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Trading Day: Bond blues mar stocks' joy
Published by Global Banking & Finance Review®
Posted on July 15, 2025
8 min readLast updated: January 22, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on July 15, 2025
8 min readLast updated: January 22, 2026
Nvidia boosts Nasdaq, but rising bond yields and US inflation create mixed market results. Japanese bonds hit record highs.
ORLANDO, Florida (Reuters) -TRADING DAY
Making sense of the forces driving global markets
By Jamie McGeever, Markets Columnist
The S&P 500 and Nasdaq leaped to new highs on Tuesday thanks to a surge in Nvidia shares, but closed mixed as investors digested a pick-up in U.S. inflation, a raft of major U.S. financial firms' earnings and spiking bond yields around the world, especially in Japan.
More on that below, but in my column today I ask whether there is a sense of tariff complacency creeping into markets, as investors increasingly bet on the 'TACO' trade.
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. For Europe, 30% US tariff would hammer trade, forceexport model rethink 2. Trump's fresh Fed attack simmers in markets: Mike Dolan 3. Investors seek protection from risk of Fed chief'souster 4. Fed's inflation fears start to be realized with June CPIincrease 5. What the rest of the world can learn from 'SwissExceptionalism': JenToday's Key Market Moves
* The Nasdaq gains 0.2% but other U.S. indices fall, withthe Russell 2000 small cap index losing 1.7%. Tech is the onlysector on the S&P 500 to rise. * Nvidia shares rise 4% to a new high above $172, pushingits market cap further above the $4 trillion mark. * Britain's FTSE 100 rises above 9000 points for the firsttime ever but ends down 0.6%, its biggest fall sincepost-Liberation Day turmoil in early April. * Japanese Government Bond yields hit fresh highs. The10-year yield is its highest since 2008 at 1.595%, and the 20-and 30-year yields at record peaks of 2.65% and 3.20%,respectively. * The dollar index rises for a seventh session, its best runsince last October.Bond blues mar stocks' joy
It was a mixed bag on world markets on Tuesday.
Two of Wall Street's three main indices, Britain's FTSE 100 and the MSCI World index hit fresh peaks, yet U.S. inflation rose, bond yields marched higher and investors gave a thumbs down to seemingly solid earnings from U.S. financial firms.
Equity market strength was mostly in tech, after AI darling and chipmaker Nvidia said overnight it plans to resume sales of its H20 AI chips to China. Hong Kong's tech index got the ball rolling with a 2.8% rise, and tech was the only sector on the S&P 500 to close in the green.
But if the market's glass was half full at the start of the day, it was half empty by the end of it. U.S. inflation was broadly in line with expectations, yet investors focused on the upside risks; U.S. bank earnings were solid, but financials were among the biggest decliners.
The shadow of higher bond yields is beginning to lengthen as worries over governments' fiscal health, tariff-driven inflation and investor appetite for fixed income assets pick up again. The 30-year U.S. Treasury yield is back above 5.00%, but the eye of the bond market hurricane appears to be in Japan.
Investor angst around an Upper House election on Sunday is bubbling up. Prime Minister Shigeru Ishiba's sliding popularity suggests even his modest goal of retaining a majority is out of reach, and defeat could bring anything from a shift in the makeup of Ishiba's coalition to his resignation.
Japanese government bond yields are surging, but that's proving to be a headwind for the yen rather than a tailwind as extra pressure on the country's already strained public finances, a straight-jacketed Bank of Japan and stagflation fears more than offset any potential carry for yen investors.
The yen slumped to a three-month low on Tuesday, back within sight of the 150 per dollar mark.
The raft of economic indicators from China overnight, meanwhile, generally showed activity in June held up better than economists expected, and second quarter GDP growth was slightly stronger than forecasts too.
But Beijing is still under pressure to inject more stimulus into the economy. The property bubble continues to deflate, with new home prices falling at their fastest pace in eight months, and more broadly, China's economic surprises index is its lowest in three months. If incoming data is beating forecasts, it is because expectations have been lowered so much.
Tariff 'doom loop' hangs over global equities
The astonishing rebound in stocks since early April largely reflects investors' bet that U.S. President Donald Trump won't follow through on his tariff threats.
But the market's very resilience may encourage the president to push forward, which could be bad news for equities in both the U.S. and Europe.
Investors appear to believe that the April 2 "reciprocal" tariffs were mostly a tactic to bring countries to the negotiating table, and Washington's levies will end up being much lower than advertised. Tariffs may end up much higher than they were before Trump's second term began, but the situation will still be better than the worst-case scenarios initially priced in after Trump's so-called "Liberation Day".
