US to impose 30% tariffs on Mexico and the EU

US President Donald Trump announced that he will impose 30% tariffs on both Mexico and the EU starting August 1, citing trade deficits and accusing Mexico of failing to adequately stop drug cartels. This escalation comes after a week of widespread tariff threats, with the EU already facing existing levies of 25% on cars, 50% on steel and aluminum, and 10% baseline tariffs, while Mexico had previously secured exemptions for about 87% of its goods under the US-Mexico-Canada trade agreement. European officials are working to negotiate a deal before the deadline, with EU leaders expressing strong disapproval and preparing potential countermeasures, while Mexico's government says it's already working on an "alternative" solution, viewing the decision as unfair but emphasizing dealmaking over retaliation.

Turkey's current account deficit significantly narrowed to USD 684mn in May, exceeding economists' expectations of a USD 900mn deficit and marking a substantial improvement from April's revised deficit of USD 7.89bn. This positive shift was supported by a net portfolio inflow of USD 2.498bn and a net foreign direct investment inflow of USD 702mn, alongside a USD 13.46bn increase in official reserves. Net errors and omissions also contributed positively, coming in at USD 1.34bn.

Dubai’s Roads and Transport Authority (RTA) has awarded a major infrastructure contract worth AED 633mn for the Al Mustaqbal Street Development Project. The project will run from Za’abeel Palace Street intersection to Financial Centre Street. The development will reduce travel time from 13 minutes to 6 minutes.

Today’s Economic Data and Events

6:00 China Trade balance

14:30 India CPI: Forecast: 2.26%

Fixed Income

US Treasuries closed the session at the end of the week on a modestly weaker footing. The 2yr UST yield was higher by about 2bps at 3.885% while the 10yr yield was up by 6bps to 4.4093%.

Moody’s raised their sovereign rating on Oman to ‘Baa3’, upgrading the country’s rating to investment grade. The outlook on the rating was revised to stable from positive. Moody’s cited “robust” debt metrics even amid oil prices in the mid USD 60/b range. The rating agency estimated Oman’s sovereign debt to GDP at 35.5% as of the end of 2024, giving the government “more time to adjust during the periods of adverse macroeconomic shocks.”

FX

The US dollar demonstrated broad-based strength on Friday, with the DXY dollar index rising 0.2% to 97.87. This strength was particularly pronounced against commodity currencies and major developed market peers, driven primarily by ongoing discussions around new import tariffs. The Japanese yen weakened significantly, with USD/JPY advancing 0.77% to 147.397, while commodity-linked currencies faced notable pressure - the Australian dollar fell 0.2% to 0.6578 and the New Zealand dollar dropped 0.5% to 0.6008. European currencies also declined, with the British pound losing 0.6% to close at 1.3493 and the Euro showing a more modest decline of 0.1% to 1.1689.

Equities

Markets are set to start the week on a cautious note following Friday's sharp decline triggered by President Trump's announcement of 35% tariffs on Canada and broader threats of global trade restrictions. The S&P 500 fell 0.33% to close at 6,259.75, while the Dow Jones dropped 0.63% to 44,371.51, retreating from Thursday's record highs.

European markets closed lower with the EuroStoxx declining 1% and the FTSE losing 0.38%.

The ADX General rose 0.2% to 10,064.81. Aldar Properties PJSC contributed the most to the index gain, increasing 2.4%. Al Khaleej Investment PJSC had the largest increase, rising 10.2%.

DFMGI registered a gain of 0.43%, closing at 5854.99. Al Mal Capital REIT led with a significant jump of 14.4%, followed by Emirates Investment Bank PJSC with a gain of 11.0%.

In Saudi Arabia, the Tadawul closed down 0.2% on Sunday.

Commodities

Oil prices posted their strongest daily gains in weeks supported by geopolitical tensions and speculation about potential sanctions on Russian exports. Both benchmarks climbed nearly 3% on Friday. Brent crude settled at USD 70.36/b, up 2.5%, while WTI closed at USD 68.45/b, gaining 2.8%.

Gold climbed 0.9% to USD 3,355.59 per ounce while silver surged 3.8% to USD 38.41, reaching 13-year highs.