US equity futures are weaker along with Asian and European markets as the trade war escalates after US and China accused each other of violating the terms of their recent agreements while geopolitical uncertainty weakened investor confidence. As of 8:00am, S&P futures are down 0.3% with Nasdaq futures down 0.5% with Mag7/Semis lower while Cyclicals and Defensives outperform. According to media reports, the pace of China exporting rare earths may be the genesis of the latest trade spat, but Bessent/Hassett suggest Trump/Xi will have a call this week. Separately Trump announced late on Friday he will hike steel tariffs from 25% to 50%, upsetting both Canada and the EU. Pre-mkt, steel stocks are +13 – 25% as autos are under pressure. Meanwhile, geopolitics is also in the picture after the Russia-Ukraine war took a turn for the worse with Ukraine striking targets inside Russian borders. Brent crude oil advanced toward $65 a barrel as OPEC+ hiked production less than some had feared and geopolitical tensions flared. Spot gold soared over $60 to a one-week high as a flare-up in global trade tensions weighs on US assets. The dollar shed 0.4%, extending a run of five consecutive monthly losses. Treasury yields rose across the curve, with the 10-year rate up four basis points to 4.44%. Today’s macro data focus is on ISM-Mfg.
In premarket trading, Magnificent Seven were mostly lower (Apple -0.5%, Alphabet -1.6%, Microsoft -0.3%, Amazon -0.3%, Meta -0.7%, Nvidia -0.5%, Tesla -1.5%). Here are some other notable premarket movers:
The latest twists in President Donald Trump’s tariff agenda have heightened market uncertainty, following mutual accusations between the US and China of breaching a trade deal, and Trump’s pledge to double tariffs on all steel and aluminum imports. The tensions have helped stall a rebound in US stocks as traders fear that the instability may persist in the absence of lasting agreements. Meanwhile, Ukraine staged a series of strikes deep inside Russia ahead of peace talks scheduled for Monday in Istanbul.
“Just when we thought the noise around tariffs was quietening down, recent events have shown that investors should take nothing for granted until it is signed and sealed,” said Daniel Murray, chief executive officer of EFG Asset Management in Zurich.
That said, while market volatility is once again picking up amid the latest tensions, strategists say it’s unlikely to match the levels seen during the selloff that followed Trump’s tariff announcement on April 2. Traders now increasingly view such moves as negotiation tactics aimed at securing more favorable terms.
“The sensitivity of investors and of traders toward this tariff news is probably going down a bit," Max Kettner, chief multi-asset strategist at HSBC Holdings Plc, told Bloomberg TV. “It is primarily a negotiation tool. I don’t have to factor in a persistent drag on earnings, a persistent drag on the earnings outlook.”
Investors will be watching Friday’s nonfarm payrolls report to assess the impact of Trump’s trade policies on the US economy and the outlook for Federal Reserve rate cuts.
“This is a backdrop where markets are increasingly discounting the tariff news,” Laura Cooper, global investment strategist at Nuveen, told Bloomberg TV. “We’re more focused on the extent of economic damage that is potentially going to come through in US data.”
European stocks are also in the red as an escalation in the Russia-Ukraine conflict provides investors with another reason to shun risk assets. The Stoxx 600 is down 0.3% with auto, consumer product and technology shares leading declines. Here are the biggest movers Monday:
Earlier in the session, Asian stocks dropped, as risk-off sentiment prevailed amid resurgent US-China trade tensions, with the world’s two largest economies accusing each other of violating their trade deal last month. The MSCI Asia Pacific Index fell as much as 1% before paring losses to 0.2%, with TSMC and Toyota among the biggest drags on the benchmark. Benchmarks in Japan and Taiwan declined more than 1%, while a gauge of Chinese shares trading in Hong Kong slid 0.9%. Markets in mainland China, Thailand and Malaysia were closed for holidays. Trade tensions dialed up again after President Donald Trump said on Friday that China “violated a big part of the agreement” the countries made in Geneva. Meanwhile, Beijing called on the US to immediately correct “discriminatory” measures and uphold the consensus reached in Geneva. Further adding to investor caution are the Trump administration’s plans to broaden restrictions on China’s tech sector, as well as the US president’s announcement that he would hike tariffs on steel and aluminum to 50% from 25%. While such fresh concerns have cooled the recent rally, the key Asian stock benchmark is still up almost 20% from an April low.
The latest headlines suggest that the Trump administration will “try to regain control of the trade war narrative,” said Charu Chanana, chief investment strategist at Saxo Markets. “We could see some headline-driven volatility, but the impact is unlikely to be sticky. Markets have become relatively desensitized to tariff threats, and with the economy and earnings holding up, underlying fundamentals still provide support.”
