Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

For the S&P 500 and Nasdaq, the week ended on Friday as it began on Monday: new highs on growing confidence that the US will strike favorable trade deals with major trading partners and that tariffs won't choke growth, and optimism around the earnings-boosting power of artificial intelligence. 

This offset some less encouraging signals from U.S. and European earnings about the impact of tariffs and trade uncertainty. But the bulls are in control, it seems, and markets go into next week's heavy event risk at or near their all-time highs. 

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The week just ended saw a wave of record stock market highs on Wall Street and around the world as investors cheered the US-Japan trade deal and raft of corporate earnings results. Next week will be packed with even more market-sensitive events.

Policy decisions from the Fed and other major central banks, Fed Chair Jerome Powell's press conference, U.S. PCE inflation, earnings from four of the 'Magnificent Seven' tech giants, and Washington's August 1 tariff deadline for most countries await.

Meanwhile, U.S. and Chinese officials will meet in Stockholm to discuss extending the August 12 deadline for reaching a trade deal. This will be U.S. Treasury Secretary Scott Bessent's third round of talks with his Chinese counterparts 

That's a lot to be heaped onto investors' plate, and one wonders how they will digest it all. It wouldn't be a surprise if market volatility picked up from surprisingly low levels - the VIX index is the lowest in five months, and the Treasury market's MOVE index is near its recent three and a half-year low.

Meanwhile, demand for U.S. government debt will be tested as the Treasury auctions $173 billion of notes in the 2-7 year part of the curve. Recent auctions of longer-dated bonds have drawn strong demand and foreign private sector investors bought huge quantities of Treasuries in May, which bodes well.

But the sales come as Treasury also announces its quarterly refunding plans, a reminder that investors will have around $1 trillion of new debt to absorb by year end, an increasing share of that in bills. 

Here are some of the best things I read, watched and listened to this week: 

What's driving the rally on Wall Street? Lot's of things, including tariff relief, trade deals, and renewed optimism around AI. One potential red flag, however, is the amount of leverage fueling it.

Figures from the Financial Industry Regulatory Authority (FINRA) show that margin debt in U.S. stocks has crossed the $1 trillion mark for the first time. This comprises retail and institutional investors, but is thought to be more skewed toward the retail cohort.

Of course, investors' margin debt should rise over time in line with inflation and the underlying equity indices. But it's a marker.