Futures Drop On Tariff Concerns As Dollar Slides

It’s risk-off price action this morning, with US equity futures lower, rates rallying across the curve, macro credit opening softer, while the USD trades broadly lower. The two-day rally in US stocks fizzled amid mixed Trump signals on China tariffs as the president floated a fresh levy timeline while simultaneously denying easing efforts and Beijing called for full rollback of all US duties. As of 8:00am S&P futures slipped -0.3% as China maintained a defiant stance over tariffs imposed by Trump, but were off session lows as investors continue to live headline to headline; Nasdaq futures dropped 0.2% with all Mag7 names in the red; NVDA (-1.5%), TSLA (-1.6%), and AAPL (-1.2%) are leading the losses. With Trump reigniting tariff volatility, IBM warning on federal cuts and China denying trade talks entirely, the rotation out of US risk remains intact. Europe was mixed, Real Estate (+1.16%) and Autos (+0.71%) outperforming but Banks (-0.76%) and Travel (-0.69%) lagged. Overnight, China responded to the recent headlines regarding “US-China talk”: Beijing pointed out that “there are absolutely no negotiation on the economy and trade between China and the US and called to cancel all the unilateral measures on China. Meanwhile Trump downplayed the idea of millionaire tax rate, one that some Republicans sees as a way to pay for the economic package (BBG). Bond yields are lower and USD is weaker; 2-, 5-, 10-yr yields are 4.5bp, 4.8bp, 3.3bp lower.  The dollar extended its decline (-0.56%), with gold climbing (+1.3%) as investors hedge against prolonged US policy risk. VIX is flat (+0.28%), MOVE dipped (-1.48%) and USYC2Y10 (+1.6%) suggesting caution is returning despite the bounce in crude (+0.74%) copper (+0.57%) and gold (+1.4%). Flows are risk-off: SPY -$1.98B, QQQ -$689M and IWM -$614M, while GLD picked up another +$643M and XLU +$109M. Looking ahead today, we have durable good orders, initial and jobless claims, existing home sales, as well as non-voter Kashkari speaking.

 

In premarket trading, Mag 7 stocks fall (Tesla -0.6%, Nvidia -0.3%, Meta -0.5%, Apple -0.2%, Amazon -0.3%, Alphabet -0.2%, Microsoft -0.06%). IBM slumped 6.8% after 1Q results failed ease investor concerns. Chipotle fell 3.6% after the Mexican restaurant chain lowered its full-year outlook after quarterly sales declined for the first time in almost five years. Comcast fell 3% after reporting first-quarter losses of pay-TV and broadband customers that exceeded analysts’ estimates, a reflection of the growing competition from streaming companies and wireless providers. Here are some other notable premarket movers:

• Alaska Air (ALK) tumbles 6.5% after the carrier’s 2Q forecast for adjusted earnings per share trailed the average analyst estimate.
• Edwards Lifesciences (EW) climbs 3% after the medical device maker boosted its sales forecast for the full year.
• Hasbro (HAS) gains 6% after the toymaker posted 1Q profit that beat estimates.
• Impinj (PI) climbs 17% after the semiconductor device company reported first-quarter results that beat expectations and gave a positive revenue forecast.
• Procter & Gamble (PG) falls 1.8% after the consumer products company cut its core earnings per share growth forecast for the full year.
• Robert Half (RHI) tumbles 15% after the staffing services company reported first-quarter EPS that missed the average analyst estimate and noted that US trade policy is weighing on business confidence.
• ServiceNow (NOW) rallies 8% after the software company reported first-quarter results that beat expectations and gave an outlook that is seen as strong.
• Southwest Air (LUV) drops 4% after the carrier said it is not reiterating its 2025 or 2026 Ebit guidance as a result of weakening consumer spending and “macroeconomic uncertainty.”
• Texas Instruments (TXN) rises 9% after the chipmaker reported first-quarter results that beat expectations and gave an outlook that is seen as strong.
• Tractor Supply (TSCO) falls 4% after the farm-store chain reported sales for the first quarter that missed the average analyst estimate.

