Morning Bid: New tariff drama jolts complacent markets

A look at the day ahead in European and global markets from Stella Qiu

The markets got a jolt on Friday from what looked likely to be a dull summer day, when U.S. President Donald Trump took to the TV to inject fresh drama into his simmering trade wars and disrupted Wall Street's recent upward drift to record highs.

Trump said tariff letters to Canada and Europe would go out "today or tomorrow" and floated the idea that the blanket tariff rates on other countries that do not get a letter could be set at 15% or 20%, a step up from the current 10% baseline rate.

Soon afterwards he posted the letter to Canada on social media, specifying that a 35% tariff rate would be imposed on all Canadian goods from August 1.

Market nerves were soothed a bit, however, when an administration official clarified that an exclusion was expected for goods covered by the United States-Mexico-Canada Agreement. Wall Street futures skidded 0.8% and EUROSTOXX 50 futures dropped 0.7% before regaining some composure. They were last down about 0.3%.

Currency markets also convulsed but, once the dust settled, the dollar was up about 0.3% on the loonie and the euro had slipped 0.2%.

The yen, for its part, has been steadily weakening as the prospects dim for a U.S.-Japan trade deal. The dollar was up 0.6% on Friday at 147.12 yen and is headed for a weekly gain of 1.7%, the biggest this year.

On the crosses, the yen is down for a seventh straight week on the euro and hit a five-month low on the Australian dollar.

With Trump now saying the EU will get a letter, too, investors suspect trade talks between the two are not going very well. EU officials had been saying they were aiming for a deal before August 1.

The economic data calendars in Europe and the U.S. are relatively light on Friday, leaving investors to gear up for second-quarter U.S. corporate earnings next week to gauge the impact of Trump's tariffs.

In an ominous sign of what may be to come, Uniqlo owner Fast Retailing warned that tariffs will have a significant impact on its U.S. operation later this year, and plans to raise prices to soften the blow. Its shares tumbled almost 7% in Tokyo.

Key developments that could influence markets on Friday:

-- UK May monthly GDP

-- Canadian jobs numbers for June

-- Eurozone final CPI for June

-- Possible Trump letter on tariffs to the EU

(By Stella Qiu; Editing by Edmund Klamann)