Global stocks continued to climb higher amid bets the US Federal Reserve will lower borrowing costs. A so-far modest rise in goods prices is fueling speculation the Fed will resume rate cuts next month and move more aggressively to protect a labor market showing signs of strain. 

A gauge for Asian equities climbed 1.6% to the highest level since February 2021. Europe’s Stoxx 600 index rose 0.4%. Futures for the S&P 500 held steady after Wall Street’s surge to fresh peaks.

Traders are pricing in about a 90% chance of a quarter-point cut in September, with at least three more similar moves expected by June. The upbeat mood is buoyed by easing global trade tensions and a significantly stronger-than-expected US earnings season.

“The bull case remains a convincing one, with earnings growth solid, and a cooler tone on trade continuing to prevail, all the while dovish policy expectations help to provide a cushion against any worries that the economy may be softening under the surface,” said Michael Brown, senior research strategist at Pepperstone. —Richard Frost

What You Need to Know Today

China sanctioned a pair of banks in the EU, fulfilling a promise to retaliate after the bloc targeted some Chinese lenders over Russia’s invasion of Ukraine. China included UAB Urbo Bankas and AB Mano Bankas in its countermeasure list, the Ministry of Commerce said. The move bans organizations and individuals in China from transactions, cooperation and other activities with the institutions.

Separately, China’s credit expansion rebounded less than expected in July from a year ago with a key loan gauge falling to the lowest since 2007. Banks are usually in no rush to meet their quarterly loan targets in July, putting the brakes on financing activity. Still the data shows how increasingly entrenched deflation is depressing borrowing demand. 

Treasury Secretary Scott Bessent dismissed the possibility that Chinese investments in the US could be part of any trade pact. Bessent said "my sense is no" to China making pledges worth billions of dollars as part of their trade agreements, citing the need to reshore critical industries away from China. He indicated that Washington wants to see measures from China over an extended period to stem the flow of chemicals used to make fentanyl before lowering duties.

Scott Bessent Photographer: Bonnie Cash/UPI

India and China are restoring economic links strained by a deadly 2020 border clash, the latest sign Prime Minister Narendra Modi is drawing closer to the BRICS countries after US President Donald Trump hit the South Asian nation with a 50% tariff. Modi’s latest move is to resume direct flights with China as soon as next month, said people familiar with the negotiations. The deal could be formally announced when Modi is expected to head to China for the first time in seven years and meet leader Xi Jinping at a meeting held from Aug. 31, the people said. 

Vladimir Putin is heading to Friday’s planned summit with Donald Trump confident that Russia is in a dominant position on the battlefield as his military advances in Ukraine. That’s likely to strengthen his determination to secure major territorial concessions when the Russian and US presidents meet in Alaska in return for a ceasefire that Putin has so far been reluctant to concede to Trump. Russian forces broke through Ukrainian defenses in the eastern Donetsk region around villages leading to the town of Dobropilly, according to a monitoring platform.

Typhoon Podul made landfall on Taiwan’s southeastern coast, bringing torrential rains and strong winds, and is forecast to track across the island on Wednesday before heading toward mainland China. The tropical cyclone came ashore near Taitung, packing top sustained winds of 155 kilometers (96 miles) per hour, according to the national weather agency. That’s equivalent to a Category 2 hurricane on the five-step Saffir-Simpson scale. The storm is expected to make landfall near Fujian province late evening or overnight into Thursday, according to the China Meteorological Administration. 

Waves generated by Typhoon Podul break along the coast in Kaohsiung. Photographer: I-Hwa Cheng/AFP

Modi and his ruling party have seized on growing friction with Trump to bolster support from farmers ahead of a crucial state election. A day after Trump stunned New Delhi by slapping 50% tariffs on the nation’s exports to the US, Modi promised supporters he’d protect the interests of farmers, even if it means he pays a personal price for it. Modi’s top aides, including his trade minister, have signaled India won’t give in to US pressure to open up its agriculture and dairy markets to American imports.

The Chinese navy said it expelled a US Navy ship that entered its territorial waters in the South China Sea, while the US defended the operation as legal under international law. China’s navy tracked and warned off the USS Higgins, a US Navy destroyer, after it “illegally intruded” into the waters surrounding Scarborough Shoal without permission, the People’s Liberation Army Southern Theater Command said. The US Navy rejected the Chinese claim, describing the operation as a lawful assertion of navigational rights.

What You’ll Need to Know Tomorrow

For Your Commute

Trump’s trade war was meant to rebalance global power in America’s favor. Instead, China is playing the long game, enduring short-term economic pain to shape any eventual deal to its advantage, writes Bloomberg Opnion’s Karishma Vaswani.

The strategy appears to be working — for now. On Monday, Washington granted Beijing another 90-day reprieve, extending a pause on tariffs through Nov. 10. China announced it would do the same. Markets welcomed the move, which offered some relief after months of tension. The delay will give President Xi Jinping’s policymakers more time to plan their next move. And time is Xi’s ally. Read more here.

Xi Jinping, China's president, center. Photographer: Qilai Shen/Bloomberg

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