Stronger employment data and tax cut bill lift markets
United States (US) stock markets ended a holiday-shortened week on a strong note, supported by stronger-than-expected employment data and the House of Representatives’ approval of the One Big Beautiful Bill (OBBB), which President Donald Trump has since signed into law.
For the week, the small-cap Russell 2000, which is highly leveraged to domestic economic conditions such as interest rates and employment, surged 3.52%. Wall Street gained 1009 points to 27,230 (+2.30%), the US 500 (S&P 500) added 1.72%, and the US Tech 100 (Nasdaq 100) finished 1.48% higher.
US equity markets begin this week under a cloud of uncertainty ahead of the 9 July deadline for reciprocal tariffs. President Trump announced last week that the White House would send letters to countries specifying tariff rates on goods imported to the US.
Twelve countries targeted in first tariff wave
President Trump has now confirmed that the first batch of tariff letters, signed for 12 countries, will be sent out today, Monday, 7 July 2025. These ‘take it or leave it’ letters outline specific tariff rates on goods exported to the US, effective from 1 August 2025.
Trump declined to name the 12 countries, stating the list would be revealed today. Based on recent developments, the following countries and regions are likely candidates: the European Union, Japan, India, South Korea, Taiwan, Brazil, Thailand, Indonesia, Turkey, Malaysia, Colombia, and South Africa.
Canada and Mexico have not been included due to protections under the United States–Mexico–Canada Agreement (USMCA), their relatively low tariffs on US goods, and their strategic importance as North American partners.
Market impact expected to be mild
Assuming the 12 countries receive tariffs in the 20 – 30% range, and considering exclusions and a 10% baseline tariff applied to other countries likely to receive letters at a later date, the average tariff rate is estimated to increase from approximately 14 – 15% to around 18% by 1 August 2025.
This rise in the average tariff level is unlikely to significantly disrupt markets on its own, assuming no major retaliatory tariffs from the affected countries. Additionally, optimism stemming from the One Big Beautiful Bill tax cut, stronger-than-expected employment data, and anticipation of second-quarter (Q2) earnings may help offset potential negative impacts.
FOMC minutes and jobless claims in focus this week
Looking ahead, the economic calendar is relatively light this week. Market focus is likely to shift to the Federal Open Market Committee (FOMC) meeting minutes, which are expected to reiterate the US Federal Reserve’s (Fed’s) ‘wait and see’ stance. Weekly initial jobless claims data will also attract attention.
The rates market is currently pricing in 18 basis points (bp) of interest rate cuts for the September FOMC meeting, with a cumulative 55 bp of cuts priced in between now and the end of 2025.