Trump’s bill brings economic benefits and debt risks

European markets are losing traction despite Trump’s expected signing of his “big, beautiful bill” later today. From a European perspective, we draw ever closer to Wednesday’s reciprocal tariff deadline, and thus traders are likely to grow jittery despite the tentative signals of a potential pathway to a deal seen on the wires. The prospective deal seems to centre around the possible acceptance of the 10% tariff but adjustments to sector specific levels currently in place for key industries such as automobiles. While there has been much talk of the EU hitting the US with retaliatory measures, it is clear that there is an acceptance that this is a battle they cannot win. As such, the US are likely to retain some level of tariffs which both make domestic goods more competitive and provide a financial windfall for the Trump administration. Donald Trump has announced that he will be sending out letters to countries outlining their new tariff levels, starting with 10-12 today. Notably, the fact that it takes place on a day when US markets are closed does provide a warning that these tariffs could be another shocker, providing the weekend for negotiations that bring potentially positive headlines before the Monday open.

Yesterday saw the House approve the so-called big, beautiful bill, with markets largely mixed about the merits of a policy package that will both provide a economic headwind for businesses but raise the debt by $3.3 trillion. The bill represents a sweeping fiscal overhaul, with $4–4.5 trillion in permanent tax cuts, expanded deductions (including tips, overtime, SALT), plus massive boosts in defense and border funding. This is partially offset by steep cuts to Medicaid, SNAP, clean-energy credits, and social welfare. While some argue that making these tax cuts permanent will provide clarity and enhance growth, there is also a risk that this bill is both inflationary and pushes the US into dangerous levels of debt. For traders, all eyes will be on the bond market, with stocks likely to suffer if we see another surge in treasury yields. Nonetheless, this bill provides tax benefits for many US companies, and the pro-growth outlook does lift hope that we will see a strong economy for years to come.

Looking ahead, today’s US bank holiday means we are likely to have a relatively calm end to the week. Nonetheless, there will be a focus on the energy markets ahead of this weekend’s OPEC+ meeting, with another 411,000 bpd supply increase looking likely. Saudi efforts to prop up prices have been all but aborted for the time being, with the OPEC leader looking to grab market share instead. Set against a backdrop of cooling tensions in Iran, and Trump pressurising Israel to agree to a 60-day ceasefire in Gaza, it is not surprising to see crude heading lower today.