It's risk-off price action this morning, with US equity futures lower, rates rallying across the curve, macro credit opening softer, while the USD trades broadly lower. The two-day rally in US stocks fizzled amid mixed Trump signals on China tariffs as the president floated a fresh levy timeline while simultaneously denying easing efforts and Beijing called for full rollback of all US duties. As of 8:00am S&P futures slipped -0.3% as China maintained a defiant stance over tariffs imposed by Trump, but were off session lows as investors continue to live headline to headline; Nasdaq futures dropped 0.2% with all Mag7 names in the red; NVDA (-1.5%), TSLA (-1.6%), and AAPL (-1.2%) are leading the losses. With Trump reigniting tariff volatility, IBM warning on federal cuts and China denying trade talks entirely, the rotation out of US risk remains intact. Europe was mixed, Real Estate (+1.16%) and Autos (+0.71%) outperforming but Banks (-0.76%) and Travel (-0.69%) lagged. Overnight, China responded to the recent headlines regarding “US-China talk”: Beijing pointed out that “there are absolutely no negotiation on the economy and trade between China and the US and called to cancel all the unilateral measures on China. Meanwhile Trump downplayed the idea of millionaire tax rate, one that some Republicans sees as a way to pay for the economic package. Bond yields are lower and USD is weaker; 2-, 5-, 10-yr yields are 4.5bp, 4.8bp, 3.3bp lower. The dollar extended its decline (-0.56%), with gold climbing (+1.3%) as investors hedge against prolonged US policy risk. VIX is flat (+0.28%), MOVE dipped (-1.48%) and USYC2Y10 (+1.6%) suggesting caution is returning despite the bounce in crude (+0.74%) copper (+0.57%) and gold (+1.4%). Flows are risk-off: SPY -$1.98B, QQQ -$689M and IWM -$614M, while GLD picked up another +$643M and XLU +$109M. Looking ahead today, we have durable good orders, initial and jobless claims, existing home sales, as well as non-voter Kashkari speaking.
In premarket trading, Mag 7 stocks fall (Tesla -0.6%, Nvidia -0.3%, Meta -0.5%, Apple -0.2%, Amazon -0.3%, Alphabet -0.2%, Microsoft -0.06%). IBM slumped 6.8% after 1Q results failed ease investor concerns. Chipotle fell 3.6% after the Mexican restaurant chain lowered its full-year outlook after quarterly sales declined for the first time in almost five years. Comcast fell 3% after reporting first-quarter losses of pay-TV and broadband customers that exceeded analysts’ estimates, a reflection of the growing competition from streaming companies and wireless providers. Here are some other notable premarket movers:
Stocks are struggling to extend Wednesday’s global rally, which was spurred by signs Trump is rethinking the most aggressive elements of his stances on trade and the Federal Reserve. The market moves underscore how investors are grappling to keep up with pronouncements from officials in the administration and frequent back-and-forth by Trump on his tariffs. Bessent tempered some of the optimism over that development, as he said the US was not looking to unilaterally lower tariffs and that a full trade deal could take two to three years. China, in turn, said Thursday that the US should revoke all unilateral tariffs and that Washington needs to show sincerity if it wants to hold trade negotiations.
“In terms of geopolitical risk, there’s a chance that we have reached a bottom, even if that’s not necessarily the case for markets,” said Francois Antomarchi, a fund manager at Degroof Petercam asset management. “Trump has touched the limits of what he can inflict on corporate America. That being said, there’s always a possibility he starts acting on another political front and triggers more volatility.”
Overnight, we continued to see mixed messages on trade negotiations, with President Trump saying last night that China may receive a new levy rate in two to three weeks, while China’s Foreign Ministry denied both countries are in talks and said the US should revoke all unilateral tariffs. Also had reports that the US is considering reducing certain tariffs targeting the auto industry although Trump said he wasn’t. CNBC reported that EU officials have warned that there’s still a lot of work that needs to get done before a trade deal can be reached with the US. Japan is hoping to finalize an agreement around the Group of Seven summit in June, however, they are likely going to resist Trump efforts to form trade bloc against China.