Stocks are struggling to extend Wednesday’s global rally, which was spurred by signs Trump is rethinking the most aggressive elements of his stances on trade and the Federal Reserve. The market moves underscore how investors are grappling to keep up with pronouncements from officials in the administration and frequent back-and-forth by Trump on his tariffs. Bessent tempered some of the optimism over that development, as he said the US was not looking to unilaterally lower tariffs and that a full trade deal could take two to three years.  China, in turn, said Thursday that the US should revoke all unilateral tariffs and that Washington needs to show sincerity if it wants to hold trade negotiations.

“In terms of geopolitical risk, there’s a chance that we have reached a bottom, even if that’s not necessarily the case for markets,” said Francois Antomarchi, a fund manager at Degroof Petercam asset management. “Trump has touched the limits of what he can inflict on corporate America. That being said, there’s always a possibility he starts acting on another political front and triggers more volatility.”

Overnight, we continued to see mixed messages on trade negotiations, with President Trump saying last night that China may receive a new levy rate in two to three weeks, while China’s Foreign Ministry denied both countries are in talks and said the US should revoke all unilateral tariffs. Also had reports that the US is considering reducing certain tariffs targeting the auto industry although Trump said he wasn’t. CNBC reported that EU officials have warned that there’s still a lot of work that needs to get done before a trade deal can be reached with the US. Japan is hoping to finalize an agreement around the Group of Seven summit in June, however, they are likely going to resist Trump efforts to form trade bloc against China.

“You’re just seeing conflicting statements and noise coming from the US, where the overall narrative is just all over the place,” said Peter Kinsella, head of foreign-currency strategy at Union Bancaire Privee Ubp SA in London. “It’s impossible to trade.”

Deutsche Bank strategists were the latest to slash their year-end S&P 500 target by 12%, citing the blow to US companies from tariffs. While the new target of 6,150 points leaves 14% upside from Wednesday’s close, it means the index will only recover losses sustained since its February peak. Up until this change, the Deutsche Bank team had one of the most bullish views for the benchmark.

“With the potential impact of the announced tariffs large and likely to fall disproportionately on US companies, we lower our S&P 500 EPS estimate for 2025 from $282 to $240,” the strategists wrote in a note, adding that the consensus view is at risk of further downgrades.

Europe’s Stoxx 600 is down 0.4% with bank, retail and technology shares posting the largest declines.Real Estate (+1.16%) and Autos (+0.71%) outperform but Banks (-0.76%) and Travel (-0.69%) lag. Germany’s IFO Survey was better (for both current and expectations) helping push the euro higher. Here are the biggest movers on Thursday:

• Galderma shares climb as much as 7.9% after the Swiss dermatology company reaffirms its core Ebitda margin forecast for the full year, which RBC flags as positive given it includes the impact of US tariffs
• Beijer Ref shares gain as much as 9.8% to touch a one-month high, after the Swedish industrial cooling and ventilation firm posted strong earnings. Analysts praised the company’s solid organic growth
• Indivior shares gain as much as 8.1% after the UK drugmaker posted earnings. Jefferies welcomed the 1Q beat and reiterated guidance, with expectations for a second-half rebound driven by Sublocade support
• Belimo rises as much as 10% after the Swiss manufacturer of heating, ventilation and air conditioning upwardly revises its guidance for the full year. Analysts note particular strength in US data center demand
• Inchcape shares plummet as much as 17%, marking their worst drop since 2008, after the automotive distributor posted a drop in organic sales and added a caveat to its guidance as tariffs inject more uncertainty
• Kering shares fall as much as 6.9% following a sales miss which analysts said showed that its key Gucci brand continues to struggle. The update raised doubts that the French luxury group can bounce back in 2H
• BNP Paribas shares dropped 2.2%, making it one of the worst performing banks in Europe, after the French lender reported a drop in first-quarter net income despite record result from equities trading
• Nokia shares fall as much as 5.8% after the telecom equipment firm reported weaker-than-expected 1Q earnings and said reaching the top end of its guidance now appears more challenging
• Dassault Systemes shares slide as much as 9.7%, to the lowest intraday since 2020. The software company issued a mixed first-quarter report, as softness in licenses driven by broader macro uncertaint
• Worldline shares slide as much as 8.8% after the payments firm removed its previous full-year guidance, citing management’s limited tenure and macro-related uncertainty
• Husqvarna shares fall as much as 7.7%, the most since April 7, after the Swedish garden and outdoor equipment firm reported weak earnings and announced its CEO would depart
• Thales shares fall as much as 6.1% after the French defense company’s orders were softer than expected in the first quarter — according to Jefferies. JPMorgan highlights some weakness in non-defense divisions
• EssilorLuxottica shares fall as much as 3% after the Ray-Ban maker’s earnings fell in line with expectations, not enough to push the outperforming stock any higher as macro headwinds marred the update