In FX, the dollar traded near the lowest level since 2023 after extending losses for the year to 7.6%. Slowing US growth and interest rate cuts will further push the greenback into a tumble to levels last seen during the pandemic, according to Morgan Stanley strategists. “We think rates and currency markets have embarked on sizable trends that will be sustained — taking the US dollar much lower and yield curves much steeper — after two years of swing trading within wide ranges,” they wrote. EUR/USD rallies by 0.8% to 1.1437, highest since April 23. The Scandinavian currencies lead G-10 gains; USD/NOK down 1.2% to 10.0866. GBP/USD +0.7% to 1.3550; figures from Nationwide Building Society showed UK house prices unexpectedly rose in May.
In rates, treasuries are cheaper across the curve with losses led by long-end tenors amid a similar bear-steepening move in core European rates as global trade tensions and geopolitical uncertainty continues to play out across financial markets. US yields are 1.5bp-4bp higher across maturities with 2s10s and 5s30s spreads 1bp-2bp steeper on the day. 10-year around 4.43% is ~3bp cheaper, while 30-year yields are 5 bps higher to 4.98%. Rising oil prices add to upside pressure on yields, after OPEC+ increased production less than expected. European government bonds underperform their US peers, with UK and German 30-year borrowing costs rising some 6 bps each. US session includes manufacturing gauges and remarks by Fed Chair Powell.
In commodities, WTI crude futures rally 3.5% to near $63 a barrel on a combination of heightened geopolitical tensions and an OPEC+ production increase that was less than some had feared; spot gold soared over $60 to a one-week high as a flare-up in global trade tensions weighs on US assets.
On today's calendar, US economic data includes May final S&P Global US manufacturing PMI (9:45am New York time), May ISM manufacturing and April construction spending (10am). Fed speaker slate includes Logan (10:15am), Goolsbee (12:45pm) and Powell giving opening remarks at the Board of Governors IF 75th Anniversary Conference (text expected, 1pm).
Market Snapshot
Top Overnight News
Trade/Tariff
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mostly in the red, albeit to varying degrees, at the start of a new trading month and ahead of this week's risk events, while trade uncertainty lingered after President Trump announced to double steel and aluminium tariffs to 50% from this Wednesday. ASX 200 was rangebound with the index constrained by weakness in miners and the commodity-related sectors amid trade uncertainty following US President Trump's latest tariff offensive but with the downside cushioned given the actual boost to underlying commodity prices. Nikkei 225 slumped at the open with headwinds from recent currency strength and after US and Japanese officials met on Friday for trade talks, while Economic Minister Akazawa said the latest round of discussions have them on track towards a deal as early as this month but stated that nothing is agreed until everything is agreed and there was no change in the US stance on tariffs, including those on auto parts, which was regrettable. Hang Seng underperformed amid the closure in the mainland and Stock Connect trade, while participants also reacted to mixed PMI data and recent criticisms between the US and China including from US President Trump who stated that China has violated the deal with the US.
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European bourses (STOXX 600 -0.2%) opened entirely in the red following a mostly subdued APAC session; selling pressure briefly exacerbated in early morning trade, but this proved fleeting. Thereafter, the risk tone improved a touch, alongside the release of the EZ PMIs - they were mixed, but with the underlying narrative shown by the metrics as constructive. European sectors opened with a negative bias and have remained subdued throughout the morning. Energy tops the index given the recent surge in oil prices as the complex reacts to the latest OPEC+ decision over the weekend. Consumer Products and Services sits at the foot of the pile, with Luxury doing much of the dragging.
US equity futures are lower across the board, with sentiment in the complex hit following Trump’s decision to double steel import tariffs to 50% and after hawkish rhetoric from the US side on China.
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FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Ukraine
Geopolitics: Other
US Event Calendar
Central Banks (All Times ET):
DB's Jim Reid concludes the overnight wrap
Two weeks ago was all about fiscal and US debt sustainability, and last week was all about trade again, so what will this week have in store? It's hard to see past trade at the moment and late on Friday night Trump doubled tariffs on imported steel and aluminium to 50%, starting this Wednesday. It is really hard to keep up or predict what's going to happen on trade at the moment, and that's before we factor in the full ramifications from the court ruling last Thursday night, and then subsequent brief stay of execution for them on appeal. For now it seems likely that the tariff uncertainty will linger for a long time ahead even if we're still likely past the peak aggressiveness of US policy.
Oil might grab some attention today after OPEC+ on Saturday announced that supply would increase for a third month in a row in July where 411,000 barrels will be added. An increase of this magnitude was flagged on the wires on Friday afternoon and there was some prospect of it being higher than this. This morning in Asia, oil futures are +2.85% higher in a relief that the output increase wasn't higher.
Geopolitics have also been in headlines over the weekend at a defence forum in Singapore (Shangri-La Dialogue) where US Defense Secretary Pete Hegseth's speech, told its Asia allies it wouldn't abandon them and also criticised China for not sending a high profile representative from its defence team. Hegseth's main strand in his speech was that US partners in Asia should boost defense spending towards 5% of GDP as the region should prepare for a potential Chinese invasion of Taiwan. Clearly that hasn’t gone down well with China and comes after Trump accused China on Friday of violating its recent agreements with the US. China have responded this morning by also accusing the US of violating the agreement. So the surprisingly positive agreement between China and the US on tariffs on May 12th now seems a more distant memory.
