Futures Gain Ahead Of US-China Trade Talks

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.

• Figs Inc. (FIGS) drops 16% postmarket after the seller of medical scrubs reduced its year outlook for adjusted Ebitda margin.
• Globus Medical (GMED) drops 14% after the medical device company’s earnings missed estimates, with analysts pointing to weakness in its US spine business and the challenges of integrating recent deals.
• Gogo (GOGO) soars 21% after the in-flight broadband company reaffirmed its adjusted Ebitda guidance for the full year.
• Green Dot (GDOT) rises 18% after the payments companyboosted its adjusted earnings per share forecast for the full year.
• HubSpot (HUBS) declines 4% after the software company gave an outlook for adjusted earnings that is weaker than expected and said Brian Halligan resigned as executive chairperson.
• Iovance Biotherapeutics (IOVA) plunges 34% after the biotech’s first-quarter revenue fell short of estimates and the company cut its full-year forecast.
• Lyft (LYFT) jumps 11% after reporting better-than-expected gross bookings in the first quarter, drawing a sharp contrast with the disappointing results issued by its much-larger ride-hailing rival Uber Technologies a day earlier.
• Microchip Technology (MCHP) climbs 11% after the chipmaker reported fourth-quarter results and said the period “marks the bottom of this prolonged industry down cycle.”
• Pinterest (PINS) climbs 12% after its second-quarter revenue guidance came in ahead of estimates at the midpoint.
• Trade Desk (TTD) is up 14% after the ad-tech company’s forecast for second quarter adjusted Ebitda exceeded the average analyst estimate.
• Wolfspeed (WOLF) tumbles 19% after posting quarterly results. Management said the company continues to work closely with lenders on ways to address Wolfspeed’s capital structure.

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:

• Bavarian Nordic shares jump as much as 14%, the most since August, after the vaccine maker reported first-quarter revenue that beat expectations and kept its 2025 financial outlook
• EDP rises as much as 6.3% in Lisbon after reporting net income for the first quarter that beat the average analyst estimate
• Enel shares gain as much as 2.2% after the Italian utility reported a solid set of results, with first-quarter adjusted net income beating estimates
• Mol rose as much as 1.6% after first-quarter earnings beat estimates, though analysts at Citigroup noted the effect of one-off items and key risks for the next quarter’s outlook
• Sonova shares surge as much as 6.9% after the Swiss hearing aid company reported a sales and margin beat, overshadowing the impact of currency headwinds on its outlook
• BE Semiconductor shares rise as much as 3.6% after JPMorgan initiates coverage with an overweight rating, saying the chip-equipment company is bound for substantial revenue growth if adoption of the hybrid bonding technology takes off in 2026 and 2027
• IAG shares rise as much as 2.7% after fluctuating in early trading. The British Airways owner reported first-quarter results that exceeded expectations, but also noted various cost headwinds and some softness in the US economy
• Cellnex shares fall as much as 5.2% after the tower operator reported revenue and free cash flow that missed estimates
• Campari shares fall as much as 4.6% after the Italian spirits maker’s first-quarter results missed expectations, showing that the backdrop continues to be tough with analysts flagging an uncertain outlook due to trade tensions
• Logista shares declined as much as 7.2% as the Spanish company reported net income for the first half that fell 5.4% from a year earlier and said it sees FY adjusted operating profit excluding the impact on inventory values as “slightly below” 2024 levels.

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).

Market Snapshot

• S&P 500 mini +0.2%
• Nasdaq 100 mini +0.3%
• Russell 2000 mini -0.1%
• Stoxx Europe 600 +0.4%
• DAX +0.6%
• CAC 40 +0.6%
• 10-year Treasury yield little changed at 4.37%
• VIX -0.1 points at 22.4
• Bloomberg Dollar Index -0.2% at 1227.78
• euro +0.2% at $1.1253
• WTI crude +1.3% at $60.85/barrel

