US stock futures drop as trade tensions with China and EU reignite

US stock futures retreat as trade tensions with China and EU reignite

US stock futures fell on June 2, marking a cautious start to the month as escalating global trade tensions and geopolitical uncertainties dampened investor sentiment, sending S&P 500 futures lower by 0.3%, Nasdaq-100 futures down 0.5%, and Dow Jones Industrial Average futures lower by 0.2% a short while ago.

The pullback followed modest losses across Asia and Europe, with auto and steel stocks under pressure.

Markets reacted sharply after China pushback against US accusations of violating a recently brokered trade truce. Over the weekend, Beijing blamed Washington over ‘seriously undermining’ the agreement, citing new export controls on AI chips and restrictions on Chinese students' visas as examples of discriminatory measures.

The tensions resurfaced despite last month’s temporary breakthrough in Geneva, where Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng agreed to suspend most tariffs for 90 days. Bessent said on June 1 that he is confident that Presidents Trump and Xi Jinping would speak soon, and the issues will be ‘ironed out’.

The US is also facing renewed friction with the European Union after President Trump’s move to double tariffs on imported steel and aluminum to 50%, effective June 4, drawing a sharp response from Brussels. EU officials warned the tariff hike could derail trade negotiations and said they were prepared to impose ‘countermeasures’. A delegation has been sent to Washington for further talks.

Despite these headwinds, Wall Street wrapped up May with its strongest monthly performance since November 2023. The S&P 500 gained over 6%, the Nasdaq Composite surged more than 9%, and the Dow rose about 4%, buoyed by resilient earnings and cooling inflation expectations.

Still, some analysts caution that the rally may have overextended. “We’re probably still range-bound,” said Chris Toomey, managing director at Morgan Stanley. “The market has priced in a best-case scenario, even though geopolitical risks remain unresolved.”

In other markets, Treasury yields edged higher, while the US dollar weakened against major currencies. Crude oil jumped nearly 3% after Ukraine launched a drone strike on Russian military airports, and as OPEC+ agreed to ramp up supply starting July. Gold futures climbed nearly 2% amid rising geopolitical and macroeconomic uncertainty.

US markets will also watch out for comments from Federal Reserve Chair Jerome Powell later on June 2, following recent comments by Fed Governor Christopher Waller, who signalled openness to rate cuts later this year, assuming inflation remains in check and tariff pressures don’t escalate dramatically.