Investors looking to extend an Independence Day respite into the weekend might be in for a rude awakening on Friday.
It’s clear that “tomorrow is the key day of the week on both the data front, with the release of U.S. payrolls and on trade with the U.S. due to impose tariffs on China — with China reciprocating. As a result, the markets might trade with a bit of trepidation ahead of tomorrow and that could keep a bit of risk-off bias in play,” said Steven Barrow, currency and fixed-income strategist at Standard Bank, in a Thursday note.
Indeed, the stock market has been at the mercy of competing narratives. Fears that trade spats between the U.S. and its major trade partners could hit U.S. firms and knock global growth have been a negative, while signs the U.S. economy is picking up steam as well as continued expectations for solid earnings growth have helped equities remain resilient.
So far on Thursday, however, stocks were enjoying a modest boost, with the S&P 500 SPX, +0.69%[1] up around 0.5% and the Dow Jones Industrial Average DJIA, +0.63%[2] rising around 137 points, or 0.6%. U.S. financial markers were closed Wednesday for the Independence Day holiday. Gains were attributed in part to news reports that the U.S. and its European counterparts could move to ease tensions over automobiles.
The U.S. dollar, meanwhile, has seen its advance pause. The euro/dollar pair EURUSD, +0.2402%[3] has remained in a tight trading range between $1.15 and $1.18 over the past month after retreating sharply from above $1.24 in mid-April, Barrow noted, observing that markets often see an extended consolidation phase after sharp moves.
The question, he said, is whether the U.S. currency is consolidating ahead of another rise or is at the start of a bearish turnaround.
The case for a turnaround, he said, would rest on the U.S. withdrawing tariff threats on Chinese goods or a signal from the Federal Reserve that policy makers are getting worried abut international developments. Either of those things could happen in the next 24 hours — minutes of the Fed’s June meeting are set for release at 2 p.m. Eastern Thursday, while the Trump administration could announce a last-minute reprieve on tariffs — but is “pretty unlikely,” he said.
So the question for investors is whether minutes that underline a “relatively hawkish” Fed stance and the formal introduction of pre-announced tariffs will spook the markets or whether investors will see them...