By Lawrence White and Alun John
LONDON (Reuters) -Shares climbed worldwide and the dollar held onto most of its July gains on Tuesday as market participants entered a key week for U.S. earnings, inflation data and trade talks in a relatively optimistic mood.
U.S. President Donald Trump threatened over the weekend to impose 30% duties on the European Union and Mexico from August 1 – above the 20% on the EU he had initially proposed in April.
However, giving support to investor bets that the final levels will be lower, Trump said on Monday he was open to further negotiations before the tariffs kick in.
Japan is also reportedly trying to schedule high-level talks with the U.S. this Friday.
“At face value it (the tariff level for Europe) was clearly worse than expected,” said Andrzej Szczepaniak, senior Europe economist at Nomura.
“However, this is likely to be seen as a bargaining tool ahead of 1 August, in line with how investors perceived most letters (from Trump to trading partners) from last week.”
“This view is likely only to be materially challenged as we get much closer to 1 August.”
MSCI’s world share index rose 0.16% on Tuesday and is a whisker away from last week’s all-time highs.
Europe’s STOXX 600 rose 0.2%, underperforming MSCI’s broad APAC ex-Japan benchmark, up 1%, and Nasdaq futures <NQc1> up 0.6%, with both gaining after Nvidia said it would resume sales of its H20 chips to China.
EARNINGS AND INFLATION
The focus is now shifting to the U.S. earnings season which begins on Tuesday, with second-quarter reports from major banks. S&P 500 profits are expected to rise 5.8% year-over-year, according to LSEG data.
The outlook has dimmed sharply since the early April forecast of 10.2% growth, before Trump launched his trade war.
Investors will be looking for any tariff impact, as they will in U.S. inflation data also due on Tuesday. Recent prints have shown little impact from tariffs on broader price pressures, though the data is expected to show a rebound in gasoline prices and higher costs for some tariff-sensitive goods.
Oil prices were also boosting stock market sentiment on Tuesday as they edged lower after Trump issued a 50-day deadline for Russia to end the war in Ukraine to avoid energy sanctions, easing immediate supply concerns.
Brent futures were last down 0.2%.
JAPANESE ELECTION
It is not just U.S. politics that is top of mind for global investors, with an upcoming election to Japan’s upper house shaking up the Japanese government bond market and spilling over into other markets.
Polls show the ruling coalition may lose its majority in the upper house to opponents who advocate more spending.
Worries about the impact on Japan’s already-frail finances caused Japanese government bond prices to plunge for another day, with the benchmark 10-year yield rising to 1.595%, its highest since October 2008. [JP/]
Higher Japanese yields have also been factors in sending long-dated European and even U.S. yields higher in recent days, though Germany’s 30-year yield, which hit a near two-year high Monday, was down 5 basis points on Tuesday at 3.20%. [GVD/EUR] [US/]
The benchmark U.S. 10-year Treasury yield was down 1 bp at 4.42%.
Also in Asia, data showed China’s economy slowed less than expected in the second quarter in a show of resilience against U.S. tariffs.
In currency markets, the dollar was a touch weaker against European currencies, with the euro and pound both up around 0.2% at $1.1684 and $1.13449 respectively. Both were bouncing from over two-week lows hit the previous day, however. [FRX/]
Gold strengthened 0.5% to $3,361 per ounce, while spot silver gained 0.3% to $38.25 per ounce after hitting its highest since September 2011 in the previous session. [GOL/]
(Reporting by Lawrence White in London and Rocky Swift in Tokyo. Editing by Sonali Paul, Bernadette Baum and Mark Potter)
