European Shares Seen Mostly Higher As Trump's Tariffs Face Legal Hurdle

A U.S. federal appeals court delivered a significant blow to President Trump's trade policy, ruling that a majority of his tariffs, including those on China, Mexico, and Canada, were illegal and overstepped his authority, potentially delaying future trade negotiations. This development unfolds as U.S. money markets price an 84% chance of a 25 basis-point Fed rate cut in September, despite core PCE inflation accelerating to 2.9% in July. Meanwhile, Asian markets faced pressure from disappointing China factory output and AI sector concerns, exacerbated by new U.S. restrictions on advanced chip tool exports to Chinese fabs.

Analysis

The market is navigating a complex and uncertain environment characterized by significant legal and policy shifts. A U.S. federal appeals court has ruled against the legality of a majority of President Trump's tariffs, creating a major wildcard for trade policy, although the duties remain in place pending a potential Supreme Court appeal. This development could slow future trade negotiations. Simultaneously, the technology sector faces distinct headwinds; concerns over slowing AI growth, highlighted by Dell's disappointing forecast and Nvidia's cautious China outlook, are now compounded by new U.S. Commerce Department restrictions revoking chipmaking tool import exemptions for Intel, Samsung, and SK Hynix's Chinese facilities. In monetary policy, U.S. money markets are pricing an 84% probability of a 25 basis-point Federal Reserve rate cut in September, a dovish stance that appears to discount the latest core PCE inflation data, which accelerated to a 2.9% annual rate in July. This backdrop is further complicated by European political uncertainty, with an upcoming confidence vote in France elevating bond spreads, and declining Brent crude futures signaling worries over a potential supply glut.

Key Decisions for Investors

• Investors should exercise caution with semiconductor stocks like Intel and Nvidia, given the direct negative impact of new U.S. restrictions on chip tool exports to China and broader concerns about slowing AI sector growth.
• Monitor for developments regarding the Trump administration's potential appeal of the tariff ruling to the Supreme Court, as the outcome will create significant volatility for companies with supply chains exposed to China, Mexico, and Canada.
• The divergence between rising core inflation and the high market expectation for a Fed rate cut merits close attention; watch upcoming U.S. jobs and manufacturing reports, as strong data could rapidly unwind rate cut bets and disrupt equity markets.
• Given the rising geopolitical and economic uncertainty, the strength in gold, which rose 1% to near $3,480 per ounce, suggests that maintaining or increasing allocations to safe-haven assets may be a prudent hedging strategy.