A blowout Q2 GDP report is reshaping rate cut bets, even as the Fed shows rare internal division.

Trade deals with the EU and South Korea cement a new global tariff floor, offering clarity but not relief.

Meanwhile, early earnings signals hint at margin pressure ahead, and the next move in rates may hinge on jobs data due Friday. Here’s what traders are watching today.

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The Big Picture

Trade

U.S. Seals High-Stakes Tariff Deal with EU, Unlocking $750B in Energy and Industrial Trade 

The United States has finalized a broad tariff deal with the European Union, easing tensions and locking in billions in energy and defense trade.

The agreement imposes a 15% import tariff on most EU goods, half the threatened rate, and secures long-term EU commitments to purchase American energy and military equipment.

Under the framework, the EU will invest an estimated $600 billion into the U.S. economy and commit to $750 billion in energy purchases over the coming years.

Products such as aircraft, semiconductor equipment, raw materials, and certain pharmaceuticals are exempt from tariffs, maintaining open trade for key industrial components.

For the U.S. energy and aviation sectors, the deal represents a major strategic win.

A zero-tariff stance on aircraft and related parts strengthens aerospace manufacturers, while new guaranteed energy demand from Europe supports upstream oil, gas, and LNG players.

With steel and aluminum tariffs remaining at 50%, some sectors remain unresolved, but the overall trade package provides near-term economic certainty.

It also mirrors core elements of recent U.S. deals with Japan and Vietnam, reflecting a coordinated effort to rebalance trade terms across allies.

The U.S. had previously warned of a 30% tariff escalation by August 1 if negotiations failed. Instead, both sides sidestepped escalation and opened the door to further talks on agriculture, autos, and digital trade barriers.

Rural Economy

America’s Small Farms Get Squeezed as Trade Winds Shift Again 

America’s small farms are facing a fresh wave of uncertainty after the latest federal trade agreement reshaped import rules across key agricultural categories.

While the deal has been framed as a win for industrial exporters, it introduces deeper complexity for smaller producers who already operate on tight margins.

Lowered tariffs on imported goods could lead to a surge of foreign produce and processed foods landing on U.S. shelves at competitive prices.

For independent growers and regional suppliers, this means more downward pressure on prices, despite high input costs remaining.

The government has touted long-term gains through expanded market access for U.S. products abroad.

However, many of those benefits disproportionately favor large-scale agribusinesses with established export infrastructure. Family-run operations that focus on local or national distribution may see little upside, especially in the short term.

Compounding matters, negotiations left many non-tariff protections unresolved, raising concerns that small-scale American farms could be exposed to uneven regulatory standards.

With global supply chains shifting and investment terms evolving, rural producers are once again being asked to adapt quickly, without clear guarantees of support.

For many, the promise of new trade opportunities feels distant. What’s immediate is the growing pressure to compete in a market increasingly shaped by decisions made far from the fields they farm.

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Pharmaceuticals

Hospitals Warn of Higher Costs as U.S. Pharma Tariffs Take Hold 

The U.S. pharmaceutical supply chain is at risk of disruption as new import tariffs take effect.

A 25% levy on Indian goods, set to take effect on August 1, may apply to a range of medical inputs, potentially including generic drugs, active ingredients, and low-cost disposables.

While India’s pharma exporters have shrugged off the policy shift, U.S. healthcare providers are preparing for ripple effects. Hospitals, insurers, and pharmacy networks have long relied on Indian generics to keep prescription costs in check.

A sudden price shock could disproportionately affect vulnerable patients, especially in lower-income regions where cost-sensitive drugs are essential.

Analysts note that over one-third of generic medicines in the U.S. originate from Indian facilities, many of which supply active ingredients critical to American manufacturing lines.

If those ingredients fall under the tariff scope, shortages or delays could cascade through the system, from hospitals to local pharmacies.

Finding alternative sources is unlikely to be a quick or seamless process. Domestic production remains limited, and other global suppliers face their own regulatory and capacity constraints.

For the U.S. healthcare system, the short-term result could be tighter margins, higher costs, and rationed access to treatments once taken for granted.

Policy makers now face pressure to clarify exemptions and issue guidance before disruptions begin to affect patient care.

Hospitals and distributors are already flagging the need to adjust lead times to optimize sourcing contracts and inventory plans.

Metrics to Watch

• GDP Rebounds but Demand Slows: Q2 U.S. GDP rose 3% annualized, bouncing back from Q1’s contraction, but private final sales grew just 1.2%, the weakest since 2022.

• Fed Dissent Signals Tension: Two Trump-appointed Fed governors voted to cut rates now, citing economic softness, the first double dissent in over a decade.

• Tariffs Inflate Trade Swings: Net exports added nearly 5 percentage points to Q2 GDP, the largest contribution on record, as firms pulled forward shipments to avoid new duties.

• Consumer Still Carrying the Load: Household spending rose 1.4% last quarter, but corporate leaders warn of signs of stress, especially among middle-income shoppers.

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Market Movers

Fed Faces Political and Internal Pressure: The Fed held rates steady for a fifth straight meeting, but two dissents, both Trump appointees, revealed cracks in the central bank’s united front.

Powell deflected pressure to tee up a September cut, citing uncertainty around how tariffs will hit prices and demand.