“You’re just seeing conflicting statements and noise coming from the US, where the overall narrative is just all over the place,” said Peter Kinsella, head of foreign-currency strategy at Union Bancaire Privee Ubp SA in London. “It’s impossible to trade.”
Deutsche Bank strategists were the latest to slash their year-end S&P 500 target by 12%, citing the blow to US companies from tariffs. While the new target of 6,150 points leaves 14% upside from Wednesday’s close, it means the index will only recover losses sustained since its February peak. Up until this change, the Deutsche Bank team had one of the most bullish views for the benchmark.
“With the potential impact of the announced tariffs large and likely to fall disproportionately on US companies, we lower our S&P 500 EPS estimate for 2025 from $282 to $240,” the strategists wrote in a note, adding that the consensus view is at risk of further downgrades.
Europe's Stoxx 600 is down 0.4% with bank, retail and technology shares posting the largest declines.Real Estate (+1.16%) and Autos (+0.71%) outperform but Banks (-0.76%) and Travel (-0.69%) lag. Germany’s IFO Survey was better (for both current and expectations) helping push the euro higher. Here are the biggest movers on Thursday:
Earlier in the session, Asian stock rally took a breather on Thursday as investors digested the latest commentary from the Trump administration on its tariff plan. The MSCI Asia Pacific Index edged lower after a five-day run of gains. Shares in Taiwan, South Korea and Hong Kong fell. Stock benchmarks in Japan bucked the trend to gain about 1%, buoyed by carmakers on news that the US is considering whether to reduce certain tariffs targeting the auto industry. While signs that President Donald Trump is easing up on his tough stance against China and the Federal Reserve drove a relief rally globally on Wednesday, the momentum cooled after Treasury Secretary Scott Bessent cast doubt on a timely resolution to the US-China trade war. A reduction in US import tariffs is “conditional on China coming to the table and perhaps then after a two to three-year period we could see a bilateral trade deal in the works,” said Chris Weston, head of research at Pepperstone. “For now, the collective takes the news flow to mean that we’ve seen the worst of tariff policy.”
In FX, the Bloomberg Dollar Spot Index fell 0.4%, snapping a two-day winning streak after China also demanded that the US revoke all unilateral tariffs; ongoing tensions underscored the risks stemming from aggressive US tariffs. The euro rises 0.6%, helped by stronger-than-expected German IFO data although Rehn’s comments saw it pullback from the highs. The Norwegian krone is leading G-10 currency gains against the dollar, rising 1.2%. The Canadian dollar underperforms, albeit still up 0.3%. USD/JPY fell as much as 0.8% to 142.31.
“The dollar rebound this week doesn’t represent much more than a squeeze on speculative short dollar positions generated by the ‘no intention to fire Powell’ headlines and signs of back peddling on some of the tariff items,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank Ltd. “It doesn’t change the negative big picture view of the dollar”
In rates, the 10-year Treasury yield fell 3bps to 4.35%, sliding back toward a 4.24% touched on Wednesday, its lowest since April 8. Treasuries hold modest curve-steepening gains in early US trading, led by German government bonds which are also higher, having extended gains after ECB’s Rehn said they shouldn’t rule out a larger interest-rate cut. German 10-year borrowing costs fall 3 bps. Gilts are also higher, albeit lagging peers. Bund curve steepened as traders priced in additional ECB easing. The US session includes a 7-year note auction, last coupon sale until May 5, following good demand for Wednesday’s 5-year offering.
In commodities, oil prices advance, with WTI rising 0.6% to $62.60 a barrel. Gold jumps $50 to around $3,336/oz. Bitcoin falls 1% to below $93,000.
On today's calendar, we have Initial Jobless Claims and Durable Goods at 8:30am, Existing Home Sales at 10am, and Kansas City Fed Manf at 11am. Fed’s Kashkari speaks at 5pm. We get another slew of EPS and $44bn 7yr UST auction at 1pm.
