US equity futures are little changed, paring earlier gains along with European stocks, as Commerce Secretary Lutnick says US-China trade talks are "going well" and that they’re expected to go on all day. The bar for an improvement risk appetite appears high after Chinese stocks suddenly fell toward the end of trading day earlier, sparking a broader souring of sentiment. As of 8:00am S&P futures were up 0.1% into today’s trade talks and tomorrow's CPI print; Nasdaq 100 futures rose 0.1%, with Mag7 names seeing muted returns ex-TSLA which is +3%. Semis/Cyclicals are seeing a bid. The UK’s FTSE 100, however, was poised to close at an all-time high for the first time since March. US/China talks continue for a second day with Bessent empowered to alter US export controls; US/Iran talks are set for Thursday.
US Treasuries extended gains ahead of a $58 billion auction of three-year bonds; the USD is higher into tomorrow's CPI; commodities are higher led by Ags/Energy. Today’s macro data print is the Small Business Optimism survey, which rose from 95.8 to 98.8, beating expectations of a 96.0 print.
Inpremarket trading, Mag 7 tech giants were miexed: Tesla +2%, Nvidia +0.2%, Alphabet -0.2%, Amazon -0.1%, Meta Platforms +0.6%, Apple -0.3%, Microsoft -0.3%. McDonald’s fell 1.6% after Redburn downgrades the restaurant chain to sell from buy, saying weight-loss drugs are suppressing consumer appetites and presenting an under-appreciated longer-term threat. Here are some other notable premarket movers:
While Monday’s negotiations in London between the US and China delivered no breakthrough, American officials had sounded optimistic that the two sides could ease tensions over shipments of technology and rare earth elements. With a key inflation read on tap Wednesday, investors are waiting for fresh drivers after stocks rebounded to near record levels from their April lows.
“We believe the path of least resistance for equities remains upward and potentially see room for some US performance catch-up,” wrote Alastair Pinder, global equity strategist at HSBC Holdings Plc.
As delegations from the US and China arrived at London’s Lancaster House for the start of talks on Tuesday, US Commerce Secretary Howard Lutnick said discussions were “going well” and expected negotiations to continue “all day today.”
Meanwhile, analysts at firms including Barclays and JPMorgan Chase & Co. see further upside for US stocks, in part because they expect institutional investors to abandon their cautious stance and ramp up exposure to equities. Citigroup strategists said that technology heavyweights have attracted a flurry of bullish bets as optimism around the trade outlook overshadows trade concerns.
“Flow activity has been largely one-sided, driven by new risk flows for large caps,” the team led by Chris Montagu wrote. “While tariff policy issues remain a concern, investors have also been assessing the evolving macro backdrop.”
European stocks were little changed, with investors reluctant to make big bets ahead of a second day of trade negotiations between the US and China. Stoxx 600 fell 0.2% with energy and auto sectors leading gains, while financial services stocks among the biggest laggards. Among individual stocks, UBS fell after Vontobel analysts wrote that Swiss capital demands could impact its competitiveness. The FTSE 100 surpassed its previous closing peak as investors took comfort from an improving economic outlook and easing trade tensions, with the UK becoming the first nation to strike a deal with President Donald Trump after his April 2 tariff announcements. That said, sentiment remains fragile as London faces an exodus of companies moving listings to the US and shelving initial public offerings.
Here are the most notable European movers:
Earlier in the session, Asian equities rose before the second day of trade talks between the US and China began, as traders stayed cautiously optimistic over any potential progress. The gains in the MSCI Asia Pacific Index narrowed to 0.3% from 0.7% earlier. TSMC, MediaTek and Commonwealth Bank of Australia were among the biggest boosts. Taiwan led the charge among local markets, with notable advances also in Indonesia and South Korea.
Chinese stocks slid suddenly in the afternoon session amid speculation that the US-China trade negotiations might have hit bumps. The move came on an elevated trading volume with major index ETFs also see surging volume. Rare earth names on the opposite saw a sharp move higher. Defensive names including high-div and agribusiness sector managed to claimed the loss first, and lead the index to rebound around 13:28. China managed to recovered part of the loss and ended up small loss by end of day. The Hang Seng China Enterprises Index dipped almost 1% during the session and then recovered most of the losses.
Focus continues to be on the US-China trade talk in London of which more active headlines are expected to rise. From a full day perspective, Pharma continued the positive momentum, banks picking up buyers as risking off. Growth names all pulled back in PM.
