By Jamie McGeever
ORLANDO, Florida (Reuters) -TRADING DAY
Making sense of the forces driving global markets
By Jamie McGeever, Markets Columnist
Tariffs and worries over the Federal Reserve's independence battled against tech resilience in U.S. stock market trading on Thursday, while the Bank of England's narrow call to cut rates highlighted the dilemma facing many central banks right now.
More on that below. In my column today I explore whether U.S. President Donald Trump's punitive tariffs on India
and Brazil could inadvertently push the BRICS nations closer together and breathe new life into the bloc.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. Trump's tariffs spark defiance and concern 2. Trump may look like he's winning the trade war, buthurdles remain 3. Bank of England cuts rates to 4% after narrow 5-4 vote 4. We're looking at the wrong earnings season: Mike Dolan 5. Trump to sign order opening way for alternative assetsin 401(k)s, official saysToday's Key Market Moves
* FX: Sterling rises 0.6% back above $1.34 after BoEdelivers 'hawkish' rate cut. * STOCKS: Japan's Topix hits a record high. Wall Streetwobbles - the Dow slides 0.5%, the S&P 500 ends flat, the Nasdaqgains 0.3%. * SHARES/SECTORS: Eli Lilly shares -14%, biggest fall in25 years. Intel -3%. Apple shares +3%. * BONDS: U.S. Treasury yields rise as much as 3 bps at theshort end of the curve. 30-year auction was weak. * COMMODITIES: Oil falls 0.7%. WTI futures down six daysin a row, matching longest losing streak since December 2023.Tariffs, Fed fears take their toll
A day packed with policy decisions, economic data, corporate news, and twists in the global trade war and saga of Trump's influence over the Federal Reserve ended with U.S. shares in the red on Thursday.
Optimism around the U.S. tech and artificial intelligence revolution abounds, and companies that are manufacturing in the U.S. or have committed to do so will escape Trump's new 100% tariffs on imported chips.
But the unpredictable and impulsive nature of Trump's tariff policy, the ultra-high duties imposed on some key trading partners, and the expected negative impact on growth and inflation may finally be starting to weigh on investors' minds.
Trump's interference in independent economic institutions is certainly worrying investors. These concerns intensified on Thursday after Bloomberg News reported that Fed Governor Christopher Waller is Trump's favored pick to replace chair Jerome Powell.
Waller voted last month to cut interest rates, and would be seen as sympathetic to Trump's desire to slash borrowing costs. Maybe too sympathetic. Trump also said on Thursday that Council of Economic Advisers Chairman Stephen Miran will fill a vacant spot on the Fed board until January.
Earlier in the day, the Bank of England cut interest rates to 4%. But the 5-4 vote was so tight, the BoE's rate-setting committee held two votes for the first time since the BoE was granted independence in 1997 in order to reach a decision.
Growth is slowing, inflationary pressures are rising. It's central bankers' worst dilemma, one that many around the world are facing right now.
In Asia on Thursday, data showed that Chinese exports and imports in July were much stronger than expected as firms front-loaded activity ahead of Trump's tariff deadline later this month. Chinese stocks leaped nearly 2%, and the yuan rose too.
Elsewhere in emerging markets on Thursday, Mexico's central bank cut interest rates and Indian Prime Minister Narendra Modi and Brazil's President Luiz Inacio Lula da Silva spoke by phone, covering a broad range of topics including Trump's punitive tariffs on both countries.
More on that below.
Could Trump tariffs become BRIC-building blocks?
U.S. President Donald Trump has the so-called 'BRIC' group of nations directly in his trade war crosshairs, slapping super-high tariffs on imports from Brazil and India, and accusing them of pursuing "anti-American" policies.
Washington's relations with Brasilia and New Delhi have sunk to new lows. But this belligerence could backfire.
