Equities give again a number of the early positive factors as traders digest US knowledge, tariffs

The DAX is now up just 0.1% with the CAC 40 up 0.2% in European morning trade. Meanwhile, S&P 500 futures have also cut gains to just 0.2% after having been up 0.5% earlier in the session. All of this comes after the sluggish showing in Wall Street yesterday, hampered by a more disappointing US ISM services PMI. So, what’s the take now?

As mentioned here, it’s a case of US data concerns starting to creep up on markets again. And it’s a fine balance now in trying to manage that and any hopeful optimism of Fed easing helping to alleviate the slowing economy.

The issue with the latter is we’ve come to already price in a September rate cut and two rate cuts by year-end already. So unless the Fed suddenly feels that they are behind the curve and need to step up more, investors might have to deal with capped upside on any positive feelings with regards to the Fed outlook.

At this stage, I fear that we’ll be in for a rough surprise in terms of US labour market data in Q3. And considering how markets have kept up the narrative of “the economy is booming” to drive the rally in 1H 2025, this might be what triggers a pullback for the months ahead. That especially if the Fed isn’t going to rush to cut rates by 50 bps and seeing what is priced in now.

The other thing to be concerned about is Trump’s tariffs. And I don’t just mean the trade deals that we’re seeing for the time being. Whatever framework arrangements still have the potential to go south, but I’ll leave that to a separate conversation. Assuming the status quo holds up as negotiations continue, that doesn’t mean the impact of tariffs can be ignored.

All eyes will be on next week’s CPI report and that might be telling of what we could potentially see in the months ahead as well. That especially when you see how tariffs have already impacted Main Street here and also prices data when it comes to the latest PMI reports. Someone has to be paying the costs and if it’s not businesses, it will have to be consumers eventually.

This market has largely been driven by the AI boom. And this quarter is going to be a real test to see how the Magnificent 7 is going to hold up this house of cards.