World stocks were heading for their best month since late 2023 on Friday and the dollar was flirting with its first monthly rise of the year, while traders waited for key U.S. inflation data and the latest in Washington’s to and fro on tariffs.
Markets have been see-sawing all week as investors try to ride out a rollercoaster news flow after a U.S. court blocked most of President Donald Trump’s tariffs this week only to see a federal appeals court temporarily reinstated them.
An initial fall by European stocks on Friday turned into 0.3%-0.8% gains despite an unexpected dip in German retail sales, some mixed inflation numbers and as Wall Street futures sagged ahead of PCE inflation data due before the opening bell. [.EU][.N]
MSCI’s main world index is up over 5% this month while the dollar, which was up 0.3% on Friday, is tantalizingly close to its first positive month of 2025. [/FRX]
It was helped as benchmark 10-year U.S. Treasury yields - which are a proxy for U.S. borrowing costs - rose again in European trade having fallen after soft economic data and a solid 7-year bond auction on Thursday.
Investors have also been rattled by a little-publicized provision in Trump’s budget bill that would allow the government to impose taxes of up to 20% on foreign investment - something that could ultimately put off would-be buyers.
"A foreign tax provision in the One Big Beautiful Bill Act is alarming," Brown Brothers Harriman strategist Elias Haddad said, adding the uncertainty raised the risk of "stagflation" where inflation stays high but the economy flatlines.
Personal Consumption Expenditure (PCE ) data - the Federal Reserve’s favored inflation indicator - is scheduled for release at 8:30 a.m. ET, which could steer bets on if and when U.S. interest rates get cut again this year.
Trump called Fed Chair Jerome Powell to the White House on Thursday for their first face-to-face meeting since he took office in January and told the central bank chief he was making a "mistake" by not lowering interest rates.
The Fed responded with a statement that its decisions "will depend entirely on incoming economic information".
EMERGING OPTIMISM
Oil prices were on track for a second consecutive weekly drop on expectations of another OPEC+ output hike, although they were up on the day and still up for the month as a whole. [O/R]
Japan’s Nikkei saw profit taking overnight after its near 2% rally the previous day, with investors also concerned about Japan’s sky high debt levels following a lacklustre 40-year bond auction this week and the impact of tariffs.
The yen appreciated as much as 2% from its low on Thursday and was changing hands at under 144 per dollar in London. The euro and pound were down 0.3% and 0.1% at $1.13 and $1.34 respectively. [/FRX]
In Asia, Hong Kong’s Hang Seng had dropped 1.2%, with Apple (NASDAQ:AAPL) suppliers hit by the U.S. tariff reversal. Mainland Chinese blue chips dipped 0.5% too although both scored solid monthly gains. Korean stocks have fared even better, notching up their best month since November 2023 in line with the main world index.
An index tracking emerging market currencies meanwhile has also gained about 2% for the month. That is also its best since November 2023. Soaring gold prices have helped Ghana’s cedi rocket nearly 40% this month.
"Trump’s trade agenda remains alive and kicking, with the legal battle adding yet another layer of uncertainty," said Rodrigo Catril, senior FX strategist at National Australia Bank (OTC:NABZY).
"The only thing that looks more certain is more uncertainty," he said.
Despite the courtroom drama, the Trump administration said negotiations with top trading partners were continuing unabated.
Treasury Secretary Scott Bessent said during an interview with Fox News that he was scheduled to have talks with a high-level Japanese delegation later on Friday in Washington, although he said talks with China were "a bit stalled".