Futures Dip As Torrid Squeeze Pauses Ahead Of CPI Report

US equity futures are modestly lower ahead of today's CPI report, but well off session lows, as markets take a slight pause following yesterday’s surge and as trade war truce euphoria gives way to lingering concerns about inflation and economic growth. As of 8:00am ET, S&P and Nasdaq 100 futures were down 0.2% with Mag7 and Semis names weaker pre-mkt, pulling the index lower. UnitedHealth Group sank 10% in pre-market trading after suspending its 2025 outlook. In the latest trade war news,  US reduced the tariff on ‘de minimis’ shipments from China, per Reuters, from 120% to 54%, while China reversed its ban on Boeing jets. Appetite for safer assets picked up again, with Treasury yields falling and gold prices on the rise. The dollar slipped after gaining more than 1.4% yesterday, its strongest day since Nov 6, 2024, the day after the election. Today’s macro data focus is on CPI where the YoY numbers are expected to remain flat MoM despite an acceleration in the MoM prints. Earnings prints are not expected to be market moving today.

In premarket trading, Magnificent Seven stocks were mostly lower with the exception of NVDA (Tesla -0.3%, Meta Platforms -0.2%, Microsoft -0.3%, Apple -0.3%, Alphabet -0.2%, Amazon +0.02%, Nvidia +0.2%). Coinbase Global (COIN) climbs 9% after S&P Dow Jones Indices said the company will join the S&P 500 Index before trading opens May 19. UnitedHealth Group shares drop 10% after the health insurer suspended its 2025 outlook and said CEO Andrew Witty is stepping down for personal reasons, effective immediately. Here are some more notable premarket movers:

• 3D Systems (DDD) sinks 22% after the 3D-printer maker reported products revenue for the first quarter that missed the average analyst estimate.
• Arrowhead Pharmaceuticals (ARWR) climbs 6% after the drug developer reported earnings per share for the second quarter that was ahead of Wall Street’s expectations.
• Enphase Energy (ENPH) drops 5% after BMO cut its recommendation on the solar energy equipment manufacturer to underperform, citing planned Federal Government tax changes as a headwind for residential solar.
• On Holding (ONON) rises 5% after the company nudged its sales growth forecast higher as demand for the Swiss sneaker maker’s high-priced footwear remained strong despite economic uncertainty.
• Pinterest (PINS) declines 2% after the Information reported Google may unveil next week a feature that shows images designed to give people ideas for fashion and other types of designs, citing a person familiar with the matter
• Rigetti Computing Inc. (RGTI) tumbles 11% postmarket after the quantum computing firm’s 1Q revenue missed expectations.
• Other quantum computing stocks are down: Quantum Computing Inc. (QUBT) -3%, D-Wave Quantum (QBTS) -3%

The powerful surge in stocks following the US-China trade truce, which sent the S&P 3.3% higher and erasing all post-Liberation day losses, caught out bearish investors who are now left chasing the rally, as well as hedge funds that were mostly short US equities, according to strategists. Bank of America’s latest fund manager survey — conducted before the US-China trade breakthrough — is “bearish enough to suggest pain trade modestly higher,” Michael Hartnett said. BBVA strategists said that hedge funds’ net leverage is near five-year lows and mostly short US equities, adding to the squeeze.

“Yesterday’s move was warranted,” said Andrea Gabellone, analyst at KBC Securities. “But I need more to get more fundamentally constructive.”

Still, Tuesday’s slight pullback suggests trade and economic concerns are lingering, despite the US-China truce. The dollar is a bit weaker, and gold is higher, as investors await April’s CPI number for a sense of whether Trump’s tariff back-and-forth is fueling inflation. Boeing will be in focus after China removed a ban on airlines taking delivery of its planes.

“The challenges are not over,” said Frederique Carrier, investment strategy head at RBC Wealth Management. “The de-escalation was a lot stronger than even the best hopes, but you have to remember that the US economy still faces average effective tariffs of more than 13%.”

