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Updated: July 2, 2019

Dow futures fall as trade optimism wanes

Dow futures are pulling back on Tuesday as initial optimism over the tariff ceasefire between the United States and China wanes.

The United States proposed new tariffs on $4 billion worth of goods imported from the European Union. So much for reaching more records in this shortened Independence Day week.

Futures for the Dow, as well as the S&P 500, are down 0.1%. On Monday, the S&P reached a new record closing high of 2,964 points. The Dow also briefly surpassed the closing record it set last October, but couldn't maintain its gains through to the close.

Futures for the Nasdaq Composite are down 0.2%.

The US dollar, measured by the ICE US Dollar Index, showed a similar dynamic. The dollar started the week with its best one-day gain since March, but is weaker on Tuesday, according to Refinitiv.

Although investors were upbeat at the start of the week after President Donald Trump and China's Xi Jinping agreed a tariff ceasefire to return to trade talks, underlying worries about the global economy persist. After all, the agreement struck at the G20 summit in Japan didn't cancel any existing tariffs that are already affecting the global economy.

The newly proposed tariffs directed at the EU promise to add to the pain, as the EU economy is heavily driven by exports.

In line with that narrative, the theme of global monetary easing is continuing. The Reserve Bank of Australia cut interest rates to a record low of 1% to stimulate the economy.

"This was the second rate cut in succession, by the Australian central bank and feeds into a global narrative of central banks looking set to embark on a new easing cycle, over concerns that the global economy is on the cusp of a sharp slowdown," said Michael Hewson, chief market analyst at CMC Markets.

Just a year ago, developed world central banks were generally still leaning towards raising rates.

Trump has long called on the Federal Reserve to also cut interest rates to boost the economy. Market expectations for a cut later this month are at 100%.

Nevertheless, Trump tweeted earlier on Tuesday that the economy was the "best it has ever been".

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