Will US inflation data show tariff impact

• Strong start in Europe as central banks and tariffs hit the newswires.
• Big tech earnings provide boost for US markets, with Amazon and Apple in focus.
• Will US inflation data show tariff impact.

A positive start to the day in Europe, with equities gaining ground in a period that has seen news headlines coming thick and fast for traders. Yesterday’s FOMC meeting provided one obvious centre point for the week, with Powell’s rate cut coming against a rather predictable backdrop of criticism from Trump and his team. While we saw two dissenters, the fact that we continue to see seven FOMC members reiterate the need for patience highlights the fact that Trump’s push for additional easing may not be as simple as replacing the Chair. The central bank theme has also seen the Bank of Canada and Japan hold rates, signalling the potential for an economic hit thanks to Trump’s trade war tariffs. With Korea now striking a deal that replicates the Japanese 15% tariff rate, there is a feeling that we will continue to see countries surrender to similar deals in a bid to avoid the higher rates due to come in to play tomorrow.

The hesitancy of the Federal Reserve involved a refusal to lay a straight pathway to a September rate cut, highlighting just how important things are on the data front in the coming months. Powell noted that he has already been looking through the impact of tariffs has allowed him to keep rates steady rather than raise them. However, with the likes of India (25%) and Brazil (50%) both due to see elevated tariff rates, the Federal Reserve will undoubtedly see risk of a resurgence in price pressures that could yet put dampeners on rate cut hopes for the remainder of the year.

Watch out for the latest core PCE price index inflation gauge, with the Fed’s data dependence being tested once again. The Fed’s favoured inflation metric has thus far remained relatively muted since Trump came into the White House, although the gradual increase in pricing for goods such as clothing and electrical equipment within the CPI report highlights the potential uptick in today’s core PCE inflation metric.

US markets are expected to enjoy a buoyant open today, thanks in no small part to the bumper earnings seen from Meta (+11% pre-market) and Microsoft (+8%). If traders have been fearful of the risks associated with a heavily overweight tech sector in the US, today’s open will highlight one of the key reasons why we have seen exceptionalism for US stock markets over the course of the years. That big tech theme continues today, with Amazon and Apple reporting after the close. Notably, there is likely to be a greater degree of hesitancy for these two companies, with their greater reliance on the trade of physical goods meaning we could see tariff effects coming into play as supply chains become increasingly complex and costly.