Monday's equity moves were a case in point. Trump's threat on Saturday to impose 30% levies on imports from the European Union and Mexico - two of America's largest trading partners - was met with a collective market shrug. European and Mexican stocks dipped a bit, but Wall Street closed in the green and the Nasdaq hit a new high.
This follows threats in recent days to place a 50% tariff rate on goods imported from Brazil and a 35% levy on goods from Canada not covered under the USMCA agreement. Brazilian stocks have slipped 5%, but Canadian stocks have hit new peaks.
The question now is whether the line between complacency and the "TACO" trade - the bet that "Trump always chickens out" - is getting blurred.
GETTING STRETCHED
The scale of the recovery since April 7 is truly eye-popping. It took the S&P 500 less than three months to move from the April bear market lows to a new all-time high, as Charlie Bilello, chief market strategist at Creative Planning, recently noted on X. This was the second-fastest recovery in the last 75 years, only bested by the bear market recovery in 1982 that took less than two months.
On a 12-month forward earnings basis, the S&P 500 index is now near its highest level in years and well above its long-term average. The tech sector, which has propelled the rally, has rarely been more expensive in the last quarter century either.
None of that means further gains cannot materialize, and one could argue that the valuations are justified if AI truly delivers the promised world-changing productivity gains.
Regardless, it is hard to argue that the rally since April is not rooted in the belief that tariffs will be significantly lower than the levels announced on Liberation Day.
If many countries' levies do end up around 10% like Britain's and the aggregate rate settles around 15%, then equity pricing might very well be reasonable. But if that's not the case, growth forecasts will likely have to be revised a lot lower.
"We stay overweight U.S. stocks, but don't rule out more sharp near-term market moves. Uncertainty on who will bear tariff costs means yet more dispersion in returns – and more opportunity to earn alpha, or above-benchmark returns," BlackRock Investment Institute analysts wrote on Monday.
DOOM LOOP?
One concern is that a loop is potentially being created, whereby Wall Street's resilience and strength in the face of heightened trade uncertainty actually emboldens Trump to double down on tariffs.
Most analysts still believe cooler heads will prevail, however. Trump's tolerance for equity and bond market stress, and therefore U.S. economic pain, appears "limited", according to Barclays.
But if markets have gotten too complacent and Trump does increase tariffs on EU goods to 30%, potential retaliation would risk a repeat of something similar to the post-Liberation Day selloff, sending European equities down by double digits, Barclays warns.
It may also be that when it comes to tariffs, investors are focusing so intently on China that not much else moves the dial. This may be short-sighted though.
China accounted for 13.4% of U.S. goods imports last year, the lowest in 20 years. In contrast, the U.S. imported $605.7 billion of goods from the European Union, or 18.6% of all imports and the most from any single jurisdiction.
As Trump sees it, Europe is "ripping off" America almost as much as China.
Bilateral U.S.-China trade last year totaled $582 billion, compared with bilateral U.S.-EU trade flows of $975 billion, U.S. Census data shows. America's $235.9 billion goods deficit with the EU was smaller than its $295.5 billion gaps with China, but that's still comfortably America's second-biggest trade deficit.
What could move markets tomorrow?
* Japan non-manufacturing tankan survey (July) * Indonesia interest rate decision * UK CPI inflation (June) * U.S. corporate earnings including financial heavyweightsMorgan Stanley, Goldman Sachs, and Bank of America * U.S. PPI inflation (June) * U.S. industrial production (June) * U.S. Fed officials scheduled to speak: Governor MichaelBarr, Cleveland Fed President Beth Hammack, Richmond FedPresident Thomas Barkin, New York Fed President John WilliamsWant 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)
The stock market's mixed performance was influenced by rising bond yields and a pick-up in U.S. inflation, which led investors to reassess their positions.
Nvidia's announcement to resume sales of its H20 AI chips to China initially boosted tech stocks, contributing to the S&P 500 and Nasdaq reaching new highs.
Concerns about U.S. tariffs revolve around the potential for increased rates on imports from major trading partners, which could negatively impact market stability and investor confidence.
Recent economic indicators from China showed that activity in June was better than expected, with second quarter GDP growth slightly stronger than forecasts.
Investor sentiment appears to be one of complacency, with many betting that U.S. tariffs will be lower than announced, despite ongoing trade tensions.
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