US equity futures traded modestly higher pointing to a third day of gains, until just before 730am ET when Trump decided to play bad cop to Scott Bessent's good cop and posted on Truth Social that "80% Tariff on China seems right!" but then added that the final tariff rate is "Up to Scott B."
That comment promptly hit futures, erasing the market's modest gains, but upon reflection and realization that Trump was probably just in one of his moods, futures resumed their ascent after yesterday’s trade deal with the UK and Trump’s comments to buy the market. The focus is on the start of China trade talks this weekend, but if we use the US/UK deal as a template, it is light on details with a seemingly minimal economic impact. As of 8:00am ET, S&P futures are up 0.2% and Nasdaq futures gain 0.3%. Pre-market, all Mag7 names are higher with cyclicals mixed but with a bias to Quality names. Markets also benefited from a slew of positive earnings, with Microchip Technology, Lyft, and Pinterest surging while Expedia plunged after it cut bookings growth forecasts. Bond yields are flat as the yield curve bull steepens and the USD sells off after its strongest day since Nov 6 (day after the US Pres. Election). In commodities, energy continues to see a bid with WTI now above $60/bbl, Ags are higher, and precious metals are outperforming base. There is nothing on the macro data calendar, and earnings are light today so today’s session will likely be investors trying to position for outcomes after this weekend’s US/China summit.
In premarket trading, most Mag 7 stocks were green (Tesla +0.75%, Apple +0.2%, Amazon +0.03%, Meta +0.8%, Nvidia +0.1%, Alphabet +0.07%, Microsoft +0.03%). Affirm Holdings fell 6% after the buy-now-pay-later company gave a revenue forecast for the current quarter with the midpoint trailing the avearge analyst estimate. Expedia tumbled 9% after the travel services company cut its gross bookings growth forecast for 2025.
Investors are focused on the possibility of easing tensions with China, though Trump’s comments on Friday were a reality check to anyone expecting a quick solution. Treasury Secretary Scott Bessent. and US Trade Representative Jamieson Greer are set to begin talks with Chinese Vice Premier He Lifeng in Switzerland this weekend, the first public discussions between the world’s two largest economies.
President Trump said an 80% tariff on China "seems right!". He added, however, that it is "up to Scott B", a reference to Treasury Secretary Scott Bessent who is due to meet with Chinese government officials this weekend to try to deescalate the trade tensions. Raising the 80% level clearly puts Bessent under pressure not to ease the 145% tariff level too far. It's not clear how China would react to that proposal as it's a level that still effectively impedes trade between the two countries, and there's a risk China would walk away from the talks. One potential way out could be the agreement between the UK and US, which maintained the headline 10% on UK imports to the US but added key exemptions for critical sectors including cars and steel.
In Europe, the Stoxx 600 index rose 0.5%, on track for a fourth weekly advance, led by energy and basic resources while Germany’s DAX Index became the first major European gauge to surpass its March record high, recouping all losses sparked by Trump’s trade war, and rising as much as 0.8% to 23,528.88, exceeding the previous record set on March 18. Here are the biggest movers Friday:
Earlier in the session, Asia's MSCI’s benchmark gauge rose 0.7%, putting it line for a fourth straight week of gains with Taiwan and Japan leading gains in the region. TSMC, Alibaba and Mitsubishi UFJ were the biggest boosts to the Asia gauge, which is on course to cap its fourth week of advance. Shares got a boost after a trade agreement between the US and UK spurred hopes for similar deals to rollback high tariffs for other US allies. The Taiwanese stock index climbed 1.8% on Friday, taking gains from an April 9 low to over 20%. Chinese equities edged lower as investors reassess bets before trade talks the weekend. President Donald Trump has said he may consider cutting punishing tariffs on Chinese imports if the talks go well. Meanwhile, Indian stocks and bonds extended their slide as hostilities with Pakistan escalated.
In FX, the Bloomberg Dollar spot index falls 0.2%, erasing a similar move higher to snap a two-day winning streak; despite its fall, the greenback is on track for its biggest weekly gain in six weeks. NZD is the weakest performer in G-10 FX, JPY and SEK outperform. “The positive risk sentiment from the UK/US trade framework may face a reality check this weekend in Switzerland. If the first talks between China and US do not give a hint of an off ramp from sky-high tariffs, USD will likely resume its decline,” said Eugenia Fabon Victorino, a head of Asia strategy at Skandinaviska Enskilda Banken AB
In rates, the 10-year Treasury yield was flat at 4.38%, while the two-year yield slipped 1bp to 3.86% as the Treasury curve bull steepens as front-end yields drop and the long end holds steady. In Europe, Bunds bear steepen, with long-end yields up nearly 5bps; the UK gilt curve also bear steepens, with 2s10s widening ~4.3bps as longer yields lead the move higher.