“Beyond the very short term dynamic, I think our expectation should be very low because I think that what we have seen from Geneva talks, London talks now is that this is going to be a protracted, long period of discussions between the two,” Bilal Hafeez, CEO at Macro Hive, said in a Bloomberg TV interview.
In FX, the Bloomberg Dollar Spot Index also trims gains, up 0.1%, while the Swiss franc tops the G-10 FX leader board, rising marginally along with haven assets. USD/JPY rises as much as 0.5% to the day’s high of 145.29, before paring gains; the yen came under selling pressure after Bank of Japan Governor Kazuo Ueda said Japan’s price trend still has some ways to go to reach 2. The dollar index would likely stay in a range “given the tariff uncertainty and the need for investors to keep assessing conditions,” Malayan Banking Bhd strategists wrote in a note.
In rates, treasuries hold modest gains in early US session, supported by bigger advance for gilts after soft UK labor-market data boosted expectations for Bank of England interest-rate cuts this year. US yields are 2bp-3bp richer across maturities with the curve flatter; 10-year is around 4.45%, about 2.5bp lower on the day with UK counterpart outperforming by around 4bp. Gilts outperformed their US and European peers after UK employment fell by the most in five years and wage growth slowed more than forecast. UK 10-year yields fall 7 bps to 4.56% as traders also boosted their Bank of England interest-rate cut bets; swaps tied to Bank of England’s policy rate price in around 47bp of easing by year-end vs 41bp at Monday’s close.
The US session features first of this week’s three Treasury coupon auctions, a 3-year new issue for $58 billion at 1pm New York time; $39 billion 10-year and $22 billion 30-year reopenings follow Wednesday and Thursday. WI 3-year yield near 3.955% is ~13bp cheaper than last month’s, which stopped through by 0.2bp. Traders will be closely watching Tuesday’s three-year Treasury auction as a read on whether or not foreigners are reducing their holding of US assets, wrote Chris Turner, head of foreign exchange strategy at ING Bank in London. “The focus therefore will be on the indirect bid at the auction and also the general gauge of auction success,” Turner wrote. “A poor auction could rekindle the weaker dollar story.”
In commodities, spot gold reversed an earlier fall and is now a few dollars higher on the day. Oil prices rise for a fourth day, with WTI up 0.1% at ~$65 a barrel. Bitcoin rises 0.4% and above $109,000.
Looking to the day ahead now, and data releases include UK unemployment and Italian industrial production for April, and in the US there’s the NFIB’s small business optimism index for May (printed at 98.8, above the est. of 96.0 and up from 95.8 prior).. Meanwhile from central banks, we’ll hear from the ECB’s Villeroy, Holzmann and Rehn.
Market Snapshot
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mostly higher with risk sentiment underpinned amid some optimism surrounding US-China talks which are set to resume on Tuesday and have been described so far by US officials as a 'good meeting' and "fruitful". ASX 200 gained on return from the long weekend with the advances led by outperformance in Consumer Discretionary, Financials, Energy and Tech, while further upside was capped amid mixed consumer and business sentiment surveys. Nikkei 225 initially outperformed as it coat-tailed on the recent upside in USD/JPY which was partially facilitated alongside comments from BoJ Governor Ueda who stated that the BoJ is keeping the real interest rate negative, so underlying inflation achieves 2% and keeps inflation sustainably and stably at 2%. Hang Seng and Shanghai Comp kept afloat as the attention centred on US-China talks in London which are scheduled to extend for a second day.
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European bourses (STOXX 600 -0.1%) opened mixed and on either side of the unchanged mark; sentiment did gradually improve just after the cash open but then a bout of hefty pressure took most European indices back into negative territory. No clear driver for the downside, but perhaps in anticipation of the US-China talks.
European sectors are mixed and with no clear theme or bias. Energy takes the top spot, following closely by Autos & Parts; the latter likely benefitting from the optimism surrounding the US-China talks. Financial Services sits at the foot of the pile, with the downside driven by losses in UBS (-6.6%), reversing some of the upside seen on Friday and as traders digest the latest government proposals which aim to force the bank to hold an extra USD 26bln in extra capital.
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Geopolitics: Middle East
Geopolitics: Ukraine
US Event Calendar
DB's Jim Reid concludes the overnight wrap
Who knew quiet Mondays were still a thing? Its only taken until June but maybe we can start easing back into weeks again. Famous last words I’d imagine. To be fair we were all waiting for the outcome of the US-China trade talks, which will now carry on into today. Indeed, after the volatility of the last two months, it was striking just how little any of the major assets shifted yesterday, with the S&P 500 (+0.09%) barely budging while 10yr Treasuries (-3.2bps) saw their narrowest daily trading range in over 6 weeks. The calm is unlikely to last though with more trade talk headlines likely to come through today, US CPI to look forward to tomorrow and that 30yr Treasury auction on Thursday.