The White House said on Wednesday that it will impose an additional 25% tariff on goods from India, citing New Delhi's continued imports of Russian oil. That brings the levy on most goods to 50%, among the highest rate faced by any U.S. trading partner.
Brazil also faces 50% tariffs on many of its U.S.-bound exports, not because of trade imbalances, but because of Trump's anger at what he calls a "witch hunt" against his ally, Brazil's former President Jair Bolsonaro, who has been charged with plotting a coup following his election loss in 2022.
This breakdown in relations could be Trump's intention: push these countries to the brink so that they'll agree to trade deals that are heavily lopsided in Washington's favor. That strategy seemed to work with Japan and the European Union.
But hitting these 'BRICS' economies with eye-watering tariffs could push them closer together, strengthening the resolve of a group that appeared to be losing whatever momentum, purpose and unity it had.
THE 50% CLUB
The original BRIC nations - Brazil, Russia, India and China - held their first summit in 2009, eight years after former Goldman Sachs economist Jim O'Neill coined the acronym for this group of emerging economies he said would challenge the G7 group of rich countries in the future.
South Africa became the 'S' in BRICS two years later, and the club now comprises 11 countries including Indonesia, Iran and Saudi Arabia, as well as a further nine 'partner' countries including Malaysia, Nigeria, and Thailand.
It was always a disparate group - geographically, economically, culturally, and politically - meaning its cohesiveness has always been questionable. Its relations have sometimes been rocky, particularly among its largest members.
That's why it was so notable when Indian Prime Minister Narendra Modi on Wednesday announced that he will visit China for the first time in over seven years. This could be a sign that rising tensions with Washington are helping to thaw frosty ties between New Delhi and Beijing.
Also on Wednesday, Brazil's President Luiz Inacio Lula da Silva told Reuters that he plans to call the leaders of India and China to discuss a joint BRICS response to Trump's tariffs.
"I'm going to try to discuss with them about how each one is doing in this situation ... so we can make a decision," Lula said. "It's important to remember that the BRICS have ten countries at the G20," he added, referring to the group that gathers 20 of the world's biggest economies.
UNITED FRONT
While nothing unites like a common enemy, the differences between the BRICS countries could limit how solid that front can actually be.
Stephen Jen, CEO and co-CIO of Eurizon SLJ Asset Management in London, posits that trade links between the five core BRICS nations - never mind the historical, political and cultural ties - are weak.
Only 14% of their trade is with each other. Russia and Brazil may have higher levels of intra-BRICS trade, but only 9% of China's exports are BRICS-bound, significantly less than the 19% that goes to emerging Asia and 15% destined for the U.S. And in economic, political and military terms, China matters far more than the others on the global stage.
"BRICS is more of an alliance on paper, not in reality," Jen says.
But there are signs that intra-BRICS trade is strengthening. China-Russia trade was a record $244.8 billion last year, and China and India are the biggest two buyers of Russian oil. China is Brazil's largest trading partner, accounting for 28% of Brazil's exports and 24% of its imports. Roughly 70% of China's soybean imports are from Brazil.
TENUOUS ALLIANCE
Trump's tariffs could push BRICS countries closer together in the near term, in areas such as trade, investment, and currency usage. They may feel it's in their economic interests and, for some, in their political interests, to present a united front.
How long that front can hold is anyone's guess. These countries, particularly India, may resist moving further under China's influence, and Russia's pariah status could limit further integration beyond commodity imports.
In the meantime, however, Trump's tariff salvos are BRICS-bound. How these emerging economies respond could be an indication of whether we may truly be seeing a reshuffling of global alliances.
What could move markets tomorrow?
* Bank of Japan summary of opinions from July 30-31 policymeeting * Japan household spending (June) * Japan trade (June) * Taiwan trade (July) * China money supply, lending (July) * Bank of England's Huw Pill speaks * Canada employment (July) * St. Louis Fed President Alberto Musalem speaksWant to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Jamie McGeever; Editing by Nia Williams)
