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Investing.com - U.S. stock futures point higher with a move by Canada to rescind a digital services tax bolstering sentiment. Meanwhile, the Republican-controlled U.S. Senate starts debate over a sweeping tax cuts and spending bill, but some GOP holdouts remain even as a Fourth of July deadline to pass the package looms large. Elsewhere, Chinese manufacturing activity contracts in May, although at a slower rate than anticipated.
1. Futures edge higher
U.S. stock futures traded higher on Monday, as investors welcomed a decision by Canada to scrap a digital services tax aimed at American technology groups and hoped that the White House may be able to secure a range of trade deals in the coming weeks.
By 03:30 ET (07:30 GMT), the Dow futures contract had risen by 250 points, or 0.6%, S&P 500 futures had gained 23 points, or 0.4%, and Nasdaq 100 futures had risen by 109 points, or 0.5%.
The main averages all ended in the green on Friday, with the benchmark S&P 500 and tech-heavy Nasdaq Composite both notching all-time closing peaks. The Nasdaq, in particular, confirmed its entry into bull market territory, commonly defined as a 20% rise off a recent low.
A personal consumption expenditures report showed that consumer spending unexpectedly declined in May, while the inflation rate stubbornly above the Federal Reserve’s 2% target. The figures bolstered hopes for potential interest rate reductions from the central bank.
Financial markets have now priced in a roughly 74% probability that the Fed will slash rates as soon as its September, although there is still a smaller chance that the drawdown comes at its next gathering in July.
2. Canada rescinds digital services tax
Canada decided to rescind its digital services tax on tech businesses mere hours before it was due to take effect, as Ottawa pushes to revitalize stalled trade negotiations with the Trump administration.
The tax would have covered 3% of the digital services revenue a tech company garners from Canadian customers above $20 million in a calendar year. It would have been retroactive to 2022 as well.
U.S. President Donald Trump used the tax as a motive last week for terminating trade discussions with Canada, calling it "egregious" and threatening to slap a new tariff rate on Canadian goods in response.
But in a statement, Canada’s finance ministry said collection of the tax, slated for Monday, will be halted. Canada’s finance minister also noted that legislation to erase the tax will be brought forward.
Following the announcement, Prime Minister Mark Carney and U.S. President Donald Trump will now hold talks with the goal of reaching a trade deal by July 21, Canada’s finance ministry said.
3. Senate debates policy bill with full passage vote looming
Republicans in the U.S. Senate have voted to begin debate over their version of a massive, Trump-backed tax-and-spending bill, even as the legislation faces holdouts from inside the GOP and staunch Democratic opposition.
The measures, which a nonpartisan forecaster said could add around $3.3 trillion to the country’s ballooning $36.2 trillion debt pile over the next decade, are widely tipped to be passed by the upper chamber of the U.S. Congress, potentially as early as Monday.
Among a variety of initiatives, the bill would extend tax cuts first put in place by Trump in 2017, slash other taxes and increase spending on defense and border security.
Senators now likely face hours of debate before beginning a voting session on amendments to the legislation -- a step which could then be followed by a vote on full passage. The bill would next need to be approved by the House of Representatives.
Lawmakers in Congress are pushing to have the package on Trump’s desk ready for signing by a self-imposed July 4 deadline.
4. China manufacturing activity contracts
China’s manufacturing sector contracted in June, albeit at a slightly less-than-expected pace as local manufacturers grappled with sluggish overseas demand amid relatively high U.S. trade tariffs.
The manufacturing purchasing managers’ index read 49.7 in June, data from the National Bureau of Statistics showed on Monday. The print was slightly better than expectations of 49.6 and improved from the 49.5 seen in the prior month.
A reading below 50 indicates contraction, with China’s manufacturing sector now shrinking for a third straight month.
Yet the PMI picked up marginally from the prior month, reflecting some improving conditions for domestic manufacturers after the U.S. and China agreed to slash their respective trade tariffs in May.
Washington and Beijing have also made steps towards agreeing to uphold the May deal, as well as establishing a framework for a trade deal in June. Further improvements in trade relations between the two countries could benefit Chinese manufacturers, who will be able to sell more in U.S. markets as tariffs fall.
5. Oil dips
Crude prices edged lower Monday as an easing of geopolitical risks in the Middle East and the prospect of another OPEC+ output hike in August weighed.
At 03:35 ET, Brent futures dropped 0.2% to $66.66 a barrel and U.S. West Texas Intermediate crude futures fell 0.4% to $65.26 a barrel.
Both benchmarks posted their biggest weekly decline since March 2023 last week, but they are set to finish higher in June with a second consecutive monthly gain of more than 5%.
The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, is set to meet on July 6 and is widely expected to agree to another monthly increase in output levels, the fifth since the group started unwinding production cuts in April.