Lost in Taxation

The cacophony emanating from the US administration is now so deafening that the markets can scarcely make sense of it. In any event, investors appear to care about it no more than they care about their first pair of underpants. What truly matters is a robust earnings season before everyone jets off to bask in the sun. And in any case, should anything go awry, the Federal Reserve stands ready to intervene.

Donald Trump has steered the ship fairly well so far. Or rather, let's say that the long-standing balance of power in favour of the United States, combined with the US president's ability to adapt, has made his job easier. Nevertheless, he regularly traps himself with his ultimatums, to the point where his tactics are becoming a little too caricatural. The 9 July deadline for signing trade agreements with the United States did not achieve much. The White House did impose a few unilateral tariffs, but negotiations with the most strategic countries have not yet been concluded. Paradoxically, it is with the European Union that negotiations seem closest to success, even if Brussels is not immune to a kick from Donald Trump, who likes to launch attacks before the weekend to give his opponents something to think about. Japan and South Korea are dragging their feet. Mexico has disappeared from the scene. As for Canada, it learned overnight that it will face a 35% surcharge on 1 August. This is less than the 50% promised to Brazil. The tax on Canada does not apply to products covered by the US/Mexico/Canada agreement signed a few weeks ago, a US administration official was careful to point out, in an attempt to soften his boss's comments.

To make matters worse, Donald Trump, clearly annoyed that no one had complied with his orders on time, hinted that a global surcharge of 15-20% for those exporting products to the United States was once again on the table. This latest announcement ended up rattling investors. At least in the last few hours, because before that they were still riding high on a bullish wave. The S&P 500 even hit yet another record high, although the session lacked a little momentum. Delta Air Lines' reassuring results and outlook boosted cyclical stocks, as if the trend set by the airline would serve as a template for the upcoming quarterly earnings season.

Quite simply, the drama surrounding customs duties seems to have been removed from investors' valuation models. JPMorgan CEO Jamie Dimon expressed his concern yesterday, warning markets against complacency in the face of the effects of customs surcharges. The market seems to be echoing the response given by Treasury Secretary Scott Bessent in June, when Dimon warned about US debt. Bessent replied, with his usual flair for the dramatic, "I've known Jamie a long time and for his entire career he's made predictions like this. Fortunately, none of them have come true."

And then, of course, there is the father of all safety nets. Wall Street knows that the Fed is watching, even if it is reluctant to act on interest rates for the moment. Yesterday, two central bankers reassured financiers that monetary easing would continue until 2025. Mary Daly (San Francisco Fed) still believes that there will be two rate cuts this year, while Fed Governor Christopher Waller remains in favour of easing in July, even if he is in the minority.

The last session of the week on the Asian stock markets showed that these markets are not particularly keen to fall. Australia, South Korea, Taiwan and Japan are stable, a sign that the threat of a 15-20% global US tariff is not necessarily being taken seriously. China gained 0.7% in Shanghai and 1.5% in Hong Kong. Futures are down in Europe and the US, but recent sessions have shown that investors are capable of turning worrying news into business as usual.

Today's economic highlights:

Today's agenda includes: the harmonized CPI of the euro area and the CPI in Germany; the monthly GDP in the United Kingdom; the harmonized CPI of the euro area in France; the hourly wage rate for permanent employees in Canada; the federal budget balance in the United States. See the full calendar here.

• GBP / USD: US$1.35
• Gold: US$3,334.07
• Crude Oil (BRENT): US$68.84
• United States 10 years: 4.37%
• BITCOIN: US$118,294

In corporate news:

• Warehouse REIT targeted by Blackstone with a $666 million acquisition bid.
• Bayer receives UK approval for Lynkuet(TM) treatment for hot flashes.
• South West Water faces a proposed $33 million enforcement action by UK regulator for breaches.
  
• The Pebble Group meets revenue and earnings expectations despite macroeconomic challenges.
  
• Brooks Macdonald Group reports best quarterly net flow in two years.
  
• Bayer receives UK approval for Lynkuet(TM) treatment for hot flashes.
  
• Antofagasta sees Trump's copper tariffs as an opportunity for US project revival.
  
• Brunello Cucinelli announces US price increase and reports 10.7% revenue growth in H1.
  
• DNB Bank misses profit forecasts in Q2 financial results.
  
• Portugal relaunches privatization of TAP Air Portugal, aiming to sell 49.9% stake.
  
• Leonardo bids 1.9 billion euros for Iveco's defense business and signs Ukraine air traffic agreement.
  
• Pandox reports increased Q2 net income of SEK 713 million.
  
• Axfood announces Q2 net income of SEK 622 million, meeting expectations.
  
• BPER Banca acquires 35% stake in Popolare di Sondrio, advancing towards full acquisition.
  
• EMS-Chemie reports 6% drop in H1 sales, lowers 2025 expectations but confirms full-year targets.
  
• Saba Capital invests significantly in BlackRock Throgmorton Trust.
  
• Flutter Entertainment nears $2 billion deal to acquire additional 5% stake in FanDuel.
  
• Tesla to open first store in India and applies for robotaxi certification in Arizona.
  
• Nvidia reaches $4 trillion market value, leads in AI and partners with Aurora Innovation.
  
• Google to discount cloud services for US government and introduces new Gemini feature.
  
• Delta boosts Wall Street sentiment with positive forecast.
  
• Conagra Brands forecasts downbeat annual profit due to US tariffs.

See more news from UK listed companies here

Analyst Recommendations:

• Tbc Bank Group Plc: Wood & Company Financial Services downgrades to hold from buy with a target price raised from GBP 38 to GBP 53.10.
• Astrazeneca Plc: Shore Capital maintains its buy recommendation and reduces the target price from 15000 to GBX 13500.
• Gsk Plc: HSBC maintains its reduce recommendation with a price target reduced from 11.70 to GBP 11.20.
• Shell Plc: Scotiabank maintains its sector outperform recommendation and raises the target price from 70 to USD 80.
• Relx Plc: JP Morgan maintains its overweight recommendation and raises the target price from 46.30 to GBP 48.90.
• Victrex Plc: Jefferies maintains its buy recommendation and reduces the target price from 1060 to GBX 830.
• Quilter Plc: Goldman Sachs maintains its neutral recommendation with a price target raised from GBX 153 to GBX 160.
• Wpp Plc: Huber Research Partners LLC maintains an underweight recommendation with a price target reduced from 5.50 to GBP 4.
• Sage Group Plc: Oddo BHF initiates an outperform recommendation with a target price of GBP 15.50.
• Ashmore Group Plc: JP Morgan maintains its underweight recommendation and raises the target price from 1.24 to GBP 1.40.
• Johnson Matthey Plc: AlphaValue/Baader Europe maintains its reduce recommendation with a price target raised from 1913 to GBX 2020.