US equity futures are modestly lower ahead of today's CPI report, but well off session lows, as markets take a slight pause following yesterday’s surge and as trade war truce euphoria gives way to lingering concerns about inflation and economic growth. As of 8:00am ET, S&P and Nasdaq 100 futures were down 0.2% with Mag7 and Semis names weaker pre-mkt, pulling the index lower. UnitedHealth Group sank 10% in pre-market trading after suspending its 2025 outlook. In the latest trade war news, US reduced the tariff on ‘de minimis’ shipments from China, per Reuters, from 120% to 54%, while China reversed its ban on Boeing jets. Appetite for safer assets picked up again, with Treasury yields falling and gold prices on the rise. The dollar slipped after gaining more than 1.4% yesterday, its strongest day since Nov 6, 2024, the day after the election. Today’s macro data focus is on CPI where the YoY numbers are expected to remain flat MoM despite an acceleration in the MoM prints. Earnings prints are not expected to be market moving today.
In premarket trading, Magnificent Seven stocks were mostly lower with the exception of NVDA (Tesla -0.3%, Meta Platforms -0.2%, Microsoft -0.3%, Apple -0.3%, Alphabet -0.2%, Amazon +0.02%, Nvidia +0.2%). Coinbase Global (COIN) climbs 9% after S&P Dow Jones Indices said the company will join the S&P 500 Index before trading opens May 19. UnitedHealth Group shares drop 10% after the health insurer suspended its 2025 outlook and said CEO Andrew Witty is stepping down for personal reasons, effective immediately. Here are some more notable premarket movers:
The powerful surge in stocks following the US-China trade truce, which sent the S&P 3.3% higher and erasing all post-Liberation day losses, caught out bearish investors who are now left chasing the rally, as well as hedge funds that were mostly short US equities, according to strategists. Bank of America’s latest fund manager survey — conducted before the US-China trade breakthrough — is “bearish enough to suggest pain trade modestly higher,” Michael Hartnett said. BBVA strategists said that hedge funds’ net leverage is near five-year lows and mostly short US equities, adding to the squeeze.
“Yesterday’s move was warranted,” said Andrea Gabellone, analyst at KBC Securities. “But I need more to get more fundamentally constructive.”
Still, Tuesday’s slight pullback suggests trade and economic concerns are lingering, despite the US-China truce. The dollar is a bit weaker, and gold is higher, as investors await April’s CPI number for a sense of whether Trump’s tariff back-and-forth is fueling inflation. Boeing will be in focus after China removed a ban on airlines taking delivery of its planes.
“The challenges are not over,” said Frederique Carrier, investment strategy head at RBC Wealth Management. “The de-escalation was a lot stronger than even the best hopes, but you have to remember that the US economy still faces average effective tariffs of more than 13%.”
There’s also plenty from strategists to digest. Goldman’s David Kostin raised his 12-month target for the S&P 500 to 6,500 from 6,200, implying a gain of about 11%. But he’s still somewhat cautious, seeing an “impending slowdown in economic and earnings growth.” Meanwhile, the market rebound prompted Mark Haefele, chief investment officer at UBS Global Wealth Management, to cut US stocks to neutral from attractive, saying the risk-reward was now more balanced. Uncertainty is still high, he wrote in a note on Tuesday, and investors will focus on whether a lasting trade agreement can be forged between the two countries.
In Europe, the Stoxx 600 rises 0.2%. Health care stocks are among the biggest gainers, with Bayer shares rising 8% after earnings beat expectations. Insurance names provide a drag after disappointing numbers from Munich Re. Here are the biggest movers Tuesday:
Earlier in the session, Asian stocks eked out gains, with sentiment getting a boost after the world’s two largest economies agreed to a trade truce. Meanwhile, shares in Hong Kong fell after a rally on Monday. The MSCI Asia Pacific Index jumped as much as 1%, before trimming its gains to 0.2%. TSMC, Recruit and Toyota were major contributors to the gauge’s gains. Japanese shares were among the biggest gainers in the region, with the Topix index posting its longest winning streak in nearly 16 years. Benchmarks also advanced in Taiwan and Malaysia. Still, shares fell in Hong Kong as the trade agreement is seen as reducing Beijing’s need to announce any large stimulus. Stocks in mainland China pared early gains to trade little changed. Meanwhile, gauges in India also fell as the tech sector’s rally cooled.
In FX, the Bloomberg Dollar Spot Index slipped as much as 0.3% as positioning in the options market continued to lean against the currency. Kristoffer Kjaer Lomholt, head of FX and corporate research at Danske Bank A/S, said the greenback’s 1% surge on Monday was “all about the unwind of the post-Liberation day trades” even though unlike other assets which have recovered all losses since Liberation Day, the dollar remains the only major asset class that is decidedly lower. The Swiss franc, Swedish krona and Aussie dollar are the best performing G-10 currencies. The Canadian dollar lags with a 0.1% fall against the greenback.