With political heat rising and inflation proving sticky, the Fed may now be forced to chart a narrower path: defend independence without derailing momentum.

🌍 Trade Certainty Comes at a Cost: The U.S. announced new trade agreements with both the EU and South Korea, setting 15% baseline tariffs and securing hundreds of billions in pledged investments.

The deals cap weeks of uncertainty and signal that 15% may become the new global standard for U.S. trade partners.

Energy, chip, and industrial firms cheered the clarity, but autos and consumer goods companies face margin headwinds. Europe avoided escalation, but not pain.

🏢 Corporate America Watches Costs Creep In: Second-quarter earnings have broadly met expectations, but commentary from executives paints a cautious picture.

From apparel to semiconductors, companies are flagging tariff-driven cost pressures, weaker consumer traffic, and supply chain recalibrations.

While the top line is holding up for now, margin erosion and guidance downgrades are becoming more common. Expect volatility to rise as Wall Street reassesses Q3.

📉 Private Demand and Investment Slow Sharply: Beneath the surface of the strong GDP print, business spending on structures and equipment softened meaningfully, and final sales to private buyers hit their lowest level in nearly three years.

Analysts point to tariffs, political noise, and high rates as reasons for caution.

Some sectors, especially housing and manufacturing, may face renewed downside if labor markets cool or trade disruptions reaccelerate.

Market Impacts

Equities: The market split on Wednesday, with tech soaring while broader indices cooled. Meta and Microsoft led a post-close surge in futures after blowing past earnings expectations.

Meta jumped 12% in after-hours trading on a strong Q3 outlook, while Microsoft surged 8%, vaulting the company into the $4 trillion club. Gains in Azure cloud revenue and upbeat AI commentary boosted sentiment.

Despite those wins, the S&P 500 fell 0.12% and the Dow dropped 0.38% in regular trading, as Powell’s comments tempered enthusiasm.

Ross Mayfield of Baird called the pullback “a breather,” noting that stretched valuations leave little room for hawkish surprises.

Traders now await Thursday’s PCE print and Friday’s jobs report to clarify the Fed’s next move.

Bonds: Treasury yields moved higher across the curve after the Fed held rates steady and GDP surprised to the upside. The 10-year yield climbed to 4.37%, while the 2-year rose to 3.94%.

Despite dissent from two Fed governors calling for a cut, Powell emphasized a data-dependent approach.

The bond market now sees a roughly 45% chance of a September cut, with investors awaiting more clarity from PCE inflation data and labor trends.

Comments about tariff-driven inflation risks kept long-end rates buoyant, especially as Powell warned against reacting “too soon.”

Currencies: The dollar rallied following strong GDP numbers and Powell’s cautious stance. The euro slid 0.5% to $1.1493, its lowest since June, pressured by the EU-U.S. trade deal and softer regional growth.

The dollar index rose 0.4% to 99.29, its first monthly gain of the year. Moves against the yen and Swiss franc reflected ongoing demand for U.S. assets, with the yen weakening to 148.64.

Traders are watching for signals from Japan’s central bank and the next stage of U.S.-China negotiations after Trump escalated threats toward India.

Commodities: Oil prices rose 1%, with Brent closing at $73.24 and WTI at $70, helped by tariff compliance signals from India and pressure on Russia.

Trump warned of 100% secondary sanctions on Russian oil trade, giving crude bulls room to run despite rising U.S. inventories.

On the metals side, gold fell 0.7% to $3,301.82, hit by stronger U.S. data and a firmer dollar.

Silver and platinum also declined, while palladium shed nearly 3%. Tariff-driven uncertainty and Fed inaction could continue to pressure precious metals near-term.

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Key Indicators to Watch

• 📅 PCE Price Index – Thursday, July 31
  The Fed’s preferred inflation measure is expected to rise 0.3% in June, with core PCE holding at 2.7% YoY. Any surprise here could sway rate cut odds ahead of the September meeting.
  

• 📅 Employment Cost Index – Thursday, July 31
  Wage pressures remain a key concern. A print above the expected 0.8% for Q2 could reinforce the Fed’s reluctance to ease policy.
  

• 📅 U.S. Employment Report – Friday, August 1
  Economists expect 100,000 new jobs in July, down from 147,000. Unemployment is seen ticking up to 4.2%. A miss could strengthen the case for September cuts.
  

• 📅 ISM Manufacturing PMI – Friday, August 1
  Forecast to rise to 49.5, still in contraction territory. This will be closely watched for signs of tariff-driven slowdown in industrial demand.

Everything Else

• Private hiring bounced back in July with 104,000 jobs added, offering a fresh sign that the labor market may be regaining its footing despite high borrowing costs.

• Fed Chair Powell made it clear that the central bank has not decided on a September move, reinforcing that future rate changes will hinge on incoming data and the impact of trade policy.

• The restaurant industry is pushing back hard as the National Restaurant Association launches a lobbying campaign against proposed minimum wage hikes tied to tariff impacts.

• Trump imposed sweeping 50% tariffs on Brazilian imports excluding aircraft and energy, intensifying the White House’s pressure campaign on key commodity exporters.

• Pending home sales fell more than expected in June, as housing demand weakened under the weight of higher mortgage rates and economic uncertainty.