Earlier in the session, Asian stock rally took a breather on Thursday as investors digested the latest commentary from the Trump administration on its tariff plan. The MSCI Asia Pacific Index edged lower after a five-day run of gains. Shares in Taiwan, South Korea and Hong Kong fell. Stock benchmarks in Japan bucked the trend to gain about 1%, buoyed by carmakers on news that the US is considering whether to reduce certain tariffs targeting the auto industry.  While signs that President Donald Trump is easing up on his tough stance against China and the Federal Reserve drove a relief rally globally on Wednesday, the momentum cooled after Treasury Secretary Scott Bessent cast doubt on a timely resolution to the US-China trade war. A reduction in US import tariffs is “conditional on China coming to the table and perhaps then after a two to three-year period we could see a bilateral trade deal in the works,” said Chris Weston, head of research at Pepperstone. “For now, the collective takes the news flow to mean that we’ve seen the worst of tariff policy.”

In FX, the Bloomberg Dollar Spot Index fell 0.4%, snapping a two-day winning streak after China also demanded that the US revoke all unilateral tariffs; ongoing tensions underscored the risks stemming from aggressive US tariffs. The euro rises 0.6%, helped by stronger-than-expected German IFO data although Rehn’s comments saw it pullback from the highs. The Norwegian krone is leading G-10 currency gains against the dollar, rising 1.2%. The Canadian dollar underperforms, albeit still up 0.3%. USD/JPY fell as much as 0.8% to 142.31.

“The dollar rebound this week doesn’t represent much more than a squeeze on speculative short dollar positions generated by the ‘no intention to fire Powell’ headlines and signs of back peddling on some of the tariff items,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank Ltd. “It doesn’t change the negative big picture view of the dollar”

In rates, the 10-year Treasury yield fell 3bps to 4.35%, sliding back toward a 4.24% touched on Wednesday, its lowest since April 8. Treasuries hold modest curve-steepening gains in early US trading, led by German government bonds which are also higher, having extended gains after ECB’s Rehn said they shouldn’t rule out a larger interest-rate cut. German 10-year borrowing costs fall 3 bps. Gilts are also higher, albeit lagging peers.  Bund curve steepened as traders priced in additional ECB easing. The US session includes a 7-year note auction, last coupon sale until May 5, following good demand for Wednesday’s 5-year offering.

In commodities, oil prices advance, with WTI rising 0.6% to $62.60 a barrel. Gold jumps $50 to around $3,336/oz. Bitcoin falls 1% to below $93,000. 

On today’s calendar, we have Initial Jobless Claims and Durable Goods at 8:30am, Existing Home Sales at 10am, and Kansas City Fed Manf at 11am. Fed’s Kashkari speaks at 5pm. We get another slew of EPS and $44bn 7yr UST auction at 1pm.

Market Snapshot

• S&P 500 mini -0.3%
• Nasdaq 100 mini -0.3%
• Russell 2000 mini -0.2%
• Stoxx Europe 600 -0.3%
• DAX -0.5%
• CAC 40 -0.6%
• 10-year Treasury yield -3 basis points at 4.35%
• VIX +1 points at 29.49
• Bloomberg Dollar Index -0.3% at 1225.41
• euro +0.5% at $1.137
• WTI crude +0.8% at $62.74/barrel