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Tariffs/Trade
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were ultimately mixed despite the positive handover from Wall Street - the risk momentum waned overnight as trade uncertainty lingered owing to the mixed signals from the US. ASX 200 was led higher by outperformance in mining stocks and tech, with gold producers buoyed by a rebound in the precious metal. Nikkei 225 advanced at the open but gradually pared most of the gains following firmer Services PPI data from Japan and after a report that the US told Japan it cannot give it special treatment regarding tariffs during talks held earlier this month. Hang Seng and Shanghai Comp were subdued following the mixed signals from the US as a report noted the White House was mulling cutting China tariffs by around half to de-escalate the trade war although officials declared they are not considering something unilaterally. Furthermore, President Trump stated it depends on China how soon tariffs can come down and if they don't have a deal, they will set the tariff but said they are having daily talks with China.
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European bourses (STOXX 600 -0.8%) opened with modest losses, but sentiment gradually deteriorated as the morning progressed, to display a clear negative bias. European sectors opened mixed but now display a bit more of a negative picture. Real Estate takes the top spot, alongside strength in Energy; although upside is very modest. Tech is the clear underperformer today, given the risk-tone and as traders digest the latest earnings from Dassault Systemes, which slumped after downgrading its 2025 margin outlook. The banking sector is pressured by post-earning losses in BNP Paribas, whilst the Luxury sector is hit after poor Kering results. US equity futures (ES -0.6% NQ -0.8% RTY -0.6%) are entirely in the red, in-fitting with the broader risk tone; the NQ lags, with sentiment in the Tech sector hit after IBM (-8% pre-market) results. Focus now turns to US Durable Goods, Jobless Claims and earnings from the likes of Alphabet and Intel.
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FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Ukraine
Geopolitics: Other
US Event Calendar
Central Bank speakers
DB's Jim Reid concludes the overnight wrap
I'm on my way to Luxembourg this morning. It's always a very pleasant trip apart from the fact that it's the one time a year I go on a small twin propellor plane. Last time in extreme turbulence I think I clung onto my colleague Mark Wall as we came into land. Fortunately for Mark the weather looks pretty calm today!
Markets are a little bumpier in Asia this morning and reversing a little after a relentlessly bullish run since Easter. Yesterday saw a further positive batch of headlines on the trade war with Trump saying “We’re going to have a fair deal with China”, as the WSJ reported that the China tariffs could be slashed down towards 50-65%. That would be less than half the 145% rate that’s in place right now, and that led to a lot of excitement that US policy would move in a more predictable direction from here. In fact we're moving back closer towards Trump's campaign pledges of a 10% universal baseline tariff and a 60% tariff on China, albeit 2 weeks into a 90-day reprieve on the more aggressive reciprocal tariffs.
The latest positive developments collectively led to a huge sigh of relief in markets, and meant several assets unwound their tariff-driven moves. Equities climbed as a result, with the S&P 500 (+1.67% after +2.51% Tuesday) posting consecutive gains of above 1% for the first time since November 6, the day after Trump’s election win. Indeed, it now means the S&P has pared back more than half of its losses since the closing low on April 8. And in Europe it was much the same story, and the STOXX 600 (+1.78%) also posted a solid advance, having now risen by nearly 10% (+9.98%) since its closing low on April 9. That said, the S&P 500 is still -5.20% down since April 2 and volatility remains high as the index gave up about half of yesterday’s +3.44% peak intra-day gain as investors struggled to gauge just how much tariff reversal was likely, with Bessent saying there was no unilateral offer to cut tariffs on China. So we’re not quite out of the woods yet.
We’ll have to see what happens from here, but a large part of the optimism has come about because investors think the US administration will relent more. That view was supported by the WSJ’s report yesterday, which suggested the China tariffs could be slashed lower. So that seemed to back up Trump’s own comments on Tuesday evening that the China tariffs would “come down substantially”, and that “we’re going to be very nice and they’re going to be very nice, and we’ll see what happens.” The WSJ report also floated the idea of a tiered approach, saying that one possibility was for a 35% tariff on items that weren’t a national security threat, and a 100% tariff on strategic items. Shortly after yesterday’s close the FT also reported that the US administration was planning to exempt car parts from some of the most onerous tariffs, avoiding stacking 20% China fentanyl and 25% steel and aluminium levies on top of the 25% auto tariffs.