There’s also plenty from strategists to digest. Goldman’s David Kostin raised his 12-month target for the S&P 500 to 6,500 from 6,200, implying a gain of about 11%. But he’s still somewhat cautious, seeing an “impending slowdown in economic and earnings growth.” Meanwhile, the market rebound prompted Mark Haefele, chief investment officer at UBS Global Wealth Management, to cut US stocks to neutral from attractive, saying the risk-reward was now more balanced. Uncertainty is still high, he wrote in a note on Tuesday, and investors will focus on whether a lasting trade agreement can be forged between the two countries.

In Europe, the Stoxx 600 rises 0.2%. Health care stocks are among the biggest gainers, with Bayer shares rising 8% after earnings beat expectations. Insurance names provide a drag after disappointing numbers from Munich Re.  Here are the biggest movers Tuesday: 

• Renewable energy stocks rally in Europe on Tuesday after US House Republicans proposed a phase-out of incentives to develop clean-energy projects that was better than feared, according to analysts
• Bayer shares jump as much as 10%, the most since August, after the German conglomerate reported better-than-expected earnings and sales for the first quarter
• Grifols gains as much as 6.5% after the the Spanish blood-plasma company delivers results above expectations in the first quarter and maintains its full-year guidance
• Entain rises as much as 6.3% in London after UBS raised its recommendation to buy, saying the bookmaker has been steadily progressing operationally over the past year, yet the shares have underperformed the sector
• RS Group rises as much as 7.5% as BofA Global Research raises its recommendation on the electronics distributor to buy due to an automation recovery and cost savings that support margins
• Munich Re falls as much as 5.4% after first-quarter profit slumped because of claims linked to the Los Angeles wildfires and prices for renewals declined
• Hannover Re shares declined 3.8%, the second-worst performer on the Stoxx 600 Insurance Index, after the German reinsurer reported what JPMorgan says are “not a particularly pretty set of numbers”
• DCC shares drop as much as 4.9%, the biggest fallers in the FTSE 100 Index, after the conglomerate’s earnings fell short of expectations, with analysts pointing to weakness in its technology business due to weak demand
• GEA Group drops as much as as 3.6% following a double-downgrade to underperform from buy at BofA, which cites a full valuation and weaker food and beverage capex cycle in the firm’s major markets
• Fraport shares fall as much as 4.7%, the most in five weeks. Higher costs in Aviation and a one-off impact from security drove a miss on Ebitda in the first quarter for the operator of Frankfurt Airport
• Alfen slumps as much as 26%, the most since June 2024, after the energy equipment company warned that its full-year revenue is likely to come in at the lower end of the current guidance range

Earlier in the session, Asian stocks eked out gains, with sentiment getting a boost after the world’s two largest economies agreed to a trade truce. Meanwhile, shares in Hong Kong fell after a rally on Monday. The MSCI Asia Pacific Index jumped as much as 1%, before trimming its gains to 0.2%. TSMC, Recruit and Toyota were major contributors to the gauge’s gains. Japanese shares were among the biggest gainers in the region, with the Topix index posting its longest winning streak in nearly 16 years. Benchmarks also advanced in Taiwan and Malaysia. Still, shares fell in Hong Kong as the trade agreement is seen as reducing Beijing’s need to announce any large stimulus. Stocks in mainland China pared early gains to trade little changed. Meanwhile, gauges in India also fell as the tech sector’s rally cooled. 

In FX, the Bloomberg Dollar Spot Index slipped as much as 0.3% as positioning in the options market continued to lean against the currency. Kristoffer Kjaer Lomholt, head of FX and corporate research at Danske Bank A/S, said the greenback’s 1% surge on Monday was “all about the unwind of the post-Liberation day trades” even though unlike other assets which have recovered all losses since Liberation Day, the dollar remains the only major asset class that is decidedly lower.  The Swiss franc, Swedish krona and Aussie dollar are the best performing G-10 currencies. The Canadian dollar lags with a 0.1% fall against the greenback.

