Market Mondays: Tariff Deals, Tech Earnings and Fed Signals
This week will be very busy on the economic and earnings calendars with key events like the FOMC, BOJ, NFPs, and key tech earnings happening in the next few days.
With a wave of international trade agreements taking shape and key economic data on the horizon, global markets are recalibrating their expectations. While tariff concerns have eased for now, attention has turned to earnings season and the Federal Reserve’s next move.
Trade Tensions Subside, but Unease Remains
Recent trade agreements between the United States and key partners, including the European Union and Japan, have reduced immediate risks for global markets. Although these deals remove some uncertainty, they leave important questions unanswered—particularly around enforcement and long-term viability.
Despite agreements to limit tariffs to around 15%—a far cry from the earlier threats of 30% to 50%—concerns linger over the uneven terms of these deals. The EU, for example, has committed to purchasing approximately $750 billion in U.S. energy and making additional investments worth $600 billion. Meanwhile, certain sectors, such as aluminium and steel, remain subject to higher tariffs.
Markets initially responded positively, particularly during the Asian open, with European equity futures pointing higher. However, these gains proved short-lived, as investors took a closer look at the underlying terms of the deals. The perception that the U.S. has come out ahead, while others have made larger concessions, may be fuelling scepticism—especially in European markets.
Monetary Policy Outlook: No Cut Expected Yet
As the dust settles on trade negotiations, attention is turning toward the Federal Reserve and upcoming economic data. The central bank is expected to keep interest rates steady in its upcoming meeting. There is little urgency to cut, especially with inflation still hovering at uncomfortable levels and economic data showing continued resilience.
Second-quarter GDP growth is projected to come in around 2.4%, according to forecasts. This would mark a significant rebound from the previous quarter and reinforce the strength of the U.S. economy relative to other developed nations.
Meanwhile, consumer inflation has shown modest increases, with some businesses beginning to pass on higher input costs due to tariffs. A key data point—the PCE price index—will help inform the Fed’s path forward. Labour market data is also expected to show stable conditions, with only a slight uptick in the unemployment rate anticipated.
Markets are currently pricing in one to two rate cuts before the end of the year, but this may prove optimistic unless there is a clear downturn in either inflation or labour market strength. The Federal Reserve appears poised to wait for more conclusive evidence before adjusting its policy stance.
Corporate Earnings in Focus: AI, Capex, and Economic Health
This week marks a critical phase of earnings season, with tech giants Apple, Amazon, Meta, and Microsoft reporting results. These companies are under close scrutiny for their ability to convert artificial intelligence investments into actual revenue, as well as their discipline on capital expenditure.
Last week, Alphabet posted robust results, beating expectations across the board. Although a higher-than-expected capex figure caused brief market jitters, the strength of its earnings helped reinforce investor confidence. The takeaway: markets appear more tolerant of increased spending—so long as there is visible progress on AI monetization and profitability.
Apple, in contrast, is seen as more vulnerable due to its limited AI positioning and slowing growth in key markets like China, where domestic competitors are gaining ground. The performance of these tech leaders will likely set the tone for the rest of the quarter.
Despite earlier concerns about profit margins, a strong majority—approximately 84%—of S&P 500 companies reporting so far have exceeded earnings expectations. This is the best showing in several years and suggests that corporate America remains resilient.
Outlook: Optimism with a Note of Caution
Equity markets continue to hover near record highs, supported by strong earnings, easing trade tensions, and solid economic data. However, there are signs of stretched valuations and low implied volatility, leaving room for sharper reactions if future data or earnings disappoint.
For now, the prevailing sentiment remains constructive. With major risks seemingly neutralized and economic indicators holding up, the path of least resistance appears to be upward. That said, any unexpected weakness—whether in earnings, inflation, or labour - could introduce volatility in an otherwise optimistic landscape.