ORLANDO, Florida, Aug 1 (Reuters) -

- TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

I'd love to hear from you, so please reach out to me

with comments at . You can also follow me at @ReutersJamie and

@reutersjamie.bsky.social.

Well, well, well. In a week jam-packed with global tariff,

earnings, data and policy fireworks, the most explosive was kept

for last: July's U.S. employment report, which shattered the

optimism - or complacency - building around the U.S. economy and

stock market.

Weak job growth, together with the latest wave of steep

tariffs imposed by U.S. President Donald Trump, triggered a huge

selloff in global stocks and the dollar on Friday, floored bond

yields, and revived expectations of a Fed rate cut next month.

Today's Key Market Moves

* Dollar index snaps six-day winning streak and slumps more

than

1%, its biggest fall since April. Dollar/yen plunges 2.2%,

biggest fall since January 2023.

* S&P 500 slides 1.6%, biggest decline since May, as

profit-taking

sets in after new highs this week. Nasdaq slumps 2.2% - is tech

topping out?

* U.S. 2-year bond yield tumbles 26 bps, the biggest fall in

a

year and akin to an instant quarter-point rate cut.

* Crude oil futures fall nearly 3%.

* Comex copper steadies on Friday but plunges 24%

this

week, its worst ever week since futures contracts launched in

1988.

Now that's a reality check

Global markets were floored on Friday by a powerful one-two

punch from the latest U.S. employment data and U.S. tariffs

slapped on dozens of countries. It was a sobering reminder that

the economic foundations supporting Wall Street's record highs

this week may not be that strong.

The weak jobs growth seemed to fly in the face of Fed Chair

Jerome Powell's assessment on Wednesday that the labor market is

strong, and vindicate the two dissenters, Governors Christopher

Waller and Michelle Bowman. Although to be fair to Powell, he

did stress that downside risks were growing.

Yet average earnings and hours worked rose in July, and the

unemployment rate only inched up to 4.2%. That's effectively

still full employment. If the bar to cutting rates is tied to

the unemployment rate, it is still a high one.

Rates futures traders don't see it that way though. They now

see a rate cut next month as a near-certainty, and are pricing

in 60 basis points of easing by year-end.

Investors were also sideswiped on Friday by U.S. President

Donald Trump's latest wave of tariffs on 69 trading partners,

ranging from 10% to 41%, that will start in a week's time. This

will raise the U.S. effective tariff rate closer to 20%, nearly

10 times higher than the end of last year.

Of course, bilateral trade deals could be struck and these

levies may be lowered, but it is a reminder that the growth and

inflation outlook is challenging at best. With equity prices and

optimism around Big Tech at such lofty levels, the correction

when it came was always likely to be big.

If that wasn't enough for investors to digest, Trump

announced late on Friday he is firing the commissioner of the

Labor Department's Bureau of Labor Statistics following the

latest jobs data, and Fed Governor Adriana Kugler said she is

resigning effective August 8 and returning to academia.

This paves the way for Trump to appoint someone more aligned

with his low interest rate view as her replacement.

So the new trading month kicks off with world markets on a

shaky footing, and the economy too. Asia's factory activity is

deteriorating as tariff uncertainty weighs, and U.S.

manufacturing is still in a funk. European factory activity is

moving closer to stabilization, but is still contracting.

Services, tech and AI-related activity and indicators are

shining brighter of course, but even there caution will be

creeping into investors' minds. Earnings reports from Apple,

Microsoft and Meta were well-received by the market, to put it

mildly, but the Nasdaq still shed nearly 2% on the week.

August is the main summer holiday month in Europe and North

America, so liquidity will thin out. With the VIX index back

above 20.0 for the first time since April, trading next week

could be choppy.

Chart of the Week

If you want evidence that Trump's tariffs on the rest of the

world are starting to push up U.S. goods inflation, look no

further. According to Ernie Tedeschi at the Budget Lab at Yale,

PCE durable goods prices in the first six months of the year

rose 1.7%. Excluding the pandemic, that's the biggest six-month

rise since 1987.

Here are some of the best things I read this week:

1. Brics currencies are no realistic alternative to

the

dollar - Herbert Poenisch

2. Europe's Economic Surrender - Alberto Alemanno

3. U.S.-EU Trade Deal Avoids a Tariff War, but

Deepens

European Dependence - Matthias Matthijs

4. China is also Fighting a Trade War with Europe

(and

Winning) - Brad Setser

5. Trump's executive orders politicize AI - Tom

Wheeler

What could move markets on Monday?

* U.S. durable goods (June)

* Global earnings

Opinions expressed are those of the author. They do not

reflect the views of Reuters News, which, under the Trust

Principles, is committed to integrity, independence, and freedom

from bias.

Trading Day is also sent by email every weekday morning.

Think your friend or colleague should know about us? Forward

this newsletter to them. They can also sign up here.

(Writing by Jamie McGeever; Editing by Nia Williams)