Morning Bid: Euros Surge Amid U.S. Tax Bill Uncertainty and Global Market Shifts

Morning Bid: The Euro’s Big Beautiful Moment

Market Focus:
Investors are closely monitoring the progress of President Donald Trump’s “One Big Beautiful” U.S. tax-cutting and spending bill, which is slowly making its way through the Senate. There are signs it may not meet Trump’s preferred July 4 deadline. Meanwhile, futures on the S&P 500 suggest another record high might be imminent.

Key Developments:
– Canada scrapped its digital services tax targeting U.S. technology firms, aiming to advance stalled trade negotiations with the United States.
– The trade deal signed between U.S. President Donald Trump and British Prime Minister Keir Starmer, which lowers some tariffs on imports from Britain, has come into effect.
– Central bankers meeting in Sintra, Portugal, will grapple with the question of whether the monetary system centered on the U.S. currency is beginning to unravel.
– The conflict between Israel and Iran has offered insights into new global cross-asset dynamics, helping investors understand the current market state and future expectations.
– Egypt emerged as one of the biggest economic losers of the Middle East’s 12-day war, according to ROI energy columnist Ron Bousso.

The Euro’s Surge:
The euro is heading for a ninth straight day of gains versus the dollar, a feat achieved only three times since its inception in 1999. This “everyone hates the dollar” trading environment has made the euro and European assets attractive to investors. The euro has gained nearly 14% against the dollar so far this year, while its performance against other currencies has been more modest.

U.S. vs. European Markets:
Despite the S&P 500 reaching record highs in dollar terms, Europe’s STOXX 600 has risen 7% this year compared to the S&P’s 5% rise. On an equal-weighted basis, the divergence is even more pronounced. The equal-weighted S&P is up 3.3% versus a near-10% gain in the STOXX equivalent.

European Stimulus:
European governments, led by Germany, have pledged to unleash a one trillion euro ($1.17 trillion) spending package focused on defense and infrastructure. This move aims to address years of reliance on Washington for security and domestic spending shortfalls.

Investor Sentiment:
With the July 9 deadline for a trade deal approaching and Trump threatening 50% tariffs on all EU goods without a deal, investors are shifting their money. Data from LSEG’s Lipper Funds show that more than $100 billion has flowed into European equity funds this year, while outflows from the U.S. have more than doubled to nearly $87 billion.

Economic Indicators:
The June employment report, due ahead of the U.S. Independence Day holiday, is expected to show a rise of 129,000 jobs, slightly below May’s 139,000 increase. The impact of Trump’s tariffs, potential inflationary effects, mass layoffs among government employees, and likely cuts to welfare benefits are beginning to show in economic data.

Events to Watch:
– Federal Reserve Chair Jerome Powell speaks at the European Central Bank Forum on Central Banking 2025 in Sintra, Portugal.
– Federal Reserve Bank of Atlanta President Raphael Bostic discusses the economic outlook and monetary policy in London.
– Federal Reserve Bank of Chicago President Austan Goolsbee speaks at the Aspen Ideas Festival 2025.
– June Chicago PMI and three- and six-month Treasury bill auctions.