In terms of those trade talks, the US and Chinese negotiators started to talk in London yesterday, with talks reported to resume again today at 10am London. There were some positive noises heading into the meeting, with US NEC Director Kevin Hassett saying to CNBC that they expected that “after the handshake”, that “any export controls from the US will be eased and the rare earths will be released in volume”. So that suggested a potential compromise whereby the US would ease their export controls in return for China easing their own restrictions on rare earths. There were few substantive comments after yesterday’s round of talks, with Treasury Secretary Bessent saying they had a “good meeting” and Commerce Secretary Lutnick calling the discussions “fruitful”. While we await any concrete news, it’s worth remembering that markets have been used to a lot of back-and-forth in recent weeks. After all, US tariffs on China went all the way up to 145%, before they were then slashed back to 30%. Then Trump said that China “HAS TOTALLY VIOLATED ITS AGREEMENT WITH US.” But the following week he had a phone call that he said “resulted in a very positive conclusion for both Countries.” So there’ve been several twists and turns already, and markets are getting fairly used to this uncertainty by now. Note that US / India trade talks are also quietly expected to end today so maybe we'll see some headlines there soon too.
In a generally light session, one supportive factor was some positive news on the inflation side, as the New York Fed’s Survey of Consumer Expectations showed a clear decline in inflation expectations. 1yr expectations came down four-tenths to 3.2%, whilst 5yr expectations were down to a 14-month low of 2.6%. So that was a far more benign assessment of inflation relative to other measures, as the University of Michigan’s reading had shown 1yr expectations surging up to 6.6% in May. So that was seen as encouraging ahead of the CPI print tomorrow, and that in turn supported a rally in front-end Treasuries, with the 2yr yield down -3.3bps on the day to 4.00% and the 10yr down -3.2bps to 4.47%, while 30yr yields were -2.8bps lower ahead of that monthly supply on Thursday.
Against that backdrop, the risk-on move broadly continued, which helped the S&P 500 (+0.09%) to a very modest advance. That was driven by the Magnificent 7 (+0.92%), which hit a 3-month high led by a +4.55% rise for Tesla which continued to recover as last week’s Trump-Musk feud appeared to wane. Small-cap stocks also outperformed, with the Russell 2000 (+0.57%) hitting a 3-month high of its own. On the other hand, defensive sectors within the S&P 500 lost ground, including utilities (-0.66%) and consumer staples (-0.24%). It was also a more negative story in Europe, with the STOXX 600 (-0.07%) losing ground after 4 consecutive gains, whilst the German DAX (-0.54%) saw a particular underperformance in thin trading due to a holiday.
In the quiet session, Italian BTPs continued to edge tighter, with the spread of 10yr Italian yields over bunds falling to just 92.1bps (-0.6bps), which is the tightest they’ve been since February 2021. In fact, the spread is getting increasingly close to the post-Euro crisis low of 88bps, back in 2015. Meanwhile in the UK, gilts did briefly underperform after the government announced a U-turn on paying winter fuel payments to most pensioners. But that had unwound by the end of the session, with 10yr gilt yields (-1.2bps) performing broadly in line with elsewhere.
Commodities gained amid the sanguine market mood, with WTI crude (+1.10%) posting its fifth advance in six sessions to reach a two-month high of $65.29/bbl.
Asian equity markets have picked up a bit of momentum overnight led by the Nikkei (+0.91%) and the ASX (+0.71%). Other markets are up but off their highs with the Hang Seng (+0.33%) and Shanghai Composite (+0.11%) slightly higher. S&P 500 (+0.35%) and NASDAQ (+0.45%) futures are optimistic we'll get positive trade headlines today.
In FX, the Japanese yen (-0.19%) is dipping, trading at 144.85 against the dollar, following comments from BOJ Governor Kazuo Ueda, who noted that Japan’s price trend still has a considerable distance to cover to reach the 2% target. Some market participants have interpreted these remarks as diminishing the likelihood of an imminent interest rate hike.
To the day ahead now, and data releases include UK unemployment and Italian industrial production for April, and in the US there’s the NFIB’s small business optimism index for May. Meanwhile from central banks, we’ll hear from the ECB’s Villeroy, Holzmann and Rehn.