Key Takeaways
- Russia significantly escalated its aerial attacks on Ukraine in July, with President Zelenskyy reporting over 3,800 drones and nearly 260 missiles launched, as Germany committed to sending two additional Patriot missile systems to Ukraine.
- European manufacturing showed mixed signals in July: Italy's HCOB Manufacturing PMI rose to 49.8, nearing expansion, while France's PMI remained in contraction at 48.2.
- A new EU-US trade deal has established a 15% all-inclusive tariff cap on most EU goods, aiming to enhance transatlantic economic stability.
- South Korea is considering a proposal to lower the capital gains tax threshold for major shareholders from 5 billion won to 1 billion won, sparking concerns among investors.
- US stock futures, including Nasdaq 100 futures, experienced declines as bond traders keenly awaited the July jobs report for insights into the Federal Reserve's rate cut trajectory.
Geopolitical tensions and crucial economic data releases are setting the tone for global markets as August begins. Ukraine's President Volodymyr Zelenskyy reported a substantial increase in Russian aerial assaults in July, with over 3,800 drones and nearly 260 missiles launched against the country. This comes as Germany announced a deal with the US Pentagon to be the first to receive the latest Patriot missile systems in return for sending two additional Patriot systems to Ukraine.
In Europe, manufacturing data presented a mixed picture for July. Italy's HCOB Manufacturing PMI showed a notable improvement, rising to 49.8 from 48.4 in June, exceeding forecasts of 48.7 and indicating the slowest contraction in over a year. This suggests a potential bottoming out for the sector, though new orders and output remain below the 50.0 growth threshold. Conversely, France's HCOB Manufacturing PMI remained in contraction at 48.2, slightly below the estimated 48.4 and unchanged from June's 48.1, with new orders falling at the sharpest pace since January.
Meanwhile, a significant EU-US trade deal has been finalized, introducing a 15% all-inclusive tariff cap on most EU goods entering the US. EU Trade Commissioner Maroš Šefčovič stated that this agreement improves EU exporters’ competitiveness, boosts confidence and stability for businesses, and strengthens trust in the transatlantic economy. The deal, reached just before an August 1st tariff deadline, is seen as averting a potentially damaging trade war, with the EU agreeing to accept the 15% import taxes to avoid even higher rates that had been threatened.
In Asia, South Korea is contemplating a significant change to its capital gains tax policy. The government is considering lowering the capital gains tax threshold for major shareholders from 5 billion won to 1 billion won, effectively reinstating the 2022 standard. This proposal, which reverses a previous tax relief measure, has sparked considerable backlash from individual investors, with a national petition against the change quickly gaining signatures. Critics warn that this could trigger year-end stock selling to avoid taxation and potentially undermine efforts to boost the KOSPI index.
On the market front, US stock futures, particularly Nasdaq 100 futures (NDAQ), hit session lows, falling by 0.9%. Bond traders are closely monitoring the upcoming July jobs report for clues on the Federal Reserve's rate cut path. While the Fed recently left its benchmark interest rate unchanged in the 4.25%-4.50% range, Chairman Jerome Powell indicated that a weakening labor market could prompt future rate cuts. The unemployment rate is forecast to tick up to 4.2% in July, and analysts suggest that a steady increase to 4.5% or more would likely trigger more aggressive easing by the central bank.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.