US equity futures are higher while global market are mixed ahead of the FOMC decision later today, following news tariff talks between the US and China will begin, and after a surprise stimulus by China. As of 8:00am, S&P and Nasdaq futures are 0.6% higher (though off the highs) on reports Bessent will meet Chinese Vice Premier He Lifeng in Switzerland this weekend in the first confirmed talks between the two superpowers. Bessent later said on Fox News that the meeting will be more about de-escalation than any sort of big trade deal. In premarket trading Mag7 names and Semis are leading the markets higher while RTY appears to be squeezing into outperformance. Cyclicals are poised for a strong session, too. Overnight China’s PBOC cut its reverse repo rates and lowered lender reserve ratio to help stimulate growth. India conducted military strikes in Pakistan in which Pakistan said it shot down five Indian jets. Attention shifts to the Powell and the FOMC at 2pm which is expected to yield no surprises as the CB preaches patience. Focus during the 2:30pm press conference will be on any commentary on how long Powell intends to wait for further clarity re tariffs/impacts (reminder no SEP). Bond yields are higher alongside a stronger USD which snapped three days of declines as the Taiwan Dollar slid for a second day. Commodities are bid higher led by Ags and Energy; gold/silver are modestly lower after another powerful breakout earlier this week.
In premarket trading, Magnificent Seven stocks are all higher (Tesla +1.3%, Apple +1.2%, Amazon +1.2%, Meta +0.9%, Nvidia +0.6%, Alphabet +0.6%, Microsoft +0.5%). Advanced Micro Devices (AMD) rose 1.6% after Nvidia’s closest rival in AI processors gave a strong revenue forecast for the current period, boosted by demand for high-end computers capable of creating and running AI software. Sarepta Therapeutics plunged 19% after the maker of rare disease treatments cut its net product revenue forecast for the year. Here are some other notable premarket movers:
Today's highlight is the FOMC decision, where the Fed is expected to do nothing (full preview here): Powell will repeat the message that tariffs pose risks to both sides of the Fed’s dual mandate and they intend to wait for further clarity. While the FOMC appears to be setting a higher bar for rate cuts than during the 2019 trade war, Goldman does not think that high inflation would deter it from cutting if the unemployment rate begins to trend higher as the tariff shock hits the economy (full FOMC preview here).
“The Fed will bang on the same message again: they won’t cut rates, and they will try to push back the moment where they will need to as long as possible,” said François Rimeu, senior strategist at Credit Mutuel Asset Management. “In that sense, there is somehow a disconnect between the market expecting multiple cuts this year and inflation expectations which remain high for the second half of the year.”
Overnight sentiment was boosted after US and Chinese officials announced they will meet this week in Switzerland. Treasury Secretary Scott Bessent told Fox News the meeting will focus on de-escalation rather than reaching a deal, but said the current tariff rates aren’t sustainable. Sentiment was also lifted by a reduction in China’s policy rate, as Beijing unveiled several measures to support its economy.
“It’s clear that the US and China want to have some sort of de-escalation and the rhetoric has eased a little bit, so the move upwards can definitely continue,” said Justin Onuekwusi, chief investment officer at St James’s Place. The Chinese rate cut is an added positive, showing that “China recognizes the need to prevent a slowdown in growth,” he said.
