America Party,” escalating political tensions with Trump. Meanwhile, U.S. junk bonds remained resilient as investors continued to favor high-yield debt amid narrowing credit spreads. In trade retaliation, China imposed restrictions on European medical-device imports and slapped steep tariffs on French cognac, widening the EU-China trade rift. OPEC+ output increases pressured oil, while investors monitored geopolitical shifts and upcoming tariff deadlines as potential volatility triggers.

Global Markets and Trade Risks: United States

Market performance:

• S&P 500: −0.79%
• Dow Jones: −0.94%
• Nasdaq: −0.91%
• Russell 2000: −1.5%
• 10Y Treasury yield: Slightly higher amid safe-haven demand
• USD: Steady, with some strength against EM currencies

Key developments:

• Trump set an August 1 deadline for new tariffs: 25% on select Asian allies, plus up to 10% on BRICS-aligned economies.
• Tesla shares plunged as Musk unveiled his new political party, fueling market anxiety over tech sector leadership.
• NFIB small business sentiment dipped to 98.6 in June, reflecting concerns over inventory levels and sales outlook.
• Despite trade risks, junk bonds saw further inflows as investors search for yield in a low-default environment.

Global Markets and Trade Risks: Europe Overview

Markets:

• Eurozone stocks declined moderately, tracking Wall Street weakness.
• Investor morale (Sentix index) rose to its highest since February 2022, indicating underlying optimism despite geopolitical noise.
• EUR/USD held stable.

Key developments:

• China retaliated against the EU’s EV tariffs by banning government procurement of European medical devices above ¥45 million and imposing up to 34.9% tariffs on French cognac (with exemptions based on pricing structures).
• The EU delayed signing a joint climate action pledge with China, citing lack of commitment from Beijing.

Global Markets and Trade Risks: United Kingdom

• UK markets edged lower in line with global risk aversion; FTSE 100 saw minor losses.
• GBP softened slightly amid global growth concerns and limited local economic drivers.
• Markets await further ECB communication; UK data calendar was light.

China and Japan Trade Tensions

China

Macro & sentiment:

• The PBOC conducted a survey of banks regarding expectations for U.S. dollar weakness and the yuan’s appreciation, signaling concerns over capital flows.
• Policymakers are pushing for household consumption to rise from ~40% to ~50% of GDP as part of the next Five-Year Plan.

Trade retaliation:

• China expanded its retaliation against the EU with new import duties and procurement bans, targeting the medical and luxury goods sectors.
• Export restrictions on rare-earth metals remained in place, pressuring global supply chains, particularly in electric vehicle and electronics industries.
  
  

Japan

• Japanese equities declined sharply, weighed down by fears of being targeted by upcoming U.S. tariffs.
• Government and corporate leaders are reportedly analyzing the potential impact of 25% tariffs on Japanese exports to the U.S.

EMEA and Emerging Markets Snapshot

• Most Asian equities (CSI 300, Nikkei) traded lower due to trade policy uncertainty.
• OPEC+ announced a 548,000 bpd supply hike for August, adding pressure to oil prices and hurting energy-sensitive EM assets.
• Australia is leaning toward a rate cut later this month, while New Zealand is expected to hold rates steady.

Commodities and Crypto Overview

Commodities:

• Brent crude: ~$68
• WTI: ~$65
• Oil prices fell after OPEC+ announced additional supply.
• Gold slipped slightly amid mixed sentiment and ongoing trade concerns.

Key Takeaways and Market Themes

• Tariff threats from the U.S. are dominating global market sentiment.
• Equity markets remain sensitive to geopolitical developments, while credit markets show relative resilience.
• China’s strategic shift toward domestic demand and active trade retaliation are key to watch.
• Market participants are watching the August 1 tariff deadline closely for potential volatility triggers.