Treasuries also reversed some of the Monday moves. The policy-sensitive US two-year yield fell three basis points after surging 12 basis points amid speculation the tariff truce would bolster the world’s biggest economy. 10-year yields dropped 3 bps to 4.45% and again reversing some of Monday’s move. Bunds fall, with German 10-year yields rising 3 bps. UK 10-year borrowing costs add 2 bps but short end yields are lower after British businesses cut jobs for a third straight month in April. 

In commodities, US crude WTI futures rise 0.5% to $62.25. Spot gold has also pared some of Monday’s fall, rising $18 to around $3,254/oz.

Looking to the day ahead now, and the main highlight will be the US CPI release for April. Otherwise, we also got UK unemployment for March and the German ZEW survey for May. From central banks, we’ll hear from the ECB’s Escriva, Makhlouf and Knot, along with BoE Governor Bailey and the BoE’s Pill.

Market Snapshot

• S&P 500 mini -0.2%, 
• Nasdaq 100 mini -0.2%, 
• Russell 2000 mini -0.1%
• Stoxx Europe 600 +0.2%
• DAX little changed
• CAC 40 +0.2%
• 10-year Treasury yield -2 basis points at 4.45%
• VIX +0.3 points at 18.72
• Bloomberg Dollar Index -0.2% at 123

Top Overnight News

• US Treasury Secretary Scott Bessent said the European Union suffers from a “collective action problem” that’s hampering trade negotiations, downplaying the possibility of a quick agreement with the US’s largest trading relationship. “I think the US and Europe may be a bit slower,” said Bessent. BBG
• The US imported a record $53bn of products used in the pharmaceuticals and medical industry in March as companies rushed to build stockpiles in case Trump hits the sector with tariffs. Imports of pharma products soared around 160% in March from the same month the previous year, and almost doubled from Feb, reaching the highest on Census Bureau records stretching back to 2002.  FT
• A House Republican tax bill would raise the SALT cap to $30,000 without increasing taxes on the wealthy. It needs almost unanimous party support to pass. The plan proposes to significantly increase taxes on the richest US universities. BBG
• China removed a month-long ban on Boeing deliveries by airlines, people familiar said, after the trade-talk breakthrough with the US. Officials have started to tell local carriers and government agencies that the restrictions no longer apply. BBG
• White House Executive Order said US will cut the minimum tariff on China shipments from 120% to 54%, and a minimum flat fee of USD 100 is to remain: RTRS
• India proposed tariffs on some American goods in its first retaliation against Trump’s duties on steel and aluminum, even as trade talks continue. BBG
• British businesses cut jobs for a third straight month in April. Wage growth, excluding bonuses, slowed to 5.6% in the first quarter, while the unemployment rate ticked higher. BBG
• The  U.S. Court of International Trade is hearing oral arguments Tuesday in a lawsuit challenging Trump’s use of the 1977 International Emergency Economic Powers Act to impose sweeping new tariffs last month, before suspending the highest ones on about 60 trading partners for 90 days. Politico
• U.S. new-vehicle prices surged in April, data released on Monday showed, a sign that the effects of President Donald Trump's auto-tariff measures are rippling through the car market. RTRS
• BofA Fund Manager Survey (pre-US/China trade update): Global fund managers most underweight US dollars in May since 2006 61% of fund managers see soft landing for the economy versus 37% in April; 26% see hard landing, down from 49% in April. Prior to US/China Geneva talks, fund managers saw US tariffs on China goods at 37%. "Positive US-China trade war ceasefire prevents recession/credit event": BofA

