Bank of Mexico cuts interest rate to 7.75%. Trump announces 100% tariff on imported microchips

On Thursday, the Dow Jones Index (US30) fell by 0.51%. The S&P 500 Index (US500) declined by 0.08%. The tech-heavy Nasdaq index (US100) closed higher by 0.35%. The US indices came under pressure on Thursday, as early gains faded amid renewed trade tensions. The Nasdaq 100 posted a modest gain, initially supported by semiconductor stocks after Trump announced a 100% tariff on imported microchips, excluding US manufacturers. However, sentiment quickly deteriorated due to broader trade concerns. Investors also reacted to reports that Fed Governor Christopher Waller may be Trump’s pick to lead the Federal Reserve, fueling expectations of a rate cut in September.

The Mexican peso weakened to 18.6 per US dollar after Banxico cut the overnight rate to 7.75%, reducing some of the carry appeal that had recently supported the currency. The move followed a drop in annual inflation from 4.51% to 3.51% and somewhat stronger economic growth in Q2. However, the Central Bank maintained a cautious tone, citing global trade tensions and geopolitical risks as potential inflation triggers via peso depreciation, or as threats to growth momentum. Meanwhile, Washington imposed new tariffs (25% on steel and 10% on aluminum from Mexico, with additional tariffs on auto parts set to take effect next week),  posing further risks to export revenue and industrial output.

European stock markets mostly rose yesterday. Germany’s DAX (DE40) increased by 1.12%, France’s CAC 40 (FR40) closed up 0.97%, Spain’s IBEX 35 (ES35) rose by 1.06%, while the UK’s FTSE 100 (UK100) declined by 0.69%.

On Thursday, WTI crude oil prices fell to $63.90 per barrel, marking a sixth consecutive day of losses, as hopes for a diplomatic resolution to the war in Ukraine weighed on prices. The Kremlin confirmed that Russian President Vladimir Putin will meet US President Donald Trump in the coming days, their first summit since 2021, raising hopes for de-escalation. Meanwhile, Trump imposed new 25% tariffs on Indian goods over continued imports of Russian oil and signaled the possibility of further tariffs against China. Saudi Arabia also raised prices for September oil deliveries to Asian buyers for the second month in a row, citing tight supply and strong demand.

Asian markets mostly rose yesterday. Japan’s Nikkei 225 (JP225) gained 0.65%, China’s FTSE China A50 (CHA50) rose by 0.31%, Hong Kong’s Hang Seng (HK50) climbed 0.69%, while Australia’s ASX 200 (AU200) ended the day down 0.14%.

Japan’s services PMI rose to 45.2 in July 2025 from 45.0 in June, the highest reading since February and the third consecutive monthly increase, though it came in slightly below the market expectation of 45.5. Meanwhile, the Economic Outlook Index climbed to a six-month high of 47.3 from 45.9 in June, supported by signs of an economic rebound, including expectations of stronger consumer demand, despite ongoing concerns about cost pressures and US trade policy uncertainty.

On Friday, the New Zealand dollar held steady at USD 0.596, near a one-week high, supported by weakness in the US dollar. The greenback remained under pressure amid rising odds of a Federal Reserve rate cut in September and concerns about the impact of new tariffs on the US economy. The kiwi also drew support from still-strong trade data out of China, New Zealand’s largest trading partner, which showed July export growth exceeded expectations, offering some relief amid the fragile tariff truce between Beijing and Washington. However, domestic sentiment was dampened by recent labor market data indicating ongoing weakness, reinforcing expectations that the Reserve Bank of New Zealand may lower interest rates at its meeting later this month.