A Look at the Day Ahead in European and Global Markets

By Ankur Banerjee

Japanese stocks reached all-time highs, pushing other regional share markets upward due to an extension of the tariff truce between the two largest economies in the world.

Investor focus now shifts to economic data from the U.S. and the UK expected on Tuesday, which will help shape monetary policy outlooks.

The United States and China have agreed to an additional 90 days to negotiate a trade deal, temporarily avoiding the imposition of triple-digit tariffs on each other’s goods, although such moves were largely anticipated by the markets.

Australian stocks remained near an earlier record high, although the Australian dollar eased as traders reacted to the widely expected 25-basis-point rate cut from the Reserve Bank of Australia.

In the UK, less than a week after a split decision by the Bank of England to cut interest rates, investors are looking forward to insights into the UK labor market, with British pay growth for July anticipated to remain steady at 5%.

Recent data indicated that hiring intentions from British businesses have dropped to their lowest since the COVID-19 pandemic, with recruiters noting the slowest wage growth in over four years.

Four out of nine BoE policymakers voted against the quarter-point interest rate cut to 4% last week, indicating that they may need more evidence of easing domestic inflation pressures. Traders have stopped pricing in any further rate cuts this year.

This situation may strengthen the pound; however, concerns over British growth and the state of the economy persist, and with the pound already appreciating over 7% this year, speculators have significantly increased bearish bets against the currency.

Weekly data from the U.S. Commodity Futures Trading Commission reveals that speculators hold short positions amounting to $2.78 billion against the pound, a stark reversal from prior bullish positions maintained since February.

The U.S. inflation report due later on Tuesday also holds significance, as investors analyze the data to gauge the effects of Trump’s tariffs and how they might affect the Federal Reserve’s decisions on rate cuts.

Key Developments Influencing Markets on Tuesday:
– Economic events: UK labor and wage data for June, Germany ZEW economic sentiment for August.

(Editing by Jacqueline Wong)