Trade/Tariffs

• White House Executive Order said US will cut the minimum tariff on China shipments from 120% to 54%, and a minimum flat fee of USD 100 is to remain.
• USTR Greer said the outcome of US-China tariffs talks was seen as pragmatic, while he added China has agreed to remove countermeasures and noted if things don't work out, China tariffs can go back up.
• Chinese President Xi said there are no winners in tariff wars and trade wars, while he added that only when various countries work together can they maintain world peace, stability and promote global development. Xi said bullying and tyranny will only isolate oneself, as well as noted that China supports Latin America and the Caribbean in expanding their influence in the multilateral arena with China willing to deepen cooperation with Latin America in infrastructure, agriculture, food, energy and minerals.
• China's Foreign Ministry, on US fentanyl tariffs, says China has repeatedly said it is a US issue. US is ignoring China's good will. Responsibility lies with the US.
• US Treasury Secretary Bessent says talks with China in Geneva resulted in a mechanism to avoid escalation; can proceed from here and have a very good framework. When asked if he feels good about the progress of other deals, he responds "yes"; references Japan, South Korea, Indonesia, Taiwan. Thinks the US-Europe deal may be a bit slower, cites regional divides among the EU.
• Canadian PM Carney and UK PM Starmer agreed to strengthen trade, commercial and defence ties in a phone call, according to a statement from Canada.
• China removes ban on Boeing (BA) deliveries after US trade truce, via Bloomberg.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mostly higher following the rally on Wall St owing to the US-China trade war de-escalation after both sides agreed to cut tariffs by 115ppts for an initial period of 90 days, although some of the gains were capped as the euphoria began to moderate. ASX 200 edged higher amid outperformance in tech and energy but with further advances contained by weakness in defensives and gold miners. Nikkei 225 rallied to above the 38,000 level following the cooling in US-China trade tensions but with the index off intraday highs amid some profit-taking and a slight pullback in USD/JPY, while BoJ rhetoric continued to signal future hikes if prices and the economy improved. Hang Seng and Shanghai Comp lagged despite the de-escalation in the US-China trade war which the Hong Kong benchmark already had its opportunity to react to yesterday, while questions lingered on what will happen during the 90-day reprieve as the trade deficit remains and the current 30% tariff on Chinese goods still a relatively high level.

Top Asian News

• BoJ Summary of Opinions from the April 30th-May 1st meeting stated that one member said the central bank is likely to continue raising interest rates in line with improvements in the economy and prices, while a member said the BoJ must make policy decisions without preconception as uncertainty over the outlook is very high. There was also the opinion of no change to the BoJ's rate-hike stance as real interest rates are deeply negative, but risks must be scrutinised and the BoJ has little choice but to take a wait-and-see stance until developments surrounding US trade policy stabilise to some extent. Furthermore, a member said that uncertainty surrounding economy and price outlook is high and the likelihood of achieving price goal is not as high as in the past, while it was stated that the BoJ will enter a temporary pause in rate hikes but shouldn't slide into excessive pessimism and must guide policy nimbly and flexibly.
• Nissan (7201 JT) 2024/2025 (JPY): operating profit 69.8bln (-87.7%), net -670.90bln (prev. 426.65bln), Revenue 12.63tln (prev. 12.69tln); withholds FY guidance due to tariffs, will consolidate production plants to 10 from 17. Nissan impact on Renault (RNO FP) Q1 net estimated at EUR 2.2bln loss.
• JD.com (JD/9618 HK) Q1 (USD): EPS 1.16 (exp. 1.05), Revenue 41.5bln (exp. 40.2bln); Co. notes of improving consumer sentiment.

European bourses (STOXX 600 +0.2%) are mostly, but modestly firmer as markets cool a touch from the significant upside seen in the prior session. Price action this morning has been relatively rangebound, given the lack of fresh catalysts thus far. European sectors hold a slight positive bias, but with the breadth of the market fairly narrow. Basic Resources leads,  followed closely by Retail and Travel & Leisure to complete the top three. US equity futures (ES -0.4%, NQ -0.5%, RTY -0.5%) are modestly in negative territory, as the complex gives back some of the prior day’s US-China induced upside. Focus this morning has been on Bloomberg reporting which suggests China is lifting its ban on Boeing (BA) deliveries after the US-China tariff pause. BlackRock (BLK) CEO said it still sees global investors overweighting the US; adds that US deficits are still an issue.

