US focus on ISM services PMI after Friday’s payrolls shocker

European markets continue to wave off any concerns around the direction of travel for the US economy and Thursday’s looming tariff day, with traders instead focusing in on the continued strength seen in Q2 earnings season and the new dovish outlook for the Federal Reserve. On the data-front, we have seen a welcome spike in the Chinese Caixin services PMI release, surging from a nine-month low to a 14-month high of 52.6. Meanwhile we similarly saw a jump in the final services PMI metrics across Germany (50.6), Italy (52.3), Spain (55.1), and the UK (51.8).

Tariff concerns remain in play as we head towards the 7 August deadline, with a particular focus growing on the elevated levels seen for goods originating from India, Brazil, and Switzerland. Notably, the 8 August deadline Trump set for a Russia-Ukraine deal means that we are expecting to see a sharp increase in the tariff rate for India; one of the biggest buyers of Russian crude. While tariffs have typically been utilised in a bid to level out trade imbalances, Trump has sought to target India owing to their apparent lack of care over “how many Ukrainians are being killed by the Russian war machine”. However, the lack of any action against China for their role in the trade of Russian oil will highlight the concern that this is simply a tactic to push hard against an Indian government which has thus far failed to reach any agreement in trade negotiations. The desire to open the Indian agricultural market to US exports looks unlikely to bear any fruit and thus there is a risk that these increased tariffs remain in place.

From a European perspective, the huge differential between EU (15%) and Swiss (39%) tariffs does bring a cause for concern in Switzerland. Despite expectations that they were on a pathway to a favourable trade deal, the dramatic spike in export costs will undoubtedly put pressure on the Swiss to produce a more generous offer to Trump before this week’s deadline. Weakness seen for Swiss stocks and CHF of late highlights the perception that the lack of a deal on new terms could ultimately push businesses to relocate into the EU or Asia in a bid to overcome the huge burden placed on those exporting into the US. Ultimately, while high-quality Swiss exports may be less price sensitive in nature than other goods, there is little getting away from the fact that such a heavy tariff will hurt both demand and margins for businesses in the country.

Yesterday saw sharp gains across US equities, with the tech-heavy Nasdaq leading the way thanks to a near 2% rise. With Palantir hitting its first $1 billion quarter, the US AI boom appears to be thriving. Today brings the latest AMD numbers, bringing another fresh insight into the tech sector. From an economic perspective, the release of the latest ISM services PMI report brings the single most notable US release for the week, with recent months showing a pattern of weak employment activity and elevated prices pressures. Coming off the back of Friday’s payrolls shocker, any further signs of economic weakness are likely to strengthen calls for another three cuts this year.