Five fundamentals for the week: Intense trade talks and ECB rate decision stand out

Will trade tensions worsen? There is a risk of deterioration ahead of the August 1 deadline, especially in talks between the United States (US) and the European Union (EU). An interest rate decision in the old continent and several economic figures are also of interest.

1) Trade talks take center stage

Measures and counter-measures. US-EU negotiations are not going so well. US President Donald Trump reportedly wants a baseline tariff rate of 15% or 20% on incoming European goods, up from the current 10%. European negotiations initially desired a "zero for zero" accord, which would remove trade barriers.

Moreover, Germany, which aimed for a quick deal and accepted concessions, is now hardening its stance, aligning itself more closely with France. Officially, the European Commission is in charge of the talks and it has been cautious, suggesting it will work hard to reach an agreement.

Will negotiations fall apart? If so, Trump may proceed with 30% tariffs on all imported EU goods, and the bloc could slap the US with sector-specific duties. In his recent letter to EU Commission President Ursula von der Leyen, the Commander-in-Chief vowed to hit the EU back with higher levies in case of any retaliation.

Is it only darkest before dawn? Trump is known for his "escalate to de-escalate" tactics, and talks could always seem to be on the verge of collapse only to result in a deal.

I expect trade negotiations to play a growing role in moving markets this week.

2) Powell may move markets without trying

Tuesday, 12:30 GMT. Federal Reserve (Fed) Chair Jerome Powell has a rare public appearance during the central bank’s “blackout period."

After his colleague and Fed Governor Christopher Waller openly called for an interest rate cut in next week’s meeting, Powell may, in theory, break the bank’s self-imposed silence on such matters and provide some information about the topic.

Bond markets and investors are expecting the Fed to leave interest rates unchanged next week, but there may be some buzz around his delivery of opening remarks at the event in Washington. I think Powell will skip any mention of monetary policy, potentially giving the US Dollar (USD) a short-lived boost.

3) ECB may boost the Euro

Thursday, decision at 12:15 GMT, press conference at 12:45 GMT. The European Central Bank (ECB) is set to leave its interest rates unchanged, as inflation has not only dropped to around the central bank’s target of 2% but also stabilized at that level.

ECB President Christine Lagarde is likely to be asked about a potential rate cut at the September meeting, assuming price rises remain stable. I expect her to refrain from any commitments, potentially even rejecting them outright, and keep the Euro (EUR) bid.

Uncertainty about US tariffs on the EU and countermeasures remains high. Central banks tend to wait for some clarity before moving. In September, the ECB publishes new staff forecasts for inflation and growth, and Lagarde will likely say the data is needed as well.

4) Can the US labor market further improve?

Thursday, 12:30 GMT. US weekly Initial Jobless Claims have dropped to around 220K, falling from levels above 240K. This weekly barometer shows that the labor market remains stable despite the turmoil around tariffs. Only a jump above 240K would cause worries.

Apart from the main unemployment claims figure, investors will also keep one eye on Continuing Jobless Claims. The number of those stuck in joblessness rose earlier in the year and then stabilized. Any further increase would be worrying.

5) S&P Global's PMIs may reflect growing confidence

Thursday, 13:45 GMT. S&P Global’s Purchasing Managers Indexes (PMIs) serve as a gauge of how businesses feel about the economy. Are they optimistic like the Stock market? Probably not as much, but Trump’s refrain from the heaviest of tariffs may show up in these business confidence surveys.

The Services PMI is more important, as it represents a larger sector in the US economy. Both figures for the manufacturing and services sectors stood at around 53 points in June, above the 50-point threshold that separates expansion from contraction.

Final Thoughts

After several days in which economic data and some musings from Trump about Powell's future dominated markets, trade is at the heart of this week's action. Headlines can come at any point, shaking markets. Stay tuned.