As well as the emerging oil shock 2.0, investors potentially have a tariff shock 2.0 to deal with too. In the last few days, the Trump administration has slapped 25% tariffs on targeted imports from Brazil, and threatened 50% levies on $20 billion worth of imports from Canada. These probably wouldn't move the inflation or market needles much — negotiation will probably lead to some sort of agreement — but they signal President Donald Trump's fixation with trade has not diminished.
Markets have barely reacted to these announcements — Brazil's real has held up, while the Canadian dollar is moderately weaker — as investors have become inured to these types of announcements, and the aftershocks won't be as devastating as the initial quake. Still, they're a reminder that trade risks and uncertainty risks haven't dissipated completely.
The Japanese yen fell through 163 per dollar on Tuesday for the first time in 40 years, raising the specter of intervention from Tokyo to stem the tide. Would another round of yen-buying intervention have much impact beyond buying a few days, or perhaps weeks, of relief?
Part of the yen's weakness is down to broad-based dollar strength, and the latest spike in oil prices. But policy credibility also appears to be an issue — the government's spending plans and the Bank of Japan's cautious approach to rate hikes aren't landing with investors, and if the FX rate is any indication, talk of boosting state pension fund investment in domestic assets has fallen flat too. Testing times for Tokyo.
The first results in the current earnings season from the U.S. tech-focused megacaps are out on Wednesday, with Alphabet, Tesla and IBM reporting. Shares in all three have come under pressure in the last couple of months, as the AI frenzy has cooled — IBM had its biggest ever one-day price crash on July 14 after it warned it would take a big Q2 earnings hit.
Broader sentiment seems to have recovered, for now at least. After sliding more than 20% in the last few weeks, the "SOX" chip index has rebounded as much as 10% this week as bargain-hunters have returned. Will these earnings reports strengthen the "buy the dip" market tone, or revive June's default "sell the rally" outlook?
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