Top Overnight News

• Chinese officials have grown “alarmed” in private about the impact to the domestic economy from Trump’s trade war, which is why they were eager to engage with the US. RTRS
• Trump says on his Truth Social account that 80% tariff on China “seems right” ahead of weekend trade talks
• The US hopes to cut its China tariffs to less than 60% if trade talks go well this weekend, people familiar said, in an attempt to de-escalate tensions. Donald Trump signaled tariffs may fall but a spokesman said talk of “targets” was speculation. BBG
• Trump said on his Truth Social account that he is OK if Republcans increase taxes on the rich, although they should probably not do it.
• House Leaders will warn Trump that some of the White House’s tax ambitions will need to be dialed back as Republicans struggle to agree on spending cuts. Politico
• US President Trump posted on Truth that he spoke with Commerce Secretary Lutnick and agreed the “Digital Equity Act” is unconstitutional, which he is ending immediately and there will be no more woke handouts based on race, saving taxpayers billions of dollars.
• Chinese exporters are preparing for a resumption of shipments to the US (part of this preparation involves reserving shipping capacity) in anticipation of both sides dialing back tariffs. RTRS
• China’s trade numbers for April come in ahead of expectations overall, including exports (+8.1% vs. the Street +2%) and imports (-0.2% vs. the Street -0.6%), but exports to the US plunged 21%. WSJ
• Big countries are the focus for future trade deals, especially from Asia, Commerce Secretary Howard Lutnick told Fox. But he said Japan, South Korea and India would require enormous time and effort. BBG
• Silicon Valley wants to disrupt the defense industry — and the Pentagon’s $1 trillion budget. Palantir and Anduril are key players developing autonomous weapons systems that aim to reimagine modern warfare and the companies that dominate it. BBG
• Republicans in Congress are opposed to Trump’s “most favored nation” idea for Medicaid drug purchases (a positive for the industry), although the reconciliation could eliminate a tax deduction for pharma advertising. BBG
• Stablecoin legislation fails to advance in the Senate after Dems blocked the initiative due to opposition over how the Trump family was capitalizing on the crypto industry. NYT

Tariffs/Trade

• US Commerce Secretary Lutnick said deals will be used as templates for other deals and that they will have dozens of deals announced by July 8th. Lutnick stated that as you get to bigger economies and more work, it takes time and economies such as India, Japan and South Korea are huge and take a lot of work, while he added that de-escalation with China is US Treasury Secretary Bessent’s goal in talks and that as countries open their markets, the best any country can do is a 10% tariff.
• Detroit Three trade group said the Trump trade deal with the UK “hurts American automakers, suppliers and auto workers”.
• China’s Vice Foreign Minister Hua said the US cannot sustain what it is doing in trade policy and that China has full confidence in its ability to manage US trade issues. Hua added that China does not want a war of any kind with any other country and has full capability to overcome difficulties amid the trade war, as well as noted that ordinary people in China do not want a trade war but are confident and said they have no fear if they have to face up to reality regarding trade talks.
• China signed a letter of intent with exporters in Argentina to buy about USD 900mln of soybeans, corn and vegetable oil – in turn shifting from the US, according to Bloomberg.

A more detailed look at global markets courtesy of Newsquawk

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.

Top Asian News

• China’s Vice Foreign Minister Hua said the US cannot sustain what it is doing in trade policy and that China has full confidence in its ability to manage US trade issues. Hua added that China does not want a war of any kind with any other country and has full capability to overcome difficulties amid the trade war, as well as noted that ordinary people in China do not want a trade war but are confident and said they have no fear if they have to face up to reality regarding trade talks.
• China signed a letter of intent with exporters in Argentina to buy about USD 900mln of soybeans, corn and vegetable oil – in turn shifting from the US, according to Bloomberg.

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.

