Key Focus This Week: Progress Seen as EU Trade Deadline Nears; Canada Drops Digital Tax to Restart U.S. Talks; Trump’s Tax Cut Plan Advances, Early Jobs Report in Market Spotlight

Global equity markets remained near record highs, with U.S. stock index futures strengthening as risk sentiment improved following the resumption of trade talks between Canada and the United States. The Canadian government’s decision to scrap its digital services tax on U.S. tech firms is widely viewed as a response to pressure from President Trump, aimed at smoothing bilateral trade relations.

As the July 9 deadline for major trade negotiations approaches, officials report meaningful progress in discussions with key partners, including the EU. Meanwhile, an Indian trade delegation has extended its stay in Washington to resolve outstanding issues.

In Washington, Trump’s proposed tax cut plan is still under negotiation. Republicans are working to secure enough support ahead of the president’s self-imposed July 4 deadline.

Investors are also closely watching key economic data this week, particularly the U.S. nonfarm payrolls report, which has been moved up to Thursday due to the Independence Day holiday. Analysts expect the economy to have added 110,000 jobs in June, with the unemployment rate rising to 4.3%, the highest in nearly a year. The data could influence expectations for a potential rate cut by the Federal Reserve.

Last Week’s Key Economic Data & News Recap

Trump Announces Iran-Israel Ceasefire Agreement Takes Effect

In the early hours of last Tuesday at around 1 a.m. ET, former President Donald Trump posted on Truth Social, emphasizing: “The ceasefire agreement is now in effect. Do not violate it!” Just hours earlier, Trump had first announced the ceasefire decision, which was subsequently confirmed by Israel. On Tuesday morning, Trump reiterated that “Israel will not attack Iran” and reaffirmed that the ceasefire remains in place.

With tensions appearing to ease in the Iran-Israel conflict, markets have resumed their push toward record highs. As geopolitical risks subside, investor focus is shifting back to broader macroeconomic outlooks, preparations for earnings season, and the upcoming expiration of key tariff exemptions.

Powell Reaffirms No Rush to Cut Rates

Last Tuesday morning, markets turned their attention to Federal Reserve Chair Jerome Powell’s testimony before the House Financial Services Committee, during which he submitted the Fed’s semiannual monetary policy report.

In his prepared remarks, Powell stated that the Fed is not in a hurry to cut interest rates, emphasizing the need for more clarity on the economic impact of President Trump’s tariff measures.

“The effects of the tariffs will depend on a variety of factors, including the final tariff levels,” Powell said. “At present, we are in a good position to wait and gain a better understanding of how the economy may evolve before considering any adjustments to our policy stance.”

Key U.S. Economic Data from Last Week

Labor Market:

Initial jobless claims for the week ending June 21 came in at 236,000, better than the expected 245,000. The previous reading was revised up slightly from 245,000 to 246,000, suggesting continued resilience in the labor market.

Economic Growth (GDP):

The final reading of Q1 real GDP (annualized) showed a contraction of -0.5%, below the initial and expected figure of -0.2%, marking the first economic shrinkage in the U.S. in three years.

Q1 real personal consumption expenditures (PCE) grew just 0.5%, well below the expected 1.2%, making it the weakest quarter for consumer spending since the onset of the COVID-19 pandemic.

Inflation:

The core PCE price index (Q1 annualized) was revised up to 3.5%, slightly higher than the expected and previous reading of 3.4%.

For May, core PCE (MoM) rose 0.2%, above the forecast of 0.1%, and the YoY core PCE increased 2.7%, also above the expected 2.6%, marking the highest year-over-year increase since February 2025.

Durable Goods & Trade:

May durable goods orders surged 16.4%, far exceeding expectations of 8.5%, and marking the biggest increase since July 2014. April’s figure was revised down from -6.3% to -6.6%.

Preliminary U.S. goods trade deficit for May widened to $96.6 billion, above the estimated $86.1 billion. Goods exports fell 5.2% MoM, the largest decline since 2020.

Consumer Spending & Sentiment:

Inflation-adjusted personal consumption expenditures in May dropped 0.3%, the largest decline so far this year, indicating that rising uncertainty around Trump administration economic policies may be weighing on growth prospects.

University of Michigan’s final consumer sentiment index for June rose from 52.2 to 60.7, its biggest gain since early 2024, beating the median Bloomberg forecast of 60.5 and matching the preliminary reading.

Canada Drops Digital Services Tax to Revive U.S. Trade Talks

On Sunday evening, the Canadian government announced that it had officially scrapped its digital services tax, stating it “expects” to reach a mutually beneficial and comprehensive trade agreement with the United States.

The move came after U.S. President Donald Trump declared he would immediately suspend all trade negotiations with Canada in response to its planned implementation of the tax, and threatened to impose new tariffs within the week.

The resumption of trade talks between Canada and the U.S. has helped boost market risk sentiment, easing investor concerns over escalating trade tensions.