(Reuters) -U.S. President Donald Trump’s August 1 deadline for trade partners to sign deals or face hefty tariffs is fast approaching, and investors are playing it cool.
Stocks are near record highs and volatility is low, even with a Federal Reserve meeting and U.S. jobs data on the slate, while Trump’s beef with central bank Chair Jerome Powell shows no signs of easing.
Here’s your weekahead from Dhara Ranasinghe, Yoruk Bahceli and Naomi Rovnick in London, Rocky Swift in Tokyo and Lewis Krauskopf in New York:
1/ WANT, NEED
As Trump’s August 1 deadline for countries to reach trade deals or face steep tariffs approaches, market optimism is high.
Japan and the U.S. just struck a deal, investors sense Trump will not carry out his 30% tariff threat and Treasury Secretary Scott Bessent thinks the quality of agreements is more important than the timing.
The European Union, meanwhile, says a deal with Washington that averts 30% tariffs is within reach.
Undoubtedly, scope for disappointment remains (the EU has approved countermeasures in case talks collapse). Any market reaction to negative headlines could easily be exacerbated by summer-thinned trading and knock world stocks off record highs.
For now, investors and negotiators may hang their hopes on signs of compromise: You can’t always get what you want, but if you try sometimes, you’ll get what you need.
2/ FED DRAMA
Mounting pressure from the White House on the Federal Reserve and Chair Jerome Powell could add drama to the U.S. central bank’s upcoming meeting.
Investors expect the Fed to hold interest rates steady again on Wednesday. Powell and others have been wary of easing rates too soon without more confirmation that tariffs are causing a revival of inflation.
Trump has denounced Powell for not cutting rates, repeatedly calling for him to resign before his term ends in May 2026, although he has said he would not fire him.
Fed Governor Christopher Waller, a possible candidate to replace Powell, has said the Fed should cut rates at the upcoming meeting.
A crucial view into the economy follows with Friday’s July jobs report – expected to show employment increased by 102,000, after June’s 147,000 rise, according to Reuters forecasts.
3/ BACK TO RATE HIKES?
The Bank of Japan has a lot to consider when it meets as a new U.S. trade deal clears some of the economic clouds, while the political scene at home becomes ever hazier.
The BOJ, which concludes a two-day meeting on July 31, has seen its mission to normalise monetary policy delayed by economic and market turmoil unleashed by Trump’s chaotic tariff policies.
The trade pact has reduced economic uncertainty and increased the likelihood that Japan will hit the BOJ’s inflation target, Deputy Governor Shinichi Uchida said. Meanwhile, speculation is growing that fiscal hawk Prime Minister Shigeru Ishiba will step down after a disastrous electoral showing, paving the way for more spendthrift policies.
Economists expect the BOJ to raise its key rate by at least 25 basis points by year-end, and markets price in a better than 50% chance of a move in October.
4/ SPOTLIGHT ON EUROPE
It’s a jam-packed data calendar for the euro zone this week, with July flash inflation data and the first estimate of second-quarter growth on the docket on Wednesday.
But neither is likely to move the needle for traders, who are laser-focused on what U.S. tariffs will look like and on how long an ECB policy pause lasts.
Inflation returned to the ECB’s 2% target in June, but should fall from here. The ECB sees it as low as 1.4% early next year, which has concerned some policymakers.
On the growth side, traders will look for signs of tariff impact. The bloc grew a much stronger-than-expected 0.6% in the first quarter, but that reflected a spike in U.S. imports ahead of tariffs.
Forward-looking business activity data offers a rosy picture, accelerating faster than forecast to an 11-month high in July.
5/ LOONIE BONDS
As it puzzles over the outlook for a tariff-distorted economy that is making bond investors edgy, the Bank of Canada is widely expected to keep interest rates on hold at 2.75% on July 30.
The yield on 30-year Canadian bonds, which sets Ottawa’s borrowing costs, has zoomed almost 70 bps higher since early April, as the debt underperformed even that of equally fiscally challenged Britain.
Long-dated bonds present investors with most inflation risk, and while Canada’s 6.9% jobless rate suggests consumer prices are unlikely to rocket, the BoC has fretted about Canada’s retaliatory tariffs on U.S. goods proving inflationary.
Canada’s debt markets are increasingly attracting fast-money hedge funds, the BoC noted in May, setting them up for outsized sell-offs of the type Britain has become known for when inflation concerns spike.
(Compiled by Amanda Cooper;Graphics by Prinz Magtulis and Amanda Cooper; Editing by Helen Popper)
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