Top Overnight News

• Factories in China have begun slowing production and furloughing some workers as the trade war unleashed by Trump dries up orders for products ranging from jeans to home appliances. With most Chinese goods now facing US Duties of at least 145%, some factory owners say American customers have cancelled or suspended orders, forcing them to cut production. FT
• US House Republicans will seek a $150bln Pentagon spending hike as part of their party-line mega bill: Politico.
• Trump said he might call Jerome Powell and reiterated the Fed chair is making a mistake by not lowering rates. Cleveland President Beth Hammack said slowing the pace of the Fed’s balance-sheet runoff may let it continue for longer. BBG
• Trump and House Speaker Mike Johnson signal opposition to a new 40% tax bracket for those earning $1M+, likely putting a “nail in the coffin of the idea.” Politico
• BofA Institute Total Card Spending (Week-to-Apr-19th): +3.1% (Y/Y) (prev. 2.3%); said easter continues to be a major retail event for the US
• Trump is planning to spare carmakers from some of his most onerous tariffs, on another trade war climbdown. The move would exempt car parts from the tariffs that Trump is imposing on imports from China. Exemptions would leave in place a 25% tariff Trump imposed on all imports of foreign made cars and a separate 25% levy on parts would also remain and is due to take effect from May 3. FT
• Marco Rubio refuted a Politico story that reported the White House may lift sanctions on Russian energy assets as part of a Ukraine peace deal. Overnight, Russia hit Kyiv with one of the heaviest aerial strikes this year. BBG
• China on Thursday said that there were no ongoing discussions with the U.S. on tariffs, despite indications from the White House this week that there would be some easing in tensions with Beijing. “If the U.S. really wants to resolve the problem … it should cancel all the unilateral measures on China,” Ministry of Commerce Spokesperson He Yadong told reporters. CNBC
• Japanese bonds and stocks are set to draw the biggest combined monthly foreign inflows on record, adding to signs global funds are seeking alternatives to US assets. BBG
• EU officials warn that there’s still a lot of work that needs to get done before a trade deal can be reached with the US. CNBC
• The ECB will probably have to cut rates further and shouldn’t exclude a larger reduction, Governing Council member Olli Rehn said. BBG
• Fed’s Hammack (2026 voter) said uncertainty is a big issue in the economy and is causing businesses to pause, while she added that an incredibly high bar exists for the Fed to step in and they have not seen the need for Fed market intervention. Hammack also commented that recent market troubles were a risk transfer and that markets were functioning, as well as noted it is not a good time to be pre-emptive amid policy uncertainty and reiterated now is a good time for monetary policy to take its time.

Tariffs/Trade

• China’s Vice Premier He Lifeng said the nation must face up to the new situation of the US tariff increase on China; need to increase policy supply and solve practical problems.
• China’s Foreign Ministry spokesperson, on US trade talks, said “As far as I know, China and the US have not consulted or negotiated on the issue of tariffs, let alone reached an agreement,” via Global Times.
• China’s MOFCOM said any content about China-US economic and trade talks is “groundless and has no factual basis” If US really wants to resolve the issue, it should life all unilateral tariff measures against China.
• China Foreign Ministry spokesperson Gou said China and the US are not yet in talks on tariffs; will fight tariff war “if we have to” Respect is condition for any talks to happen. Tariffs disrupt TWO rules, and harm people of all countries.
• China’s MOFCOM held a meeting with foreign firms to discuss the impact of US tariff increases on the investment and operations of foreign enterprises in China; committed to further opening-up, with policies that are stable, consistent, and predictable.
• US President Trump said it depends on China how soon tariffs can come down and they have spoken to 90 countries regarding tariffs already. Trump said if they don’t have a deal, they will set tariffs and could set the tariff for China over the next two or three weeks, while he suggested that there is daily direct contact between US and China. Furthermore, Trump commented that they don’t want cars from Canada and that car tariffs from Canada could go up, as well as noted that they are working on a deal with Canada and will see what happens.
• It was earlier reported that US President Trump is to exempt carmakers from some US tariffs in which he was said to be planning to spare carmakers from some of his most onerous tariffs, in another trade war climbdown following intense lobbying by industry executives over recent weeks, according to FT.
• White House Economic Advisor Hassett said the USTR has 14 meetings scheduled this week with foreign trade ministers and there are 18 written offers from trade ministers, while he stated China is open to talks.
• PBoC Governor Pan said in Washington that there are no winners in trade wars and tariff wars, while he added that unilateralism and protectionism have no way out and are not in the interests of anyone. Furthermore, Pan said China will adhere to opening up and firmly supports free trade rules and the multilateral trading system.
• Chinese embassy in the US posted a statement from an official saying “Our doors are open, if the US wants to talk. If a negotiated solution is truly what the US wants, it should stop threatening and blackmailing China and seek dialogue based on equality, respect and mutual benefit. To keep asking for a deal while exerting extreme pressure is not the right way to deal with China and simply will not work.”
• China Customs will no longer supervise goods and articles included in the management of drugs, veterinary drugs, and medical devices, while it will no longer supervise import and export of microbial agents for environmental protection with these goods to no longer be supervised as special items entering and leaving China.
• Japan Economic Minister Akazawa plans to visit the US for tariff talks from April 30th, while it was also reported that the US told Japan it cannot give special treatment regarding tariffs during talks held earlier this month, according to NHK citing multiple Japanese government sources.
• Taiwan’s representative to the US said Taiwan is willing to increase purchases of weapons and energy from the US to reduce its trade deficit.
• White House said regarding the EU fine on Meta (META) and Apple (AAPL) that novel forms of economic extortion will not be tolerated.
• Swiss Economy Minister said he held a productive meeting with USTR Greer to discuss bilateral trade relations and is looking forward to future exchanges and continued collaboration.
• Chile’s President said the best way to respond to this trade war is not with high-sounding statements, while they are not going to respond with retaliation and are going to respond with greater integration. Furthermore, he said they must continue working hard to facilitate customs processes and promote investments to improve logistics.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were ultimately mixed despite the positive handover from Wall Street – the risk momentum waned overnight as trade uncertainty lingered owing to the mixed signals from the US. ASX 200 was led higher by outperformance in mining stocks and tech, with gold producers buoyed by a rebound in the precious metal. Nikkei 225 advanced at the open but gradually pared most of the gains following firmer Services PPI data from Japan and after a report that the US told Japan it cannot give it special treatment regarding tariffs during talks held earlier this month. Hang Seng and Shanghai Comp were subdued following the mixed signals from the US as a report noted the White House was mulling cutting China tariffs by around half to de-escalate the trade war although officials declared they are not considering something unilaterally. Furthermore, President Trump stated it depends on China how soon tariffs can come down and if they don’t have a deal, they will set the tariff but said they are having daily talks with China.

