Today, the Canadian Services PMI takes center stage amid limited news and stable market conditions. Recent fluctuations from the Non-Farm Payroll (NFP) report have settled, leading to calmer movements in foreign exchange and US equity markets. The White House is set to inform trade partners about new US tariffs. Approximately “10 or 12” letters will be sent today, with more anticipated before a July 9th deadline.

Tariff Expectations

Tariffs are expected to be between 60% or 70% and 10% to 20%. Trump has indicated that these tariffs will be implemented by August 1st. Businesses have been preparing for tariffs of 10-20%. Rates higher than this could hinder growth, and the potential impact may become more significant as the August deadline approaches. In simple terms, there are three main updates affecting the markets right now. First, traders are focused on the Canadian Services Purchasing Managers’ Index, a survey that indicates the health of the service sector, including retail and banking. New data from this index can influence the Canadian dollar, especially based on whether the results meet or miss expectations. Since there aren’t many other economic reports out, this Canadian figure is more important than usual. Second, the market had been shaky after the US jobs report, but that instability has calmed down. We now see stable movements in major currencies and US stock markets. Traders seem to be waiting for clearer signals, showing a slight decrease in risk appetite but not a complete withdrawal.

Announcements and Market Reactions

Third, the US is preparing to send formal notices to trading partners about upcoming tariffs. The administration plans to send about ten or twelve letters today, with the possibility of more before the self-imposed deadline early next month. The key issue is the levels of duties being introduced. Business leaders were ready for lower rate increases of up to 20%, as they had adjusted their operations for this. However, the mention of rates as high as 60% or 70% changes the situation. It raises concerns not only about increased trade risks but also about a possible slowdown in business activity starting as early as August when these changes will take effect. Going forward, market reactions will vary based on positioning. For now, markets are not anticipating further shocks, but this calm could change with the upcoming deadlines. It’s crucial not just to focus on final tariff levels, but also on how companies respond—whether they cut imports sharply, reduce investments, or absorb the costs. Recently, Lighthizer emphasized that the letters sent are just the start, suggesting that the amount of affected trade may grow. This indicates a broader scope than previously expected. For derivative traders, this could mean increased volatility as more countries respond or retaliate. Before the August 1st implementation, the markets are likely to adjust, especially if higher tariffs become more certain. This adjustment will be uneven—certain sectors and indices will feel more impact than others. Companies with long supply chains linked to Asia should be watched closely. We’re observing implied volatility moves to gauge early positioning shifts. Future option flows, particularly in sectors related to consumer durables and industrials, will provide insight into where hedges are forming. Currently, we’re experiencing a brief decline in realized volatility, but the potential for pricing shocks remains if announcements become more aggressive. In summary, we are closely watching for early adjustments by businesses and investors, as they will indicate whether the effects will happen quickly or gradually. Market reactions are coming, just not all at once. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now