In Europe, the Stoxx 600 falls 0.3%, led lower by health care and retail stocks while miners and auto stocks outperform. Pharmaceutical stocks followed their US peers lower after the US Food and Drug Administration named Vinay Prasad, a hematologist oncologist and critic of the Covid-19 vaccine for children, as the next director of the Center for Biologics and Research. Here are the most notable movers:
Asian stocks fluctuated, as Chinese shares pared earlier gains driven by the central bank’s stimulus and a confirmation of trade talks with the US. The MSCI Asia Pacific Index erased a climb of as much as 0.7% to trade little changed, as concerns over trade uncertainties remained. TSMC, Hitachi and AIA Group were the biggest positive contributors, while Sony Group, Alibaba Group and Toyota Motor weighed most on the gauge. While Chinese stocks pared early gains sparked by a cut in interest rates and measures to support the economy, the onshore CSI 300 Index remained among the biggest gainers in the region. Sentiment also got a boost as senior officials agreed to hold trade talks with the US later this week. Prospects for a de-escalation in US-China trade tensions have also raised optimism over trade deals for other countries, helping to lift benchmarks in South Korea, Japan and Australia. Elsewhere, Pakistan stocks slumped as India conducted targeted military strikes against the nation. Shares in India were relatively steady after the strikes. Meanwhile, the Philippines’ key stock index gained as much as 1.8% after the country’s central bank chief said further reductions in interest rates were on the table for this year.
In FX, the Bloomberg’s dollar index rose 0.2% snapping a three-day losing streak; investors see a possibility that the talks will lead to a dialing back of tariffs between the two countries, which could support the dollar. Traders also awaited a Federal Reserve meeting later on Wednesday, where officials are expected to hold interest rates unchanged but could offer clues on this year’s monetary-easing path. The yen is the weakest of the G-10 currencies, falling 0.6% against the greenback as haven assets underperform.
In rates, treasuries fall ahead of the Federal Reserve decision, with losses led by the front-end, extending Tuesday’s late flattening move. US 2- to 7-year yields are 2bp-3bp higher on the day with long-end little changed, flattening 5s30s curve by about 2bp; the 10-year near 4.32% is about 2bp lower than Tuesday’s auction result. The Treasury auction cycle is on hiatus until Thursday due to Federal Reserve policy announcement at 2pm New York time and Chair Powell’s news conference 30 minutes later. Fed policy announcement is widely expected to produce no change in the fed funds target range; traders in recent days have been pushing rate-cut expectations into next year, collapsing SOFR Dec25/Dec26 spreads. Treasury auction cycle concludes Thursday with $25 billion 30-year new issue, following strong demand for the 10-year.
In commodities, oil prices advance, with WTI rising 0.8% and topping $60 a barrel at one stage for the first time in a week. Spot gold falls $57 to around $3,374/oz.
The US economic calendar includes March consumer credit at 3pm. We get earnings from Disney and Uber.
Market Snapshot
Top Overnight News
Tariffs/Trade
APAC stocks traded mostly higher as participants digested the PBoC's announcement to loosen monetary policy and reports of upcoming US-China talks this week but with the gains capped amid geopolitical escalation between India and Pakistan. ASX 200 eked mild gains as outperformance in the commodity-related sectors was partially offset by losses in healthcare and tech, while the top-weighted financials industry was kept afloat post-NAB earnings. Nikkei 225 was underpinned at the open as Japanese markets reopened from the four-day weekend although momentum waned shortly after in the absence of any major pertinent catalysts for Japan. Hang Seng and Shanghai Comp were underpinned following reports that the US and China will meet for talks on Saturday involving US Treasury Secretary Bessent, USTR Greer and Chinese Vice Premier He Lifeng, while there was also encouragement from the briefing by Chinese officials where PBoC Governor Pan announced to cut RRR by 50bps and the policy interest rate by 10bps.
Top Asian News
European bourses (STOXX 600 -0.3%) opened mostly lower and has traded sideways throughout the morning thus far. There have been a few updates to keep traders busy; 1) US and China are set to hold talks in Switzerland over trade, 2) China announced new easing measures amid global economic uncertainty; the PBoC is to cut its RRR by 50bps and reduce its 7-day reverse repo by 10bps (other measures were also announced), 3) India launched air strikes on Pakistan. European sectors are mixed and with the breadth of the market fairly narrow aside from the top/bottom performers. Autos takes the top spot, lifted by post-earning strength in BMW (+3.5%). Healthcare is pressured as traders react to the FDA appointing Vinay Prasad as its new vaccine chief. Elsewhere, Novo Nordisk (+5%) gains despite reporting a mixed set of Q1 results, cutting guidance and said it would not be conducting a buyback programme in 2025.
