U.S. stock indices are still practicing a world-class poker face, staying close to their historically record levels in response to all tariff-related verbal attacks. Most investors are probably considering those threats to cross-border trade as rather test-driving sound bites.

On the weekend, U.S. president Donald Trump intensified his recent trade war activity by warning of slapping 30% tariffs on all goods imported from Europe. “We have had years to discuss our Trading Relationship with The European Union, and we have concluded we must move away from these long-term, large, and persistent, Trade Deficits," he wrote in his social media account. Hot on the trail of Trump's announcement, French president Emmanuel Macron said the EU bloc should be ready for a trade war to “defend European interests resolutely” but most other EU leaders, including in Italy, the Netherlands, Germany, called for more calm. The German chancellor, Friedrich Merz, said he has talked directly to Trump: “We want to use this time now, the two and half weeks until August 1 to find a solution. I am really committed to this”. Giorgia Meloni, the prime minister of Italy, shared her trust in “a fair agreement” as “It would make no sense to trigger a trade war between the two sides of the Atlantic”. The Dutch Prime Minister, Dick Schoof, mentioned an aim to reach a “mutually beneficial” deal with the U.S.

The head of the European Commission Ursula von der Leyen calls for mutual conditions to dispute, pausing any trade retaliation against the US. “We have always been clear that we prefer a negotiated solution with the US. This remains the case,” she said. Previously, the EU shared its plans to hit the US with various levies up to €21 billion of annual exports to Europe, due to come into effect since July 15, but these measures now would be suspended. This finally reassured the markets, which had no time enough to become too nervous. The futures for the S&P 500 broad barometer opened well above 6,200 points on July 14. Though, the index may test some depth below this psychological mark in the next couple of days, but is unlikely to go into a wider pullback. As a positive driver the corporate earnings season on Wall Street will start on July 15 with quarterly reports from the banking segment.

And for the largest banks, such as JPMorgan, Citigroup, The Bank of America, Morgan Stanley, BlackRock, Wells Fargo and others, the balance and profit indications are expected to grow. Banking institutions may owe this to their good profits from growing price of equity portfolios as well as to growing chances for lower interest rates, since more efforts by the US Federal Reserve to reduce borrowing costs are likely in the second half of the year. Just about a week ago, there appeared a reason to figure that the Federal Reserve Chair Jerome Powell and his colleagues were almost ready to give up.

A paper released by New York and San Francisco Federal Reserve banks and counted New York Fed president John Williams as a co-author mentioned the prospect of setting US short-term interest rate target at "near zero levels" at some point in coming years as real, even though "the risk" of returning to super low levels was estimated as being "currently at the lower end of the range observed over the past fifteen years”. Yet, the authors added that the chance of a return to near-zero rates “remains significant over the medium to long term…due to recent elevated uncertainty”. Of course, a near-zero federal funds rate target is closely associated with periods of economic crisis since 2008 or the COVID-19 pandemic time since March 2020. It would seem this does not apply to today at all, but such articles are unlikely to appear without any reason. Market got this sign, or hidden hint, that the U.S. central bankers could be inclined to move at least two or three steps down in terms of interest rates, since the situation of moderate uncertainty is already a given.

Recalling the tariff issue once again, Trump has fired off more than 20 letters to partner countries in early July, containing his allegedly final warning on imposing higher levies for import, yet with deadlines for making new deals to be replaced by August 1. Thus, all trading partners still can avoid increased tariff troubles if they manage to settle all terms of agreements with the White House before the date. Markets are clearly hoping for a positive outcome, that proper deals will be struck, or maybe the crowds perceive the potential impact of tariffs on their investments as quite limited against the bullish momentum in leading tech assets. We feel, the quarterly earnings season, which is just getting underway, could provide additional bullish momentum for the S&P 500 toward 6,400-6,450 even before the end of this summer, if some of the trade tensions at least are successfully resolved by August 1, or the deadlines are pushed back again. It's also clear that interest rates in America will not be changed in July or August, but the fact of growing interest rate cut expectations may already contribute to the rally upwards.