For US Treasuries, the tariff relief and the latest Powell comments led to a further flattening of the curve. Long-term Treasuries continued to recover, with the 10yr Treasury yield down -1.9bps to 4.38% and the 30yr yield (-5.5bps) seeing an even bigger decline to 4.82%. On the other hand, the 2yr yield rose +5.3bps to 3.87%, its highest since April 11 as investors dialed back prospects for near-term Fed cuts. A rate cut was 57% priced by the June meeting as of yesterday’s close, down from 78% on Monday.
The dollar index (+0.94%) strengthened for a second day running, continuing to pick up from its three-year low on Monday after Trump’s critical comments about Powell. And although it might seem anomalous that the currency is strengthening even as long-term interest rates were falling, the moves demonstrated that investors were becoming more optimistic on US assets more broadly, with greater confidence in their safe haven status again. So that reversed the moves we saw after Liberation Day, when bonds and the currency were selling off simultaneously, in a manner reminiscent of the UK in late-2022 when Liz Truss was Prime Minister.
Elsewhere, the other big focus yesterday was on the April flash PMIs from around the world, which offered an initial indication on how the global economy was reacting to the tariffs. Overall, they showed a clear but modest deterioration, and in the US at least, they were still above the 50-mark separating expansion from contraction. So that helped to alleviate fears about an imminent recession, and the broader market rally demonstrated that investors are still sceptical that we’re heading for a sharp downturn. In terms of the numbers themselves, the US composite PMI was down to 51.2, which was the weakest print since December 2023. Meanwhile the Euro Area composite PMI just about remained in expansionary territory at 50.1, but that was also the weakest print since December.
More broadly, there were several signs across different asset classes that the recent market stress was easing. In particular, the VIX index (-2.12pts) closed at 28.45, its lowest level since Liberation Day itself on April 2. Another was US HY spreads (-26bps) which also reached their tightest level since Liberation Day, at 371bps. At the same time, yesterday also saw investors move out of several assets that had done incredibly well since the Liberation Day announcements. For instance, gold prices (-2.73%) fell back to $3,288/oz, having closed at a record high on Monday. In addition, the Swiss Franc was the worst-performing G10 currency, weakening -1.41% against the US Dollar. And European sovereign bonds also struggled significantly, with 10yr bund yields (+5.5bps) rising back up to 2.49%, alongside smaller moves for 10yr OATs (+2.5bps) and BTPs (+2.1bps).
As mentioned at the top, this week's rally is reversing a bit in Asia with the Hang Seng (-1.26%) the biggest underperformer with the CSI (-0.08%) and the Shanghai Composite (-0.10%) also seeing slight losses. Elsewhere, the KOSPI (-0.46%) is also edging lower as South Korea’s GDP data showed an unexpected contraction for the first quarter (more below). However the Nikkei is higher (+0.82%) alongside the S&P/ASX 200 (+0.60%). S&P 500 (-0.25%) and NASDAQ 100 (-0.24%) futures are also lower with 10yr USTs -2.3bps lower trading at 4.36% as I type.
Early morning data showed that South Korea's economy unexpectedly contracted in the first quarter (-0.2%), shrinking for the first time since the second quarter of 2024 and missing forecasts for a gain of 0.1%. The weak data will increase calls for the Bank of Korea (BOK) to cut interest rates again as soon as next month as policymakers worry about the consequences of Trump's tariff policies.
To the day ahead now, and data releases include the Ifo’s business climate indicator from Germany, and in the US we’ll get the weekly initial jobless claims, existing home sales for March, and the preliminary durable goods orders for March. Otherwise from central banks, we’ll hear from the Fed’s Kashkari, the ECB’s Nagel, Lane, Simkus and Rehn, and the BoE’s Lombardelli.