LONDON, SINGAPORE - On September 26, European stocks experienced a notable rise, dismissing the impact of U.S. President Donald Trump's latest tariffs on the pharmaceutical sector. These tariffs had a negative effect on Asian markets, while Wall Street assets traded cautiously in anticipation of upcoming U.S. inflation data.
President Trump announced a series of new tariffs, including a staggering 100% duty on imported branded drugs, 25% tariffs on heavy-duty trucks, and 50% tariffs on kitchen cabinets. In addition to these measures, he indicated plans to implement a 50% tariff on bathroom vanities and a 30% tariff on upholstered furniture, all set to take effect from October 1.
Trump's announcement on new levies, shared via Truth Social, did not clarify whether these tariffs would supersede existing national tariffs or if there would be exemptions for countries such as the European Union and Japan, which have previously secured trade agreements with the U.S. According to Premier Miton fund manager Daniel Hughes, the market had anticipated these tariffs, indicating that the positive performance seen in Europe was largely priced in.
Hughes also noted that recent better-than-expected U.S. economic data had instilled a sense of caution among U.S. assets, as it tempered expectations regarding potential future Federal Reserve rate cuts. This sentiment could be further influenced by the inflation data set to be released later on Friday.
U.S. stock index futures showed an increase of 0.1-0.2% in Europe, suggesting a modest rise at the market's opening later in the day. A series of economic indicators released on Thursday indicated that the U.S. economy remains robust. Strong data, including a rise in durable goods orders and an upward revision to GDP, has altered expectations surrounding future rate cuts and contributed to a stronger dollar, according to Shier Lee Lim, Convera's lead FX and macro strategist for APAC.
Traders are currently pricing in approximately 39 basis points worth of rate cuts by December, a slight decrease from over 40 bps earlier in the week. Market analyst Tony Sycamore of IG noted that initial bullish optimism had led traders to believe there would be between four and six rate cuts, though this estimate has now been revised to a maximum of four, with some analysts suggesting that even this may be overly optimistic.
While most policymakers at the Fed continue to adopt a cautious approach regarding the pace of future easing, recently appointed policymaker Stephen Miran has advocated for significant U.S. interest rate cuts to avert a potential collapse of the labor market.
The benchmark 10-year Treasury yield, which approached 4% last week, was last seen trading at 4.1872%. Although the dollar gave up some of its gains on Friday, it remained on track for a weekly increase of approximately 0.7% against a basket of currencies, driven by the diminishing expectations for Fed cuts. The yen hovered near the 150-per-dollar mark, poised for a weekly decline exceeding 1%, while the euro traded at $1.1673.
In the commodities sector, oil prices are set for their most substantial weekly gain in three months. Brent crude futures remained stable at $69.46 a barrel, while U.S. crude rose by 0.3% to $65.15 per barrel. Meanwhile, spot gold experienced a slight decline of 0.1%, trading at $3,745.53 an ounce.
Reporting by Rae Wee; Editing by Kate Mayberry, Stephen Coates, Aidan Lewis.
