The street gallops toward August 1 with a bull in the saddle

White House statement: Reports of a potential EU trade deal are speculative, and any discussions should be viewed as such

Markets are calling the White House’s bluff — or at least treating the denial like a tell. When the statement reads “reports of a potential EU trade deal are speculative”, traders hear: something’s cooking, just not plated yet. Trump isn’t known for outsourcing his victory laps, especially not to media outlets that sharpen their pens on him daily. He likes to be the one holding the mic on “Truth Social “when the confetti falls.

Wall Street’s electric avenue

What began as tariff-fueled despair back in April is fast becoming a full-blown risk rally. President Trump’s "Liberation Day" shock may have throttled sentiment back then, but the tide has turned, and traders are now surfing a swelling wave of deal optimism.

The U.S.-Japan trade pact—once feared to bring a 25% levy—has landed at a market-pleasing 15%, including on autos. That’s not just a win for Japan; it's a lifeline for global risk appetite. And now, with rumors swirling that a US-EU accord could mirror that same 15% figure, stocks have found fresh air under their wings. A 30% threat is quickly becoming a 15% reality—and that's a world of difference on Wall Street’s Electric Avenue.

The S&P 500 ripped to all-time highs as traders cheered the prospect that the worst-case tariff scenarios may have been priced too pessimistically. The art of the deal is alive and well, and the fog surrounding Trump’s tariff doctrine is beginning to lift. The EU, by all accounts, is sprinting toward an agreement that would sidestep a trade war with the U.S., while Treasury Secretary Bessent fanned the flames of optimism with hints of China progress.

The tariff average settling at 15%—if achieved—would be seen as damage control rather than destruction. Markets, ever forward-looking, are repositioning for a softer landing.

Meanwhile, earnings season isn’t throwing up red flags either. Alphabet beat top and bottom lines thanks to advertising and cloud strength, though it upped its capex guidance to a hefty $85 billion. Tesla missed, but kept the 2025 timeline for its budget model intact—enough to keep dreamers dreaming.

Even Treasuries blinked. A five-day bond rally stalled, and yields ticked higher, as demand for safety gave way to appetite for growth. A weak 40-year bond auction in Japan reinforced the idea that long-duration debt may struggle to find friends amid rising fiscal worries and shifting central bank tides.

Yet beneath the surface of this celebratory tape lies a potential undercurrent: complacency. Quants warn that a cocktail of bullishness, rich valuations, and earnings downgrades could stir future volatility. The market’s not priced for disappointment, and that's where risk brews.

Still, for now, animal spirits are back. The Street has the bit between its teeth and is galloping toward August 1 not with dread, but with cautious optimism. A patchwork of manageable deals is replacing the spectre of 30 % tariffs. That alone has lifted the veil of uncertainty.

And while Trump fires salvos at the Fed—insisting Powell lacks the “courage” to cut—bond markets are already doing the math. Futures are now leaning toward 75 bps of rate cuts next year, up from just 25 bps in April.

In this market, bad news doesn’t stick, good news compounds, and traders are dancing to the beat of earnings and deal flow. So long as the tariff tempests continue to dissipate into drizzle, the risk-on rhythm is likely to keep playing.

The trader view: Deals light the fuse

Markets opened Thursday tangled in a web of deals and disillusion, as fresh headlines on a US-EU tariff truce — whispered to mirror the Japan 15% compromise — sent a jolt through the risk complex. But beneath the surface calm, there was a whole lot of thrashing in the deep end. Bonds, bullion, and bitcoin all got tossed overboard, while short-covering fireworks flared like a rogue July encore.

Traders, already whiplashed by a week of squeezy reversals, saw quant chaos rear its head again — this time in meme-laced corners of the market where fundamentals fear to tread. HIMS, GPRO, and DNUT led the charge, not on earnings or innovation, but on the simple alchemy of crowd pain: too many shorts, too little float, and just enough headline fuel. The result? Moves that would make even the ‘Roaring Kitty’ purr.