Top Asian News

• PBoC to sell CNY 600bln of 1yr medium-term lending facility (MLF) loans on Friday April 25th.
• China issued its new market access “Negative List” in which the number of items in the negative list was reduced to 106 from 117, while China’s 2025 negative list for market access removed eight national access restrictions and partially liberalises eight national measures including for telecommunications services, TV production, pharmaceuticals, internet information services for drugs and medical devices, and forest seed imports.
• South Korea Information Protection Agency said DeepSeek transferred user information and prompts without permission, according to Yonhap.

European bourses (STOXX 600 -0.8%) opened with modest losses, but sentiment gradually deteriorated as the morning progressed, to display a clear negative bias. European sectors opened mixed but now display a bit more of a negative picture. Real Estate takes the top spot, alongside strength in Energy; although upside is very modest. Tech is the clear underperformer today, given the risk-tone and as traders digest the latest earnings from Dassault Systemes, which slumped after downgrading its 2025 margin outlook. The banking sector is pressured by post-earning losses in BNP Paribas, whilst the Luxury sector is hit after poor Kering results. US equity futures (ES -0.6% NQ -0.8% RTY -0.6%) are entirely in the red, in-fitting with the broader risk tone; the NQ lags, with sentiment in the Tech sector hit after IBM (-8% pre-market) results. Focus now turns to US Durable Goods, Jobless Claims and earnings from the likes of Alphabet and Intel.

Top European News

• ECB’s Rehn said should not rule out a larger rate cut; risks are beginning to materialise There are few good arguments to pause rate cuts. Defence outlays will not have much impact on medium-term inflation.

