By Mike Dolan
LONDON (Reuters) – What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Finance and Markets
For all the persistent questions and doubts about what happens next, the U.S. economy is beating forecasts again during the summer and Wall Street stocks are clocking new highs.
It’s Friday, so today I’ll provide a quick overview of what’s happening in global markets and then offer you some weekend reading suggestions away from the headlines.
Today’s Market Minute
* U.S. President Donald Trump’s administration will ask a court to allow the release of grand jury testimony in the case of deceased convicted sex offender Jeffrey Epstein, after some of his supporters reacted in fury to a report concluding there was no evidence to support long-running theories about his case.
* Britain’s stock market finally appears to be reversing years of underperformance against the rest of Europe, as a UK/U.S. trade deal, lighter regulation and cheap stocks deliver juicy returns that are starting to attract foreign investors.
* Federal Reserve Chair Jerome Powell on Thursday responded to a Trump administration official’s demands for information about cost overruns for a renovation project at the central bank’s Washington headquarters campus.
* No matter what happens with Chair Powell moving forward, the supposedly sacrosanct notion of Fed independence has already been shattered, writes ROI columnist Jamie McGeever.
* U.S. President Donald Trump has singled out the coal industry as a key driver of U.S. energy dominance, but utilities have identified quicker and cheaper paths to boost power supplies, argues ROI columnist Gavin Maguire.
Positive surprises and new stock records
The week’s big drama surrounded the mounting political pressure on the Federal Reserve Chair, which continued to smolder. Jerome Powell responded overnight to White House demands for information about cost overruns for a renovation project at Fed headquarters – an issue some think could yet be used as a reason for President Donald Trump to fire the Fed boss.
But U.S. economic updates in the backdrop were unexpectedly upbeat.
Following on from Wednesday’s forecast-beating industrial numbers for June and relatively benign producer price data, Thursday saw an equally impressive jump in retail sales for the month, another drop in weekly jobless claims and a surprise jump in the Philadelphia Fed’s business confidence survey for July.
There were one or two blots in the day’s releases, such as another drop in housing indexes and rising input price components in the Philly Fed poll, but the overall picture has cut across much of the pessimism about the state of the economy.
Along with decent second-quarter corporate earnings so far, the week’s economic health checks have been enough to lift the S&P 500 and Nasdaq to new record highs, and stock futures are positive again ahead of Friday’s bell.
Capturing how investors have been slightly caught off guard, U.S. economic “surprise” indexes have returned to their most positive since May.
But, also partly reflecting why U.S. markets continue to lag many major bourses around the world, the equivalent surprise indexes for the euro zone and G10 countries as a group are even more positive and at their highest over a year.
The flip side of the economic numbers – which leave the Atlanta Fed’s GDP model showing 2.4% growth for the second quarter – is that it casts some doubt on any urgency for Fed easing.
Despite that, Fed board governor Christopher Waller – tipped by some as a possible Trump pick to replace Powell as Chair – continued to say rates could be cut as soon as this month.
Waller said he had not been approached about the Fed Chair role and that his views were not political. “The economy is still growing, but its momentum has slowed significantly, and the risks to the employment mandate have increased,” he said.
Treasury yields fell back, with 30-year bond yields slipping under 5% again early on Friday. The dollar retreated with them.
Back on the earnings slate, streaming giant Netflix’s stock slipped in overnight trading even after a positive report that saw the final season of “Squid Game” lift its revenue and guidance.
The company raised revenue guidance for 2025 to $45.2 billion, citing a weakening U.S. dollar as a one tailwind – a factor that may well be replicated through the rest of the earnings season.
Overseas markets were mostly buoyant too on Friday, with Japan’s Nikkei notably bucking the trend ahead of weekend elections.
Prime Minister Shigeru Ishiba’s Liberal Democratic Party and its partner Komeito are expected to lose their majority in the upper house and strategists now focus on whether Ishiba will remain in his position or step down.
With attention on the economy, a weak yen and related inflation, there’s also concern a new Japanese government may be forced to loosen fiscal policy further, with a possible cut in the national consumption tax.
