European Stocks Waver as U.S. Inflation and Trump Tariff Threats Rattle Global Markets

European stocks were mixed on Wednesday as investors reacted cautiously to U.S. inflation data released the previous day, which pointed to rising consumer prices likely driven by tariffs. Wall Street had closed lower on Tuesday, with U.S. Treasury yields rising in response to the data.

President Donald Trump’s renewed threats to impose steep tariffs—30% on imports from Mexico and the European Union starting August 1—fueled further unease. The tariff-related uncertainty led investors to dial back expectations for near-term interest rate cuts.

Global Markets Dip as Inflation Surprises Stir Tariff Fears, Rate Cut Speculation Builds

By mid-morning in Europe, the MSCI World Equity Index had slipped 0.1%, while the pan-European STOXX 600 was down 0.2%. However, London’s FTSE 100 bucked the trend with a modest 0.1% gain. Britain’s annual consumer inflation unexpectedly rose to its highest level in over a year, prompting a slight uptick in the pound against the U.S. dollar. With eyes now on upcoming U.S. producer price data, markets remain alert for further signs of how tariffs are influencing inflationary trends.

Despite some evidence of price increases, economists remain cautious about declaring a full tariff-driven inflation trend. Vas Gkionakis of Aviva Investors noted that a “decisive and meaningful pass-through” from tariffs into inflation hasn’t occurred yet, though it may emerge later.

The Federal Reserve, under Chair Jerome Powell, has maintained steady interest rates while waiting for clearer signs of inflation. Traders now broadly anticipate a rate cut in September, although pressure from Trump for earlier action has stirred concerns about the Fed’s independence.

Markets Stabilize as Investors Weigh Inflation Shock, Await Bank Earnings and Commodity Moves

Following Tuesday’s inflation surprise, the U.S. dollar initially surged but later stabilized. The dollar index hovered near 98.538, while the euro strengthened slightly to $1.1620. In the bond markets, yields showed little movement: Germany’s 10-year Bund yield held steady at 2.71%, and the U.S. 10-year Treasury yield fell back to 4.48% after peaking the day before. This stabilization suggests markets are pausing to reassess after the initial shock from inflation concerns.

Market attention also turned toward key U.S. bank earnings, with results from Goldman Sachs, Morgan Stanley, and Bank of America expected later on Wednesday. Meanwhile, oil prices rose on the back of seasonal demand expectations from the U.S. and China. Gold prices also climbed 0.5% to $3,339.70 an ounce, benefiting from their traditional role as a safe haven amid economic uncertainty and inflationary pressure. The coming days will reveal whether earnings data can ease investor anxiety fueled by tariffs and inflation.