FX

• DXY has pulled back with the USD lower vs. all peers after gaining yesterday on account of hopes on the trade front and more conciliatory language from President Trump re Fed Chair Powell. In terms of the latest state-of-play, Trump said it depends on China how soon tariffs can come down and they have spoken to 90 countries regarding tariffs already. Trump added that if they don’t have a deal, they will set tariffs and could set the tariff for China over the next two or three weeks. Note, China this morning said they are not yet in trade talks with the US.
• EUR is firmer vs. the USD and the best performer across the majors with the EUR benefitting from its status as the most liquid alternative to the USD. On the trade front, not a great deal has changed for the EU with the Trump administration focusing more on the likes of India and China. Elsewhere, ECB speak has continued to lean towards suggesting that tariffs will weigh on inflation in the Eurozone. German IFO data exceeded expectations but failed to have any material sway on the EUR given the headwinds facing the nation. EUR/USD is currently stuck on a 1.13 handle and within yesterday’s 1.1308-1.1440 range.
• USD/JPY pulled back from the 143.00 territory after rallying yesterday owing to the positive risk appetite and stronger buck, while recent data showed firmer Services PPI from Japan. On the trade front, Japanese Economic Minister Akazawa plans to visit the US for tariff talks from April 30th. USD/JPY has delved as low as 142.56 but is still some way clear of Wednesday’s trough at 141.49.
• GBP is firmer vs. the USD but to a lesser extent than most peers. Newsflow out of the UK remains on the light side. However, on the trade front, UK Chancellor Reeves said the UK will not rush trade talks with the US and will not relax food standards to secure a deal. BoE’s Lombardelli is both due later. Cable is currently stuck at the top end of a 1.32 handle and within Wednesday’s 1.3234-1.3339 range.
• Antipodeans are both a touch firmer vs. the broadly weaker USD with little in the way of newsflow from Australia or New Zealand. As such, direction for both will likely be dictated by trade developments and the broader risk tone.
• Barclays said its passive month-end rebalancing model shows strong dollar buying against all majors.
• PBoC set USD/CNY mid-point at 7.2098 vs exp. 7.3111 (Prev. 7.2116).

Fixed Income

• US paper is higher alongside downside in stocks and following a choppy session yesterday which saw T-notes ultimately settle lower. In terms of the latest state-of-play for trade, Trump said it depends on China how soon tariffs can come down and they have spoken to 90 countries regarding tariffs already. Trump added that if they don’t have a deal, they will set tariffs and could set the tariff for China over the next two or three weeks. Note, China this morning said they are not yet in trade talks with the US. For today’s docket, data releases include US durables and weekly claims figures, whilst Kashkari is due to deliver remarks – a 7yr note offering is also due. Jun’25 USTs currently sit towards the bottom-end of Wednesday’s 110.18+ to 111.18+ range.
• Bunds are firmer on the session after a session of losses on Wednesday on account of the upbeat risk tone that was triggered by optimism on the trade front and Trump remarks re Powell. ECB speak has continued to lean towards suggesting that tariffs will weigh on inflation in the Eurozone, albeit there is a high level of uncertainty surrounding forecasts. ECB’s Rehn has suggested that the GC should not rule out larger cuts than 25bps. German IFO data exceeded expectations but failed to have any material sway on prices given the headwinds facing the nation. Jun’25 Bunds are currently towards the middle of yesterday’s 131.11-131.93 range with the 10yr yield @ 2.477% vs. yesterday’s 2.454-2.518% range.
• UK paper is sitting just above the unchanged mark after a choppy session yesterday which saw initial gains (triggered by the UK DMO issuance adjustment and soft UK PMI data) reversed following the strong risk tone in the market. On the trade front, UK Chancellor Reeves said the UK will not rush trade talks with the US and will not relax food standards to secure a deal. A strong UK 2043 outing had little impact on Gilts, and currently trade within Wednesday’s 92.34-93.29 range.
• Norwegian Sovereign Wealth Fund CEO said it has not gone massively to buy stocks but individual portfolio managers have been able to buy more “if they wanted to”; have not changed view on USTs.
• UK sells GBP 1.75bln 4.75% 2043 Gilt: b/c 3.38x (prev. 2.97x), average yield 5.155% (prev. 5.232%) & tail 0.3bps (prev. 0.5bps).
• Italy sells EUR 3bln vs exp. EUR 2.5-3.0bln 2.55% 2027 BTP: b/c 1.65x (prev. 1.55x) & gross yield 2% (prev. 2.38%).