Top European News

• Morgan Stanley now expect the BoE to hold rates in June (prev. forecast 25bps cut); now expects rate cut in December, maintains year-end Bank Rate forecast at 3.25%.
• BoE’s Bailey says commitment to the 2% inflation target is unwavering. Scenarios have helped us not only to explore what would happen in case a particular shock, or constellation of shocks, should hit the economy, but also how any given set of shocks could affect the economy and inflation depending on the strengths of different economic mechanisms. Good there is a diversity of view on the MPC. UK-US trade deal will leave effective tariff rate higher than they were when they started.
• ECB’s Simkus says geopolitics since the start of the year is bad news for the economy, via Bloomberg TV; there is downward pressure on inflation Euro-area inflation depends on EU retaliation to the US. ECB June projections may be a little bit worse. June ECB rate cut is needed. It is unclear if a post-June rate cut will be in July or September. “We are more or less there on inflation”. There is no central scenario for ECB rates. “Quite high chances we’ll be undershooting on inflation”.
• ECB’s Rehn says disinflation is on track, and the growth outlook is weakening.
• New German Economy Minister Reiche says “we need a combination of renewable energies and gas, we tended to focus almost too much in climate protection”.
• German Chancellor Merz says will not change previous German government’s position of joint EU debt. Mutual debt “must remain exceptional”, cannot be used for every crisis.

FX

• The recent recovery in the USD has paused for breath with the greenback having gained in the past two sessions on account of the post-FOMC reaction and ongoing trade optimism. On the latter, Thursday saw the unveiling of a UK-US trade agreement. However, of greater importance was Thursday’s remarks from US President Trump that tariffs on China can’t get any higher than 145% and knows they will be coming down. This was followed up by a report in the New York Post that the US is weighing a plan to slash China tariffs to as low as 50% as soon as next week. Today sees a busy Fed speaker slate with Barr, Kugler, Perli, Williams, Goolsbee & Waller all due on deck. DXY currently trading around 100.40.
• EUR/USD is a touch firmer after being weighed on in the past two sessions amid ongoing trade optimism. This is a reversal of the pattern we saw in April as trade tensions ratcheted higher and the EUR benefitted as a liquid alternative to the Greenback. EZ docket is lacking and ECB speak thus far has proved non-incremental with ECB’s Simkus noting ECB June projections may be a little bit worse and a cut next month is needed. EUR/USD briefly slipped onto a 1.11 handle overnight with a low at 1.1197.
• JPY is attempting to claw back some of its recent losses vs. the USD which has seen USD/JPY pick up from a WTD low on Tuesday at 142.35 to a 146.18 peak. Japanese-specific newsflow remains on the light side as market participants await progress on the trade front between Japan and the US. USD/JPY has returned to a 145 handle with a session low at 145.08.
• GBP was unable to benefit vs. the USD and only marginally gained vs. the EUR despite a “hawkish cut from the BoE and news of a UK-US trade agreement. Overnight, Cable hit a new low for the week at 1.3213, whilst EUR/GBP is contained within Thursday’s 0.8457-0.8523 range; lower bound of which coincides with the 50DMA. Commentary from BoE’s Bailey today proved to be a non-event; the Governor highlighted the unwavering commitment to the 2% target.
• Antipodeans have been choppy after the recent dollar strength and as participants digested the latest Chinese trade data, while Westpac adjusted its RBNZ call and now sees two 25bps rate cuts by July instead of its prior view for just one cut.
• PBoC injected CNY 77bln via 7-day reverse repos with the rate at 1.40% for a net weekly drain of CNY 781.7bln, which was the most in two months.

Fixed Income

• USTs are essentially unchanged as newsflow since Thursday’s flurry of trade updates, which weighed on the benchmark into/after settlement, has been a little lighter. USTs at the bottom-end of a 110-25 to 110-30 band and by extension towards Thursday’s 110-24 base. We await anything fresh on the trade front and confirmation/rebuttal from the administration on the piece in the NY Post (and other vendors since) that China tariffs could be cut to as low as 50% next week. Today’s docket is light on the data front but will see a slew of Fed speakers throughout the day.
• Lower by 70 ticks at worst as Bunds, and EGBs broadly, react in full to Thursday’s trade developments, developments that are providing some modest support to the European risk tone this morning. European-specific tariff/trade updates have been light aside from commentary from German Chancellor Merz who said that Trump agreed with him in a phone call on the need to resolve the trade situation quickly. Currently holding just off today’s 130.38 WTD low.
• Gilts are in-fitting with Bunds but with the pressure of an even greater magnitude as the UK benchmark had more of the trade developments to catch up on. Lower by 78 ticks at most to a 92.07 base; support at the figure and then 91.96 from late April and 91.59 from early April. Bailey this morning didn’t add much for specific policy, discussing scenario analysis and similar points in the context of the BoE’s forecasting process. Potentially more pertinently, Chief Economist Pill is due and will hopefully provide insight into his dissent.

