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Morning Bid U.S.

What matters in U.S. and global markets today

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets, Reuters Open Interest

Wall Street and global stocks rose on Thursday, as Apple's domestic investment push, dovish noises on interest rates and a generally upbeat earnings season trumped chip stock hits and the arrival of the U.S. tariff day.

The day's diary is topped by a likely Bank of England interest rate cut and U.S. weekly jobless numbers that take on unusual importance in light of last week's July payrolls confusion.

Stocks in Asia and Europe pushed higher even as U.S. tariffs were introduced, with Shanghai's index hitting its highest since 2021 following above-forecast Chinese import and export numbers for July. Although eight major trading partners accounting for about 40% of U.S. trade flows have reached framework deals to reduce tariffs to 15% or less, imports from Brazil, India, Switzerland and Canada face rates of 35% to 50%. Though, Taiwan and South Korea are breathing sighs of relief following exemptions from 100% chip import levies.
Expectations for Federal Reserve easing as soon as next month were buoyed again as two regional Fed chiefs - Minneapolis Fed boss Neel Kashkari and San Francisco's Mary Daly - indicated more rate cuts were coming this year. President Donald Trump said on Wednesday he would likely appoint a temporary replacement to Adriana Kugler's vacant Fed board seat. Meanwhile, candidates to replace Chair Jerome Powell next year are likely down to three, including former Fed Governor Kevin Warsh and White House adviser Kevin Hassett.
Fed easing speculation knocked the dollar back to 10-day lows, with Treasury yields remaining close to the week's three-month lows despite another underwhelming 10-year auction overnight and a long bond sale later today. Sterling was slightly firmer against the dollar but down on the euro, as the BoE looks set to lower British rates by a quarter point to 4% later today.

In today's deep dive, I argue that investors looking for the impact of Trump’s tariffs are looking at the wrong earnings season.

I’d love to hear from you, so please reach out to me at mike.dolan@thomsonreuters.com.

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Today's Market Minute

President Donald Trump's higher tariff rates of 10% to 50% on dozens of trading partners kicked in on Thursday, testing his strategy for shrinking U.S. trade deficits without massive disruptions to global supply chains, higher inflation and stiff retaliation from trading partners.
Indian Prime Minister Narendra Modi said on Thursday he will not compromise the interests of the country's farmers even if he has to pay a heavy price, in his first comments after Trump's salvo of a 50% tariff on Indian goods.
Russian President Vladimir Putin and U.S. President Donald Trump will meet in the coming days, Kremlin aide Yuri Ushakov said on Thursday, in what would be the first summit between leaders of the two countries since 2021.
Markets' relatively speedy acceptance of higher tariffs and threats to institutional independence raises the question: What happened to the last 40 years of economic orthodoxy? ROI columnist Jamie McGeever asks whether the Washington Consensus has been broken.
The U.S.-EU trade deal has been heavily criticised as a capitulation by the bloc. But Panmure Liberum investment strategist Joachim Klement argues that the European Union is likely not only to suffer less than the U.S. but may even see its economy benefit from the new global tariff regime.

We're looking at the wrong earnings season

It's easy to be impressed with the U.S. corporate earnings season that's unfolding, but you're looking at the wrong one if you're trying to identify the true impact of President Donald Trump's tariffs. The coast may not be clear until October, and even then, only partially.

With 80% of S&P 500 firms now having reported second-quarter updates, the blended annual profit growth estimate, which aggregates what's been published with forecasts for the remaining 20% of the index, is running at 12%, according to LSEG data.

That's more than twice the low-balled expectations that were baked in a month ago, when they were still being dragged down by the uncertainties related to April's "Liberation Day" tariffs - postponed of course for 90 days until this week.

Graphics are produced by Reuters.

Curiously, that 12% pace is exactly what was forecast for the second quarter back on January 1, which gives an impression the much-feared tariff impact evaporated in a puff of smoke despite April's turbulence.

But it's partly because very little actually happened tariff-wise in the second quarter. And frantic preparations, including import front-loading and inventory stockpiling, likely offset a lot of what has kicked in to date.

And, of course, the dominant artificial intelligence theme once again drove the performance of a handful of megacaps to flatter the index's average, with eye-watering 44% and 23% annual growth recorded in the communications services and technology sectors respectively - both above January's forecast.

And that's with less than half of the companies in these hot sectors having updated so far, with chip behemoth Nvidia's <NVDA.O> earnings not due out until August 27.

By contrast, the equivalent blended readout for consumer discretionary stocks was half as strong as the total, and consumer staples earnings are flatlining. And both are still below January's outlook.

What's more, energy sector earnings are running at a negative 20% annually and utility and materials sector earnings are also in the red over the past year.