Top European News

• Barclaycard UK April Consumer Spending rose 4.5% Y/Y, which was the biggest increase since June 2023.
• ECB strategy review will largely endorse past policies, including QE, despite some policymakers’ criticisms, while the ECB is to keep reference to ‘forceful action’ when rates and inflation are low following the review, according to sources cited by Reuters.
• ECB's Makhlouf says given effects of size, scale and more persistent nature of fragmentation-induced shocks, and their impact on prices, monetary policy responses will need careful calibration.
• BoE's Chief Economist Pill says should not assume that latest MPR forecasts is a direct endorsement of market interest rate curve; worried about potential risks to inflation He does see risk of second round effects. Remain concerned that they've seen a structural change in price and wage setting within the UK. The response of monetary policy to ensure they get inflation back to target may need to be more persistent.

FX

• DXY gives back some of Monday's trade-induced gains. Desks flag the uncertainty rising from the 90-day period in which both the US and China slashed their respective retaliatory tariffs by 115 bps each. Elsewhere on the docket, the highlight will be US CPI, whereby analysts expect US headline CPI to rise +0.3% M/M in April (prev. -0.1%). DXY currently resides in a narrow 101.46-101.73 range, well within yesterday's range, with the 50 DMA today at 101.86.
• EUR is relatively stable and moving in tandem with the Dollar with little action seen on ECB commentary in which ECB's Makhlouf said given effects of size, scale and more persistent nature of fragmentation-induced shocks, and their impact on prices, monetary policy responses will need careful calibration, meanwhile, ECB's Escriva said they must be humble in assessing the current situation, and ECB's Nagel said they shouldn't overreact to individual announcements. Reuters sources overnight suggested the ECB strategy review will largely endorse past policies, including QE, despite some policymakers’ criticisms, while the ECB is to keep reference to ‘forceful action’ when rates and inflation are low following the review. On the data front, May ZEW survey for Germany saw a jump in economic sentiment but an unexpected fall in current conditions - but no real follow through to the EUR.
• Haven FX are clawing back some lost ground as markets take a breather following yesterday's US-China euphoria, and following the aforementioned punchier language from Chian this morning coupled with the accompanying uncertainty provided by the 90-day de-escalation. USD/JPY resides towards the bottom of a 147.65-148.48 range, with the 50 DMA seen at 146.27 today.
• GBP is buoyed by the softer Dollar, with FX markets gaining some composure after Monday's surge in the Buck. UK jobs data this morning did little to shift the dial, with no reaction seen post-release: overall, the labour market continues to soften but at a relatively moderate rate. GBP/USD currently trades in a 1.3166-1.3216 range, well within Monday's 1.3137-1.3299 parameter.
• Antipodeans benefit from the broadly softer Dollar despite a more cautious risk tone across the markets.
• PBoC set USD/CNY mid-point at 7.1991 vs exp. 7.2188 (Prev. 7.2066).

Fixed Income

• USTs are slightly firmer with the risk tone tepid and fixed easing from the lows seen on Monday as the dust settles following tariff announcements between the US and China. At the top-end of a 110-02 to 110-08 band. Attention for USTs is firmly on the April CPI print. A release that is perhaps slightly less pertinent given the recent US-China progress; however, it will still be scrutinised for insight into the Fed’s deliberations. After the data we have remarks from President Trump at 15:00BST in the Middle East. Reports in Axios on Monday suggested he was aiming to return with over a USD 1tln worth of deals.
• Bunds are a touch softer and, in contrast to USTs, has eked out a marginal new WTD trough at 129.43. However, despite this, the narrative is much the same as the benchmark consolidates from Monday’s marked sell off and await fresh insight on EU-US talks. On that, US Treasury Secretary Bessent was out this morning with the same type of language on the EU, describing the progress as being a little slower. On the data front, May ZEW survey for Germany saw a jump in economic sentiment but an unexpected fall in current conditions - but no real follow through to Bund price action.
• Gilts are the marginal underperformer, and in a similar fashion to Bunds the benchmark has made a new WTD low at 91.51 vs 91.63 on Monday. Gapped lower by 13 ticks at the open and then slipped a bit further to the above base. An open that followed the latest UK jobs data which, in summary, showed that the labour market continues to cool but at a gradual pace with the rate of wage growth slowing but still at a level that the MPC is unlikely to regard as being consistent with the inflation target.
• Netherlands sells EUR 1.98bln vs exp. EUR 1.0-2.0bln 2.00% 2054 DSL: average yield 3.228%.
• UK sells GBP 1bln 0.625% 2045 I/L Gilt: b/c 3.19x (prev. 3.48x) & real yield 2.23% (prev. 1.732%).
• Italy sells EUR 7.5bln vs exp. EUR 6.0-7.50bln 2.65% 2028, 3.25% 2032 & 4.45% 2043 BTP.
• Germany sells EUR 3.401bln vs exp. EUR 4.5bln 1.70% 2027 Schatz: b/c 2.2x (prev. 1.7x), average yield 1.94% (prev. 1.67%), retention 24.42% (prev. 23.72%).