Commodities

• A firmer session in the crude complex this morning following yesterday’s slump in prices on account of the OPEC+ discord after Kazakhstan said it cannot lower oil output and prioritises domestic interest over the cartel’s. WTI resides in a USD 62.11-63.00/bbl range while its Brent counterpart resides in a USD 65.95-66.81/bbl range.
• Once again a mixed picture across precious metals with spot gold now the gainer whilst spot silver and palladium falter. Little new to add aside from the ongoing theme of tariff uncertainty, with investors rushing back into the yellow metal following two days of heavy losses. Spot gold currently resides in a USD 3,305.37-3,367.69/oz parameter.
• Base metals are trading modestly firmer on the back of a softer Dollar but upside remains capped by lingering trade uncertainty. 3M LME copper resides in a USD 9,352.03-9,413.80/t range at the time of writing.

Geopolitics: Middle East

• Israel’s army carries out a series of bombing operations in the city of Rafah in the southern Gaza Strip.

Geopolitics: Ukraine

• Ukrainian air defence units were active around Kyiv and witnesses reported several explosions and drones in the air, while the second largest city of Kharkiv was also under missile attack with explosions heard.
• US Treasury Secretary Bessent met with Ukraine’s PM Shmyhal and Finance Minister Marchenko, while he reaffirmed US dedication to secure peace and emphasised the need to conclude technical talks and sign an economic partnership between the US and Ukraine as soon as possible.

Geopolitics: Other

• Russia said it may resume nuclear tests in response to similar measures from Washington, via Al Arabiya.
• China’s Military said it monitored US warship’s transit in Taiwan Strait on Apr 23.

 

US Event Calendar

• 8:30 am: Apr 19 Initial Jobless Claims, est. 222k, prior 215k
  • Apr 12 Continuing Claims, est. 1868.5k, prior 1885k
• 8:30 am: Mar P Durable Goods Orders, est. 2%, prior 1%
  • Mar P Durables Ex Transportation, est. 0.3%, prior 0.7%
  • Mar P Cap Goods Orders Nondef Ex Air, est. 0.1%, prior -0.2%
  • Mar P Cap Goods Ship Nondef Ex Air, est. 0.2%, prior 0.8%
• 8:30 am: Mar Chicago Fed Nat Activity Index, est. 0.12, prior 0.18
• 10:00 am: Mar Existing Home Sales, est. 4.13m, prior 4.26m
  • Mar Existing Home Sales MoM, est. -3.05%, prior 4.2%

Central Bank speakers

• 5:00 pm: Fed’s Kashkari Speaks in Moderated Discussion

DB’s Jim Reid concludes the overnight wrap

I’m on my way to Luxembourg this morning. It’s always a very pleasant trip apart from the fact that it’s the one time a year I go on a small twin propellor plane. Last time in extreme turbulence I think I clung onto my colleague Mark Wall as we came into land. Fortunately for Mark the weather looks pretty calm today!

Markets are a little bumpier in Asia this morning and reversing a little after a relentlessly bullish run since Easter. Yesterday saw a further positive batch of headlines on the trade war with Trump saying “We’re going to have a fair deal with China”, as the WSJ reported that the China tariffs could be slashed down towards 50-65%. That would be less than half the 145% rate that’s in place right now, and that led to a lot of excitement that US policy would move in a more predictable direction from here. In fact we’re moving back closer towards Trump’s campaign pledges of a 10% universal baseline tariff and a 60% tariff on China, albeit 2 weeks into a 90-day reprieve on the more aggressive reciprocal tariffs.

The latest positive developments collectively led to a huge sigh of relief in markets, and meant several assets unwound their tariff-driven moves. Equities climbed as a result, with the S&P 500 (+1.67% after +2.51% Tuesday) posting consecutive gains of above 1% for the first time since November 6, the day after Trump’s election win. Indeed, it now means the S&P has pared back more than half of its losses since the closing low on April 8. And in Europe it was much the same story, and the STOXX 600 (+1.78%) also posted a solid advance, having now risen by nearly 10% (+9.98%) since its closing low on April 9. That said, the S&P 500 is still -5.20% down since April 2 and volatility remains high as the index gave up about half of yesterday’s +3.44% peak intra-day gain as investors struggled to gauge just how much tariff reversal was likely, with Bessent saying there was no unilateral offer to cut tariffs on China. So we’re not quite out of the woods yet.