Recently restive Japanese government bonds, however, rallied into the weekend and yields fell back. The yen held steady after sharp losses this month.
Japan’s core inflation slowed in June but different cuts of the report showed more concern and annual rates have now stayed above the central bank’s 2% target for well over three years.
Ishiba met with U.S. Treasury Secretary Scott Bessent on trade on Friday and officials said Japan and the United States have agreed to carry on a “constructive dialogue”.
The U.S. House of Representatives on Thursday finally passed the so-called “Genius Act” to create a regulatory framework for U.S.-dollar-pegged cryptocurrency tokens known as stablecoins, sending the bill to Trump for signing.
Seen as a watershed for the digital asset industry, House lawmakers also passed two other crypto bills, sending them next to the Senate for consideration. One lays out a regulatory framework for crypto and the other would ban the U.S. from issuing a central bank digital currency.
Bitcoin was steady just under $119,000 on Friday.
Weekend reads
* IMBALANCE OF PAYMENTS: If you like deep dives into U.S. current account and investment deficits, a paper published by the Peterson Institute this month gives it the full treatment. Tamim Bayoumi and Joseph Gagnon reckon setting the net investment position on a sustainable path requires a plausible trade adjustment of 2% of GDP – implying a drop in the dollar’s real effective exchange rate of 15-20%. “Were the United States to lose its ‘exorbitant privilege’, the adjustment rises to over 3% of GDP, implying a correspondingly larger depreciation.”
* 3000 ARRESTS A DAY: For senior White House aide Stephen Miller, architect of Trump’s immigration crackdown, things were going according to plan when he set an aggressive quota of 3,000 arrests per day in late May, pushing immigration officers into more communities and businesses and triggering protests and political tensions. Ted Hesson, Jeff Mason and Kristina Cooke of Reuters report on how this created “a moment of dissonance” at the top of the administration – profiling Miller, his powerful role and relationship with the President.
* REFORM THE REFORM: Germany’s decision to go it alone this year and lift its debt brake to fund re-armament and infrastructure leaves recently reformed European Union fiscal rules in a pickle – even if it was widely applauded. In a piece for Bruegel, Lucio Pench says the EU should not change overarching fiscal targets to accommodate the German shift but instead re-engineer last year’s reforms to ensure monitoring dwells squarely on public debt sustainability via risk-based methodologies.
* CHINA TRADE WAR WINS: As the world tries to figure out where Trump goes next with his unfolding tariff war, Council on Foreign Relations fellow Zongyuan Zoe Liu says China is winning the trade war in many ways. In a piece on Project Syndicate, she reckons the Beijing feels “it has weathered the storm and emerged more confident, more self-reliant and more convinced that its long game is paying off.”
* ‘ONLY DRONES’: The evolution of the war in Ukraine into the most drone-intensive conflict ever has eaten away at Russia’s ability to exploit traditional advantages in troop numbers, according to Ukrainian commanders. But Reuters’ Max Hunder, Sabine Siebold and Manuel Ausloos report that despite the changes in warfare, Russian forces are still making slow but steady advances – catching up in UAV technology and, like its enemy, churning out drones at a rate of millions a year.
Chart of the day
As extreme anxiety about U.S. trade policy ebbed around mid-year, financial markets calmed considerably and unexpectedly robust June economic soundings have lifted U.S. economic surprise indexes to their highest since May. As ever, the “surprise” index is as much down to excessive pessimism in high-frequency forecasts as it is a reflection of renewed economic strength. The Atlanta Fed’s real-time GDP growth estimate for the second quarter is running at about 2.4% – where it was back in May.
Today’s events to watch
* U.S. weekly June housing starts/permits (8:30 AM EDT), July University of Michigan survey (10:00 AM EDT)
* U.S. corporate earnings: American Express, Huntington Bancshares, Regions Financial, Charles Schwab, 3M, Truist Financial, Schlumberger
* G20 Finance and Central Bank Meeting in South Africa
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(by Mike Dolan; editing by Timothy Heritage)