Talking of China, the official manufacturing PMI came in at 49.5 on Saturday, up from 49 in April and in line with expectations. The non-manufacturing PMI dipped a tenth of a point to 50.3, two-tenths below expectations. This composite PMI edged up to 50.4 from 50.2.
Asian equity markets are lower this morning, with the Hang Seng (-2.20%) leading the declines, followed by the Nikkei (-1.39%), also pressured by a stronger yen. Other regional markets like the S&P/ASX 200 (-0.29%) and KOSPI (-0.31%) are also experiencing losses. Elsewhere, mainland Chinese markets are closed for holidays. S&P 500 (-0.43%) and NASDAQ 100 (-0.62%) futures are also trending lower as we start the new month. 10yr USTs are +2.2bps higher.
The final estimate of the S&P Global Australia Manufacturing PMI indicated a weakening to 51 in May, a decrease from 51.7 in April and the lowest level since February. This marks the second consecutive month of decline, driven by a deceleration in the growth of new orders, which offset a rebound in export demand.
In terms of data this week, we have US payrolls on Friday as the main event but the US manufacturing ISM today and the services equivalent on Wednesday will also be important. We will also get various global PMIs spread across this week. You can see the main ones in the day-by-day calendar at the end as usual. The ECB rate decision on Thursday (25bps cut widely expected - see our preview here), and what the tone suggests going forward, will also be a big focus. The BoC meet on Wednesday (a 25bps cut also expected). May CPI prints are due in the Eurozone, Switzerland (tomorrow) and Sweden (Thursday). Broadcom, which sits just outside the Mag-7, sees their earnings on Thursday and this might give us some latest thoughts on current AI trends.
Given its payrolls week we also have JOLTS (Tuesday) and ADP (Wednesday), with jobless claims (Thursday) of added interest given we saw a small but notable increase last week. For payrolls our economists expect the headline (+125k forecast vs. +177k previously) and private (+125k vs. +167k) gains to slow relative to their trailing three-month averages of 155k and 148k, respectively, with the unemployment rate staying at 4.2%. For the rest of the week ahead see the diary at the end.
Our US economists also flag that the Senate will return to Washington DC this week to begin marking up the “One Big Beautiful Bill Act”. They think it will be interesting to see if the GOP Senators are as eager to make deep cuts to clean energy tax credits and Medicaid as their House counterparts. At the same time, the latest legal developments on the trade front pose risks to tariff revenues. See these reports for more on this. (“US Economic Notes: Tax bill details suggest still-elevated deficits in the near term" and “US Economic Perspectives: The dark matter determining debt stability “).
Recapping last week now and markets were a bit all over the place trying to make sense of where trade policy was headed. The S&P gained +1.88% on the week thanks to a +2.05% gain on Tuesday following a delay to a threatened higher 50% US tariff on the EU, but then treaded water for the rest of the week. Investors initially felt further relief over news that a US court had blocked most of Trump’s tariffs on Wednesday night, but this was very short-lived as the Court of Appeal temporarily left the tariffs in effect while it considers the case and amid reports that the Trump administration is considering alternative measures to implement new tariffs. Meanwhile, in bond markets, the US 10yr yield ended the week down -11.0bps to 4.40% (-1.7bps Friday), as investors returned to treasuries amidst the trade uncertainty as well as a weaker set of US data last Thursday.
The stock market’s resilience was tested last Friday, when Trump claimed that China had violated its trade agreement with the US from May 12, following comments by US Treasury Secretary Bessent the previous day that trade talks with China had stalled. Reports from Bloomberg and the WSJ say that tensions arose from the pace of Beijing lifting its rare earth export licenses. With US Trade Representative Jamieson Greer saying that there are still ongoing efforts to arrange a call between the two presidents, it looks like we may be back in the “waiting for the call” scenario that we were in originally during April and the early weeks of May. This morning's strong response from China probably reducing the likelihood of that call being imminent.
Performance in Europe was relatively upbeat, with the STOXX 600 rising +0.65% (+0.14% Friday) and the DAX up +1.56% (+0.27% Friday) to a new all-time high amid the partial retreat in tariff concerns. Meanwhile, European rates saw a sizeable curve flattening. 10yr bund yields were -6.7bps lower on the week to 2.50%(-0.7bps Friday), but the 2yr yield rising +1.2bps over the week (+0.7bp Friday) in part following Germany’s May flash inflation print, which came modestly above expectations at +2.1 y/y (vs +2.0 y/y consensus). So while investors are fully pricing in an 25bps rate cut at this week’s ECB meeting, they’re pricing only a little over one further cut for the rest of the year.