We’ll have to see what happens from here, but a large part of the optimism has come about because investors think the US administration will relent more. That view was supported by the WSJ’s report yesterday, which suggested the China tariffs could be slashed lower. So that seemed to back up Trump’s own comments on Tuesday evening that the China tariffs would “come down substantially”, and that “we’re going to be very nice and they’re going to be very nice, and we’ll see what happens.” The WSJ report also floated the idea of a tiered approach, saying that one possibility was for a 35% tariff on items that weren’t a national security threat, and a 100% tariff on strategic items. Shortly after yesterday’s close the FT also reported that the US administration was planning to exempt car parts from some of the most onerous tariffs, avoiding stacking 20% China fentanyl and 25% steel and aluminium levies on top of the 25% auto tariffs.

For US Treasuries, the tariff relief and the latest Powell comments led to a further flattening of the curve. Long-term Treasuries continued to recover, with the 10yr Treasury yield down -1.9bps to 4.38% and the 30yr yield (-5.5bps) seeing an even bigger decline to 4.82%. On the other hand, the 2yr yield rose +5.3bps to 3.87%, its highest since April 11 as investors dialed back prospects for near-term Fed cuts. A rate cut was 57% priced by the June meeting as of yesterday’s close, down from 78% on Monday.

The dollar index (+0.94%) strengthened for a second day running, continuing to pick up from its three-year low on Monday after Trump’s critical comments about Powell. And although it might seem anomalous that the currency is strengthening even as long-term interest rates were falling, the moves demonstrated that investors were becoming more optimistic on US assets more broadly, with greater confidence in their safe haven status again. So that reversed the moves we saw after Liberation Day, when bonds and the currency were selling off simultaneously, in a manner reminiscent of the UK in late-2022 when Liz Truss was Prime Minister.

Elsewhere, the other big focus yesterday was on the April flash PMIs from around the world, which offered an initial indication on how the global economy was reacting to the tariffs. Overall, they showed a clear but modest deterioration, and in the US at least, they were still above the 50-mark separating expansion from contraction. So that helped to alleviate fears about an imminent recession, and the broader market rally demonstrated that investors are still sceptical that we’re heading for a sharp downturn. In terms of the numbers themselves, the US composite PMI was down to 51.2, which was the weakest print since December 2023. Meanwhile the Euro Area composite PMI just about remained in expansionary territory at 50.1, but that was also the weakest print since December.

More broadly, there were several signs across different asset classes that the recent market stress was easing. In particular, the VIX index (-2.12pts) closed at 28.45, its lowest level since Liberation Day itself on April 2. Another was US HY spreads (-26bps) which also reached their tightest level since Liberation Day, at 371bps. At the same time, yesterday also saw investors move out of several assets that had done incredibly well since the Liberation Day announcements. For instance, gold prices (-2.73%) fell back to $3,288/oz, having closed at a record high on Monday. In addition, the Swiss Franc was the worst-performing G10 currency, weakening -1.41% against the US Dollar. And European sovereign bonds also struggled significantly, with 10yr bund yields (+5.5bps) rising back up to 2.49%, alongside smaller moves for 10yr OATs (+2.5bps) and BTPs (+2.1bps).

As mentioned at the top, this week’s rally is reversing a bit in Asia with the Hang Seng (-1.26%) the biggest underperformer with the CSI (-0.08%) and the Shanghai Composite (-0.10%) also seeing slight losses. Elsewhere, the KOSPI (-0.46%) is also edging lower as South Korea’s GDP data showed an unexpected contraction for the first quarter (more below). However the Nikkei is higher (+0.82%) alongside the S&P/ASX 200 (+0.60%). S&P 500 (-0.25%) and NASDAQ 100 (-0.24%) futures are also lower with 10yr USTs -2.3bps lower trading at 4.36% as I type.

Early morning data showed that South Korea’s economy unexpectedly contracted in the first quarter (-0.2%), shrinking for the first time since the second quarter of 2024 and missing forecasts for a gain of 0.1%. The weak data will increase calls for the Bank of Korea (BOK) to cut interest rates again as soon as next month as policymakers worry about the consequences of Trump’s tariff policies.

To the day ahead now, and data releases include the Ifo’s business climate indicator from Germany, and in the US we’ll get the weekly initial jobless claims, existing home sales for March, and the preliminary durable goods orders for March. Otherwise from central banks, we’ll hear from the Fed’s Kashkari, the ECB’s Nagel, Lane, Simkus and Rehn, and the BoE’s Lombardelli.