Treasuries also reversed some of the Monday moves. The policy-sensitive US two-year yield fell three basis points after surging 12 basis points amid speculation the tariff truce would bolster the world’s biggest economy. 10-year yields dropped 3 bps to 4.45% and again reversing some of Monday’s move. Bunds fall, with German 10-year yields rising 3 bps. UK 10-year borrowing costs add 2 bps but short end yields are lower after British businesses cut jobs for a third straight month in April.
In commodities, US crude WTI futures rise 0.5% to $62.25. Spot gold has also pared some of Monday’s fall, rising $18 to around $3,254/oz.
Looking to the day ahead now, and the main highlight will be the US CPI release for April. Otherwise, we also got UK unemployment for March and the German ZEW survey for May. From central banks, we’ll hear from the ECB’s Escriva, Makhlouf and Knot, along with BoE Governor Bailey and the BoE’s Pill.
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mostly higher following the rally on Wall St owing to the US-China trade war de-escalation after both sides agreed to cut tariffs by 115ppts for an initial period of 90 days, although some of the gains were capped as the euphoria began to moderate. ASX 200 edged higher amid outperformance in tech and energy but with further advances contained by weakness in defensives and gold miners. Nikkei 225 rallied to above the 38,000 level following the cooling in US-China trade tensions but with the index off intraday highs amid some profit-taking and a slight pullback in USD/JPY, while BoJ rhetoric continued to signal future hikes if prices and the economy improved. Hang Seng and Shanghai Comp lagged despite the de-escalation in the US-China trade war which the Hong Kong benchmark already had its opportunity to react to yesterday, while questions lingered on what will happen during the 90-day reprieve as the trade deficit remains and the current 30% tariff on Chinese goods still a relatively high level.
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European bourses (STOXX 600 +0.2%) are mostly, but modestly firmer as markets cool a touch from the significant upside seen in the prior session. Price action this morning has been relatively rangebound, given the lack of fresh catalysts thus far. European sectors hold a slight positive bias, but with the breadth of the market fairly narrow. Basic Resources leads, followed closely by Retail and Travel & Leisure to complete the top three. US equity futures (ES -0.4%, NQ -0.5%, RTY -0.5%) are modestly in negative territory, as the complex gives back some of the prior day’s US-China induced upside. Focus this morning has been on Bloomberg reporting which suggests China is lifting its ban on Boeing (BA) deliveries after the US-China tariff pause. BlackRock (BLK) CEO said it still sees global investors overweighting the US; adds that US deficits are still an issue.
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DB's Jim Reid concludes the overnight wrap
Good evening from the West Coast of the US. A lot of miles have been travelled for me and for markets in the last 24 hours, and as I questioned in yesterday’s CoTD (link here), will the last 6 weeks go down in the annals the same way as series 9 of Dallas back in the mid-1980s? This series was expunged from memories as a dream sequence of Pam Ewing, rendering the death of husband Bobby Ewing as just a nightmare. With both the US and China slashing their tariff rates by 115 percentage points, with the US rate on China down from 145% to 30% and China’s rate on the US falling from 125% to 10%, we’re almost back to pre-Liberation Day levels. And if you include the fact that 20pp of the 30% US levy is around fentanyl, and could surely be negotiated down with the current momentum, China is now back in the pack with regards to pure trade tariffs on other countries.
The dramatic reduction in tariffs is only a temporary one for 90 days, but as far as markets are concerned, there’s now a belief that the worst of the trade war has passed, and that the trend is now towards de-escalation. So that unleashed a phenomenal rally across multiple asset classes, with the S&P 500 (+3.26%) building on its recent run as investors priced out the chance of a downturn, with 2 and 10yr US yields up +12.0bps and +9.3bps respectively.
There’s little doubt about how positive this news is, but the US is not out of the woods yet. Our US economists had already assumed a decent amount of de-escalation into their most recent assumptions, with an effective tariff rate of 15%. So that's still not far from where we might net out given all we know after yesterday. Such an effective rate was consistent with a subdued, barely positive, level of US growth in H2. However, if the direction of travel is further tariff cuts then the risks are clearly back to the upside. For inflation, our economists suggest there is now some downside risks to our 3.6% core PCE forecast for this year. However, upside risks remain from sectoral tariffs and greater passthrough from tariffs to consumer prices in response to the broader weakening in the dollar. We maintain our view that the Fed will find it hard to ease in the near term and the first cut pencilled in for December remains the base case. See our US economists reaction to the news yesterday and how it might change their views here.
Yesterday's announcement came around 8am London time, just as European markets were opening, and there was an immediate reaction in response. To be fair, futures were already positive thanks to the weekend newsflow. But there was then a fresh leap higher as the tariff reductions were well above market expectations. Indeed, Trump himself had said on Friday that “80% Tariff on China seems right!”, and he’d been talking about a 60% rate on the campaign trail. So the fact it was only 30% was greeted with a huge sigh of relief. The reversal came with few immediate concessions by China, beyond reversing retaliatory measures imposed since Liberation Day. However, Trump said that China agreed to “suspend and remove all of its non-monetary barriers” without offering specifics.