In commodities, oil futures advance again as WTI drifts 1.5% higher to trade near $60.78. Most base metals trade in the green; LME lead rises 1.5%, outperforming peers. Spot gold rises roughly $22 to trade near $3,328/oz.
There are no macro events on today's calendar but we have a busy Fed speaker slate which includes Kugler (7:45am), Williams (8:30am, 9:15am and 11:30am), Barkin (8:30am), Goolsbee (10am), Waller (11:30am panel with Williams) and Musalem, Hammack and Cook (7:45pm panel).
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APAC stocks traded with a positive bias as the region took impetus from the gains stateside, where sentiment was underpinned by trade optimism following the announcement of a UK-US trade agreement framework and President Trump's rhetoric regarding China tariffs. ASX 200 gained as outperformance in tech, financials and energy more than atoned for the slack in mining stocks, while earnings also provided a tailwind after an increase in profits for Macquarie Group. Nikkei 225 returned to above the USD 37,000 level for the first time since late March with the index propelled by recent currency weakness, while the data was mixed as Household Spending topped forecasts but Labour Cash earnings softened. Hang Seng and Shanghai Comp were cautious amid the latest Chinese trade data which topped forecast but showed a slowdown in export growth, although downside was limited ahead of US-China talks on Saturday and after recent comments from President Trump who expects tariffs to go down, while the US was also reportedly weighing a plan to slash China tariffs to as low as 50% as soon as next week.
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European bourses (STOXX 600 +0.4%) opened modestly firmer across the board, and have traded sideways throughout the morning thus far. European sectors hold a positive bias; there is some clear outperformance in Energy, while other sectoral gainers are relatively similar in magnitude. Travel & Leisure and Media sit at the foot of the pile – holding modest losses.
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DB's Jim Reid concludes the overnight wrap
The most important words yesterday seemed to be Trump's comments when talking about Congress passing his tax bill. He said "If that happens, on top of all of these trade deals that we're doing, this country will hit a point - you better go out and buy stocks now". On cue, the market bought stocks and extended a rally that began 30 minutes earlier amid the announcement of a US-UK trade deal and Trump’s more conciliatory comments towards China. The rally lost some of its luster late on after reporting that Trump is pushing for a tax hike on very high earners with the S&P 500 (+0.58%) closing 1pp below its intra-days highs, while 2 and 10yr USTs spiked +9.7bps and +10.9bps on the day respectively. So as per usual, there is a lot going on at the moment ahead of the weekend US/China trade talks in Geneva.
The US-UK trade deal stuck to the 10% initial tariff baseline but with carve outs from even higher tariffs for certain sectors like autos (now 10% tariff rate) and steel (0% tariff rate), which would bring the effective tariff rate to slightly below 10%. While details are still being ironed out, in return, the UK has agreed to fast track American goods through customs, purchase $10bn worth of Boeing planes, and lower barriers to American agricultural, chemical, and energy exports. The deal still puts the UK in a worse position than it was before Liberation Day even with Prime Minister Starmer touting it as a “historic victory” between the two countries. The FTSE (-0.32%) hardly moved in the closing 30 mins after the deal was announced with Sterling falling -0.35% on the announcement, giving up earlier gains after the hawkish BoE cut.
This framework agreement is interesting considering the UK is not running a big trade deficit with the US nor was it facing much higher tariffs post Liberation Day anyway. As the first agreement with any country since Trump’s reciprocal tariff announcement, it previews what other “deals” might look like. Other countries may seek to replicate the UK’s exemptions from sectoral tariffs, and accept 10% minimum tariffs in return for US concessions. However, this may be on the optimistic end of outcomes and there is some concern that countries that saw larger reciprocal tariffs announced on April 2 (e.g., Japan and Korea) seem to be making limited progress in trade negotiations. Trump even said at his press conference yesterday that the 10% with the UK is a “low number” and that “others will be higher.”
Probably more important for markets than the UK “deal” itself were Trump’s comments on China, saying that he expects “substantive” talks that could then yield tariff cuts. This comes ahead of Treasury Secretary Bessent’s planned talks with Chinese trade officials in Switzerland this weekend, so we will be keeping our eyes peeled.
These various comments from Trump at the White House saw the S&P 500 move from flattish on the day to around +1.5% higher. But it then fell back to +0.58% by the close as Bloomberg reported that Trump is pushing Congressional Republicans to create a new 39.6% tax bracket for individuals earning at least $2.5m, as a means to offset other tax cuts. Still, it was a positive day overall for equities, with cyclical stocks outperforming and the small cap Russell 2000 rising +1.85%. Other risk assets also gained, with Bitcoin (+6.02%) spiking above the $100,000 level for the first time since early February.
