While some countries were able to see lower rates than what were threatened during April’s ‘Liberation Day’, others saw their rates jump. The broad tariff blitz was worse than expected pressuring equities on Friday. Further adding to the cautious sentiment was the release of July’s jobs report in which the economy added fewer jobs than expected. Both factors prompted traders to increase their bets of a September rate cut from the Federal Reserve. Earlier in the week the Fed had held rates steady at their July meeting and comments from Chairman Powell had caused traders to reduce their bets of a September cut. As of Friday afternoon, data from CME Group pointed to traders assigning an 83% chance of a September cut.
The shift in rate expectations as well as the tariffs pushed Treasury yields lower, with the 10-year note ending at 4.21%. For the major equity indices, the Dow Jones Industrial Average fell 2.9%, in its worst week since the early April sell-off. The S&P 500 declined 2.4%, and the tech-heavy Nasdaq Composite lost 2.2%, even though at the start of the week they had been at record highs. Amongst a wave of company earnings, Big Tech helped to prop up the market, with Microsoft and Meta both delivering better-than-expected results.
The pan-European STOXX 600 index fell 2.6%, seeing its largest daily drop in over three months on Friday. European markets were also pressured by the tariff hikes at the end of the week, but there had already been a somewhat downbeat mood as investors digested the US-EU trade deal framework, which is viewed more as a win for the US than the EU. France’s CAC 40 fell 3.7%, the German DAX dropped 3.3% whereas the UK FTSE 100 fell just 0.6%, supported by a weaker pound. Switzerland’s SMI index was down 1%. It had been closed on Friday for a holiday not giving time for investors to react to the unexpected 39% tariff rate from the US.
In Japan, the broader TOPIX index dropped just 0.1% whilst the Nikkei 225 declined 1.6%, hurt by the trade sentiment as well as some weaker company earnings. The Bank of Japan held its interest rate unchanged while raising its inflation forecasts, keeping alive hopes that the central bank may hike rates this year. The Shanghai Composite fell 0.9% and Hong Kong’s Hang Seng retreated 3.5%. The latest Purchasing Managers’ Index data came in lower than expected, in a sign of a slowdown in the economy. Trade talks between the US and China held in Sweden proved inconclusive.