Top European News
FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Ukraine
Geopolitics: India vs Pakistan
Economic Data :
Central Banks
DB's Jim Reid concludes the overnight wrap
Feel free to file this under first world problems but after renovating a wonderful but old house 7 years ago, things are slowly requiring maintenance. Roof leaks, paintwork peeling, windows mysteriously cracking, and lights going without obvious replacement bulbs have been the main ones. However over the weekend the tumble dryer "conked out" irrepairably. I grumbled at the cost of a new one, but accepted it, only to find that we built our kitchen area units around the specific size of this tumble dryer and that they now only make bigger ones or far too small ones. So if I want dry clothes from now on we have to redesign the kitchen units and get them remade. As such if you see me over the next few months (or years) don't be surprised if I've refused and just walk around in wet clothes.
As we hit another FOMC day, market sentiment has seen another round trip (unlike my defunct tumble dryer) over the past 24 hours, with the S&P 500 (-0.77%) falling back for a second day as concerns about the economic outlook resurfaced but with futures erasing most of these losses overnight on news that US and China will this week begin talks to de-escalate the tariff standoff. The sides announced talks in Switzerland on Saturday and Sunday, led by Treasury Secretary Bessent and Trade Representative Greer on the US side and Vice Premier Lifeng on China’s. This would mark the first substantive talks between the world’s two largest economies since the prohibitive 125% tariffs were introduced a month ago. Bessent suggested last night that the talks would focus on de-escalation rather than a big trade deal “but we’ve got to de-escalate before we move forward”. China’s Commerce Ministry called on the US to “show sincerity” in the talks. Markets have advanced on the news, with futures on the S&P 500 and NASDAQ +0.60% and +0.66% higher respectively as I type.
Sticking with China, overnight the PBOC announced a package of support measures, including a 10bps policy rate cut, a 0.5pp reserve requirement ratio cut and a expansion of lending facilities for the services and consumer sectors. The moves signal a clear shift towards looser monetary policy in response to the trade shock and have similarities to the PBOC response last September, when China moved to announce a broad set of support measures to address its growth slowdown.
Chinese stocks are leading gains in Asia with the Hang Seng +0.50% after spiking over +2% at the open with the Shanghai (+0.64%) seeing similar moves. Elsewhere, the KOSPI (+0.35%) and the S&P/ASX 200 (+0.48%) are also gaining with the Nikkei (+0.09%) lagging a bit after a holiday. Indian equities have turned slightly positive after being lower earlier post military strikes on Pakistan "terror camps". Pakistan claimed to have shot down Indian fighter planes in response. Obviously this is an incredibly tense situation with both countries being nuclear powers so one to watch closely. There is an Indian press conference at 10.30am local time where it's expected they'll call the action proportionate and will respond to claims Pakistan shot down fighters in response.
In terms of overnight data, the final au Jibun Bank Japan Services PMI for April returned to growth, climbing to 52.4 from March's flat 50.0. This figure, which surpassed the preliminary 52.2, indicates stronger orders within the service sector, a marked difference from the persistent challenges faced by manufacturers.
Looking back to yesterday’s market losses now, those were in part a reaction to some weak corporate earnings, but investors were also wondering when we’d actually start to see the results of any trade deals, with the S&P 500 initially down over -1% in the first half hour of trading. That was then pared back after Treasury Secretary Bessent said some “very good” offers had been made in trade negotiations by other countries, while the FT reported that the US and UK were close to a deal that would cushion the impact of tariffs by granting lower-tariff quotas for British car and steel exports. There was a brief pop higher just after Europe went home that nearly took back flat for the day on Trump's quotes over an announcement that will be "as big as it gets" between Thursday and Monday. It's not clear whether this is the overnight China talks news or whether something else is in the wings. However intriguing this was, the pop soon faded. On top of that, there was more news on the retaliation front too, as Bloomberg reported that the EU were planning to hit around €100bn of US goods with tariffs if the trade talks failed.