Commodities

• Crude futures edge higher in early European morning amid the ongoing trade optimism heading into this weekend’s US-Sino trade talks in Switzerland. Elsewhere, US President Trump said they are trying to work on Iran without getting into bombing, while it was separately reported that US President Trump had a private meeting with Israeli PM Netanyahu’s advisor ahead of his Middle East trip, according to Axios. WTI Jun trades near session highs between USD 59.89-60.74/bbl while Brent Jul resides in a USD 62.84-63.65/bbl parameter.
• Modest gains across the precious metals complex, underpinned by the current intraday weakness of the Dollar. Spot gold initially dipped beneath the prior day’s lows before recovering to above the USD 3,300/oz level. Currently in a USD 3,274.81-3,332.35/oz range at the time of writing.
• Copper futures, in APAC hours, extended on mid-week pullback with selling exacerbated as Chinese markets got underway and with the PBoC’s open market operations resulting in the largest weekly net drain in two months, while participants also reflected on the latest Chinese trade data. Copper futures saw a brief spike higher in European trade, albeit in the absence of pertinent newsflow. The move swiftly pared back shortly after. 3M LME copper resides in a USD 9,342.00-9,465.55/t range.
• Iran’s oil minister has ordered resumption of exploratory drilling in the Caspian Sea, via Shana.
• China’s MOFCOM is to tighten export controls on Gallium, to prevent the smuggling and export of strategic minerals.
• Russia’s Deputy Foreign Minister says cannot confirm whether Russia and US are discussing the resumption of gas supplies to Europe, via Ifax.

Russia-Ukraine

• US President Trump posted on Truth that talks with Russia and Ukraine continue, while he called for a 30-day unconditional ceasefire and said that hopefully, an acceptable ceasefire will be observed, and both countries will be held accountable for respecting the sanctity of these direct negotiations. Furthermore, he warned if a ceasefire is not respected, the US and its partners will impose further sanctions.
• Ukrainian President Zelensky said Ukraine is ready for an immediate 30-day ceasefire and that a 30-day ceasefire will be a real indicator of movement towards peace.
• Ukrainian official said Russia struck eight settlements in the Zaporizhzhia region with drones and artillery 220 times during the ceasefire.
• UK PM Starmer is to announce the largest ever sanctions package targeting shadow fleet as UK ramps up pressure on Russia, according to the UK government.

OTHER

• North Korea said it tested a Hwasong-11 missile and multiple launch rockets on Thursday and the test was conducted under the nuclear weapons defence system, while North Korean leader Kim stressed the combat readiness of nuclear forces, according to KCNA.
• China and Russia’s joint statement vowed to strengthen cooperation to safeguard the authority of international law and they both strongly opposed unilateral sanctions and long-arm jurisdiction, while they also opposed the practice of double standards or imposition by some states of their will on other states.

US Event Calendar

• Nothing scheduled

Central Bank Speakers

• 5:55 am: Fed’s Barr Gives Speech on AI and the Labor Market
• 6:45 am: Fed’s Kugler Gives Speech on Maximum Employment
• 7:45 am: Fed’s Kugler Appears on Bloomberg TV
• 8:30 am: Fed’s Williams Gives Keynote Address in Reykjavik
• 8:30 am: Fed’s Barkin to Take Part in Fireside Chat in Virginia
• 9:15 am: Fed’s Williams Appears on Bloomberg TV
• 10:00 am: Fed’s Goolsbee Gives Remarks at Fed Listens Event
• 11:30 am: Fed’s Williams, Waller on Panel at Hoover
• May 10 7:45 pm: Fed’s Musalem, Hammack, Cook on Panel at Hoover

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.