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MORNING BID EUROPE - New tariff drama shakes complacent markets

Stella Qiu gives us a look at what the future holds for European and global markets.

On Friday, the markets were jolted from what appeared to be a dull day in summer when U.S. president Donald Trump went on TV to inject new drama into his simmering wars of trade and to disrupt Wall Street's recent upward trend to record highs.

Trump stated that tariff letters would be sent to Canada and Europe "today or tomorrow". He also floated the idea of increasing the tariff rate for other countries who do not receive a tariff letter from 10% to 15% or 20%.

He posted his letter to Canada in social media shortly after, stating that from August 1, a 35% duty rate would be applied to all Canadian products.

The market nerves were calmed slightly when an official from the administration clarified that goods covered by United States-Mexico Canada Agreement would be excluded. Wall Street futures fell 0.8%, and EUROSTOXX futures fell 0.7%. Last, they were down around 0.3%.

The currency markets were also roiled, but once the dust settled the dollar had gained 0.3% against the loonie, and the euro was down 0.2%.

As the chances of a U.S. - Japan trade agreement dim, so has the yen. The dollar rose 0.6% to 147.12yen on Friday, and is heading for the largest weekly gain this year of 1.7%.

The yen has fallen for the seventh consecutive week against the euro, and is at a five-month high against the Australian dollar.

Investors suspect that trade talks aren't going well between the EU and Trump, now that Trump has said the EU too will receive a letter. EU officials said they hoped to reach a deal by August 1.

Investors will be focusing on the second-quarter U.S. earnings report next week in order to assess the impact of Trump’s tariffs.

Fast Retailing, the owner of Uniqlo, has warned that tariffs could have a major impact on its U.S. operations later this year. It plans to increase prices to cushion the blow. Tokyo's stock market saw a drop of almost 7%.

The following are key developments that may influence the markets on Friday.

UK May monthly GDP

Canadian Employment Statistics for June

Eurozone Final CPI for June

Possible Trump letter to the EU on tariffs

(source: Reuters)