Looking forward, the mood music around the discussions also sounded very positive, and came in at the upside of market expectations. For instance, Treasury Secretary Bessent said that both sides agreed that they “do not want a generalized decoupling”, and that “as long as there is good faith effort, engagement and constructive dialog, then we will keep moving forward”. So that sounded a long way from the rhetoric of recent weeks, when tariffs moved above 100% and there were fears of a wider trade breakdown, with China describing the US’s tariff moves as a “joke”. Later on in the day, President Trump himself said “I’ll speak to President Xi, maybe at the end of the week”, so that again kept the door open to further communications.
Those headlines led to a continued unwind of the moves since Liberation Day, with the S&P 500 surging another +3.26%, its best daily performance since the original 90-day reciprocal tariff extension was announced on April 9 and its third best day in the last 5 years. The move means the index is now +3.05% above its level on Liberation Day, and only -4.88% beneath its all-time high from mid-February, which is remarkable given everything that’s happened in that time. Moreover, the latest advance leaves the index up more than +17% in just over a month, which is a pace we haven’t seen since Q2 2020 as markets were bouncing back from the aggressive Covid slump. That was supported by a huge rally for the Magnificent 7 (+5.67%). The NASDAQ (+4.35%) is now back in bull market territory and up +22.5% from its lows. And with equities surging back, the VIX index of volatility closed beneath 20pts for the first time since March.
This move back into US assets was clear on several metrics. In particular, the dollar index (+1.44%) posted its best daily performance since November, back when investors were reacting to the news of Trump’s election victory. Moreover, the rally in US equities was much more pronounced than elsewhere, with Europe’s STOXX 600 “only” up +1.21% on the day. And US credit spreads also tightened more aggressively than their European counterparts, with US HY spreads down -38bps on the day, whereas those in Europe were down -22bps. That now leaves US HY spreads at 305bps, clearly beneath their Liberation Day level of 334bps.
With investors pricing out a recession, the announcement also saw investors dial back their rate cut expectations over the rest of the year. For instance, futures moved to price just 56bps of Fed rate cuts by the December meeting, down -9.8bps on the day, and the fewest since February. We were at 131bps at the intraday low on April 7, shortly before the initial 90-day extension. In turn, that led to a big move higher for sovereign bond yields, with the 2yr Treasury (+12.0bps to 4.01%) closing above 4% for the first time since March. Meanwhile, the 10yr yield (+9.3bps) moved up by a smaller amount to 4.47%. Those moves were similar in Europe, where yields on 10yr bunds (+8.6bps), OATs (+6.1bps) and BTPs (+6.8bps) all moved higher.
This shift was also echoed in commodity markets, where oil prices built on last week’s rebound as hopes grew for stronger global trade flows. For instance, Brent crude oil prices (+1.64%) were back up to $64.96/bbl, having closed at a 4-year low ($60.23) just a week earlier. In the meantime, gold prices (-2.66%) fell back to $3,236/oz, which came as the lower tariffs helped to reassure investors about inflationary pressures. Indeed, the 1yr US inflation swap plummeted by a huge -25.2bps on the day to 3.16%, which is the biggest daily decline since November 2022.
Looking forward, inflation will remain in the spotlight today, as we’ve got the US CPI release for April coming out. That’s the first to cover the period since Liberation Day, so it’ll be a good insight into how the tariffs are impacting consumer prices so far. However, the baseline expectations from our US economists is that the April tariffs won’t start showing up in consumer prices until June and the subsequent months. In terms of what to expect today, they forecast that headline CPI will come in at +0.26% on the month, with core CPI only a little bit higher at +0.29%. If realised, that would leave the year-on-year headline rate at +2.4%, and leave core CPI at +2.8%. Click here for more details and to sign up to their subsequent webinar.
Today should also see attention focus on US fiscal news, after Republicans unveiled a draft version of their tax bill yesterday. The House Ways and Means Committee are set to begin debating it today, and Trump yesterday called on Republicans to unify behind “THE ONE BIG, BEAUTIFUL BILL”.
Overnight in Asia, there’s been a mixed performance as they react to the pause in the US-China trade conflict, with the risk-on move losing a bit of momentum. Japanese equities are doing particularly well, with the Nikkei (+1.78%) and the TOPIX (+1.28%) both advancing. Indeed, for the TOPIX, it marks a 13th consecutive increase for the first time since August 2009. Otherwise however, the gains have been more muted, with Australia’s S&P/ASX 200 (+0.42%) seeing a smaller increase, whilst in mainland China, the Shanghai Comp (+0.08%) and the CSI 300 (+0.03%) have only posted a modest advance. Meanwhile, there’ve been some more negative performances, with the KOSPI down -0.18%), and the Hang Seng is down -1.67%, which would end a run of 8 consecutive daily gains. The more risk-off tone has also been evident in the US, where futures on the S&P 500 have fallen -0.41% this morning, and 10yr Treasury yields (-2.0bps) are back down to 4.45%.
To the day ahead now, and the main highlight will be the US CPI release for April. Otherwise, we’ll get UK unemployment for March and the German ZEW survey for May. From central banks, we’ll hear from the ECB’s Escriva, Makhlouf and Knot, along with BoE Governor Bailey and the BoE’s Pill.