Over in macro land, existing home sales slumped — yet another data point to suggest the US consumer isn’t quite dancing to Powell’s “soft landing” tune. But traders barely blinked. The tape is no longer playing to the rhythm of rate expectations or economic prints. It’s a game of positioning, pain, and policy optics.

The headline that the US and EU are nearing a 15% tariff pact hit like a fire alarm during a late-morning risk party. Small Caps, dominated by the market’s most-hated names, shot higher. Shorts scrambled. But the euphoria was short-lived. The "most shorted" basket reversed, then found its footing again, a pinball session that left many quant strategies gasping.

Tech, meanwhile, limped. The Nasdaq lagged, as the momo darlings showed none of their usual sparkle. Even with the NDX stringing together a 62-day streak above its 20-day moving average — a feat last seen during the dot-com drumroll in early '99 — the AI love-in seems to be hitting a saturation point. For reference, 12 months after that January '99 milestone, the index was up 77%. Déjà vu or echo bubble? Traders are watching with both awe and unease.

Yields climbed 4bps across the curve, reclaiming yesterday’s drop and pushing front-end rates back into the green for the week. But despite firmer yields, the dollar sagged, dragged lower by a resurgent euro buoyed by the trade optimism. Normally, that might have given gold a leg up — but not today. The yellow metal buckled, cracking below $3400 as safe-haven demand wilted under the weight of headline détente.

Bitcoin didn’t fare much better. After a week of acting like digital gold’s more volatile cousin, it found itself back at $118k, bouncing off technical support but offering no conviction either way. Oil, by contrast, was the still point in the storm — unmoved on the day as EIA data showed a hefty draw in inventories and a surprise dip in output. Black gold held the line even as everything else shimmied.

As for where we are in the great short-covering saga? According to Goldman’s chartbook, we may only be in the fifth inning — with plenty more pain (or relief) left depending on which dugout you’re sitting in.

In short, the market remains a high-speed chessboard of deals, data, and disorder. The tariff tide may be turning, but the crosscurrents of positioning, volatility, and narrative whiplash are only growing stronger. Buckle in.

Carry on, but with less fuel: Japan’s trade pact reshapes flows

This US-Japan tariff détente — framed as a “win” at 15% versus the threatened 25% — may be fueling a champagne session in Japanese equities today, but beneath the market’s cheer lies a structural shift with global asset flow implications.

The fine print? Japan's decades-long role as a capital exporter — funneling massive surpluses into U.S. Treasuries, European bonds, and global equities — may be entering a slow fade. For years, the flywheel worked like this: run large trade surpluses, recycle those earnings abroad, and underpin demand for foreign risk and duration. But a less favorable trade balance with the US — the result of 15% tariffs replacing what was previously a 1.5% regime — means that surplus shrinks.

And when the current account slims down, so too does the outbound tide of Japanese capital. That wedge — Japanese purchases of foreign securities outpacing inbound flows nearly 3:1 over the last two decades — has helped suppress global yields and inflate asset valuations. If Tokyo now has fewer dollars to recycle, the knock-on effects for global liquidity and FX reserves are not trivial.

Near-term, traders remain focused on carry. Even as yields nudge higher today, there’s a growing sense that political uncertainty in Japan — with Ishiba on a short leash — keeps the BOJ on hold. That backdrop preserves Japan’s status as the world’s cheapest funding base, supporting short-term carry into EM FX, Aussie rates, and tech-heavy equity plays.

But let’s not confuse hedge fund hot money with the heavyweight structural flows of Japanese pensions, insurers, and megabanks. The former chase spreads; the latter recycle surpluses. And it’s the latter — shrinking with each trade deal signed under duress — that holds the keys to long-term FX, bond, and equity regime shifts.

In other words, the market may be cheering the optics today, but if Japan’s trade surpluses shrink over time, so too will its outsized footprint in global asset demand. The world has grown used to Japan exporting both cars and capital. The former may get taxed; the latter may simply dry up.