By contrast Treasuries sold off, with 2yr yields (+9.7bps) rising to their highest level in four weeks at 3.88%, while 10yr yields rose +10.9bps to 4.38%. Also contributing to the bond sell off was a slightly weak 30yr auction that followed a strong 10yr auction the previous day. The combination of higher US yields and stronger US risk assets saw the dollar index (+1.03%) post its best day since November 6, the day after Trump’s election win. This morning in Asia, 2yr ( -1.2bps) and 10yr USTs (-2.0bps) yields are reversing a little of yesterday's move.
The drama of the trade deal rather overshadowed the BOE’s rate cut decision yesterday, which saw more hawkish messaging than markets expected. Although the BOE cut interest rates by a quarter point to 4.25% as DB expected, the vote split went three ways, with five members voting for a 25bp cut, two voting for a 50bps cut, and two voting for no change to the bank rate. The last bit was the surprising element. Overall, BOE governor Bailey said there was a need for a “gradual and careful” approach, citing tariff shocks as a factor to both higher inflation and a weaker growth outlook.
Two-year gilts (+12.2bps to 3.93%) and the pound both rose in response (before the pound fell later after the trade deal) as investors priced in the hawkish undertones. DB retains its call for three more rate cuts this year, with one more rate cut in early 2026 leading to a terminal rate of 3.25%. See our UK economist’s takeaways here. In other Central Bank news, Norway and Sweden both left their policy rate unchanged as expected.
Elsewhere in European markets, the STOXX 600 (+0.40%) moved higher, with the DAX (+1.02%), CAC 40 (+0.89%) and FTSE MIB (+1.71%) all posting strong gains. Beyond the general risk-on tone, this rally was supported by solid data, including stronger-than-expected German industrial production for March (+3.0% mom vs +1.0% expected). Eurozone bonds saw a more moderate sell off than the US and UK, with 10yr bund yields +5.9bps higher to 2.53%, while OATs (+4.3bps) and BTPs (+3.4bps) outperformed. The narrowing in sovereign spreads saw the 10yr BTP-Bund spread fall to 105bps, its lowest level since October 2021.
The risk-on mood was also visible in the commodity space, with Brent crude oil rising +2.81% to $62.84/bbl, also supported by EIA data showing consecutive weekly declines in US crude inventories for the first time since January. By contrast, gold (-1.75%) fell for a second day running after reaching an all-time high on Monday.
Turning to US data, yesterday saw the weekly initial jobless claims decline 13k to 228k (vs 230k estimates) for the week ending in May 2, erasing what appeared to be an Easter-driven spike the previous week. So that was another sign that the labour market is still “solid” despite the tariffs. Meanwhile, the NY Fed’s consumer survey saw 1yr ahead inflation expectations stable at 3.6%, but with 3yr ahead expectations rising 0.2pp to 3.2%, their highest since July 2022, marking the latest in a string of survey data pointing towards pro-inflationary risks.
Asian equity markets are mostly stronger this morning but with Chinese risk subdued. The Nikkei (+1.43%) is leading the gains, with the Topix (+1.31%) also rising, marking its 11th consecutive day of increases, the longest streak since October 2017. The S&P/ASX 200 (+0.58%) is also higher. Chinese stocks are lagging, with the CSI (-0.23%) and the Shanghai Composite (-0.26%) both declining, while the Hang Seng (-0.01%) is flat after reversing its initial gains. The KOSPI (+0.01%) is struggling to gain momentum following comments from Commerce Secretary Howard Lutnick, who suggested that trade agreements with South Korea may require significantly more time. S&P (+0.11%) and NASDAQ 100 (+0.16%) futures are both showing small increases.
Early morning data revealed that China's exports demonstrated resilience in April, growing by +8.1% year-on-year, surpassing the expected +2.0%, thus defying predictions that the trade war with the US would begin to have a detrimental impact. However, this growth represents a slowdown from the +12.4% increase recorded in March. Exports to the US fell -21% so the beat reflected increased trade with the rest of Asia and Europe.
Meanwhile, imports contracted by -0.2% year-on-year last month, compared to the anticipated -6.0%, but still marking the third consecutive month of declines. The trade surplus decreased to $96.18 billion from $102.64 billion in March, falling short of the projected $93.09 billion.
To the day ahead now, data releases to expect include Italy’s March industrial production, Canada’s April Jobs report, and Norway’s April CPI. Earnings include Recruit Holdings, Commerzbank and Cellnex.