This concern was evident across multiple asset classes. For instance, investors priced in more rate cuts from the Fed this year, with the amount expected by December up +5.1bps on the day to 81bps. In turn, that led front-end yields to fall back too, with the 2yr Treasury yield down -4.9bps to 3.78%. The 10yr yield (-4.8bps) was steady until a decent auction helped it rally and close at 4.30%. Lower yields added to a renewed decline in the US dollar, which lost ground against all G10 currencies, though this morning the dollar index (+0.30%) is on course to erase about half of yesterday’s -0.59% decline.
Even as investors were pricing in more rate cuts, inflation concerns again mounted, with the 1yr US inflation swap up +4.9bps on the day to 3.32%. That came as oil prices staged a recovery, with Brent crude up +3.19% on the day to $62.15/bbl, picking up from their 4-year low on Monday, after a major independent US oil producer predicted that US shale production will drop in the coming months. And gold prices (+2.93%) rose to a new record close of $3,432/oz, though they are -1.42% lower overnight following the news of the US-China talks.
Elsewhere, there was plenty happening yesterday in Germany as Friedrich Merz was confirmed as the new Chancellor by the Bundestag. However that doesn't tell anything like the full story, as in a big surprise, he failed to obtain enough support on the first ballot, which is the first time that’s happened since WWII. In that initial vote, Merz only won 310 votes, short of the absolute majority of 316, despite the fact that the coalition parties hold 328 seats between them. As it was a secret ballot, it was unclear which lawmakers were responsible, and German equities slumped in the aftermath, with the DAX hitting an intraday low of -2.07%. That was even more aggressive for the MDAX of German mid-caps, which slumped to an intraday low of -3.13%. In essence, the fear was that if the coalition couldn't even confirm their new leader then it would raise doubts over how it could push through the more difficult parts of its policy agenda and govern effectively. However, after initially being told that no second vote could happen before Friday, the situation evolved and Merz was then confirmed with 325 votes in a second ballot, and German equities pared back their losses, with the DAX only closing -0.41% lower. Our economists note that if the new government now swiftly implements its 100-day program with the urgently needed relief measures for the German economy, the fact that it took two attempts to elect a chancellor will quickly fade into the background. However a warning shot has possibly been fired.
Elsewhere in Europe, there was a bit more optimism after the final PMIs came in stronger than the flash readings. So that suggested the economic damage from the tariff uncertainty wasn’t as strong as feared . For instance, the Euro Area composite PMI came in at 50.4 (vs. flash 50.1), and the services PMI was revised up to 50.1 (vs. flash 49.7), putting it back in expansionary territory. So that helped European markets see more of a risk-on move yesterday, with the STOXX 600 only down -0.18%. Strikingly, the UK’s FTSE 100 (+0.01%) just about managed to maintain its longest-ever winning run, having now risen for 16 consecutive sessions. Meanwhile on the rates side, yields on 10yr bunds (+2.3bps), OATs (+2.2bps) and BTPs (+2.5bps) all moved higher.
Looking forward, the main highlight today will be the Fed’s latest policy decision. They’re widely expected to leave rates unchanged, but this is the first meeting since Liberation Day and the subsequent market turmoil, so it’ll be really important to gauge how the Fed are thinking about it and their reaction function. Our US economists think that the overall tone is likely to echo comments from Chair Powell and his colleagues in recent weeks. So he’s likely to emphasise the inflation side of the dual mandate, which could include repeating his comment that the Fed has an “obligation” to ensure tariff-driven inflation does not become more persistent. The signal will be that the labour market needs to weaken for the Fed to contemplate cuts.
In terms of the rest of the day ahead, data releases include Euro Area retail sales and German factory orders for March. And earnings releases include Walt Disney and Uber