Commodities

• Crude has traded choppily, and off the highs seen following the US-China trade deal announcement. Currently WTI & Brent are higher by around USD 0.20/bbl as traders await US CPI and updates from US President Trump who is set to give some remarks at 15:00 BST / 10:00 EDT. Brent Jul'25 sat in a busy USD 64.63-65.12/bbl range for most of the European morning, but has recently climbed out of the top-end of that range to print a peak at USD 65.35/bbl.
• Precious metals are firmer across the board, with some outperformance in spot silver as the complex benefits from the softer Dollar. Spot gold is currently higher by around USD 18/oz, and trades in a USD 3,216.06-3,265.51/oz range.
• Base metals are broadly in positive territory, benefiting from the relatively softer Dollar and mostly positive risk-tone overnight. 3M LME Copper currently trades in a USD 9,488.3-9,572.45/t range.
• China crude oil supply to China set to hold steady at around 47.5mln barrels in June, via Reuters citing sources.

Geopolitics: Middle East

• US Secretary of State Rubio said the State Department is sanctioning three Iranian nationals and one Iranian entity with ties to Iran's organisation of defensive innovation and research.

Geopolitics: Ukraine

• Russian Foreign Minister Lavrov discussed with his Turkish counterpart issues related to May 15th direct talks with Ukraine.
• US State Department said Secretary of State Rubio discussed a path to peace and a ceasefire in Ukraine with French, German, Polish and Ukrainian foreign ministers as well as the EU High Representative.
• Senior Kyiv Official says Ukrainian President Zelensky will meet Russian President Putin, and not other members of the Russian delegation on Thursday in Turkey.

US Event Calendar

• 6:00 am: Apr NFIB Small Business Optimism 95.8, est. 95, prior 97.4
• 8:30 am: Apr CPI MoM, est. 0.3%, prior -0.1%
• 8:30 am: Apr CPI Ex Food and Energy MoM, est. 0.3%, prior 0.1%
• 8:30 am: Apr CPI YoY, est. 2.4%, prior 2.4%
• 8:30 am: Apr CPI Ex Food and Energy YoY, est. 2.8%, prior 2.8%
• 8:30 am: Apr CPI Index NSA, est. 320.91, prior 319.8
• 8:30 am: Apr CPI Core Index SA, est. 326.63, prior 325.66

DB's Jim Reid concludes the overnight wrap

Good evening from the West Coast of the US. A lot of miles have been travelled for me and for markets in the last 24 hours, and as I questioned in yesterday’s CoTD (link here), will the last 6 weeks go down in the annals the same way as series 9 of Dallas back in the mid-1980s? This series was expunged from memories as a dream sequence of Pam Ewing, rendering the death of husband Bobby Ewing as just a nightmare. With both the US and China slashing their tariff rates by 115 percentage points, with the US rate on China down from 145% to 30% and China’s rate on the US falling from 125% to 10%, we’re almost back to pre-Liberation Day levels. And if you include the fact that 20pp of the 30% US levy is around fentanyl, and could surely be negotiated down with the current momentum, China is now back in the pack with regards to pure trade tariffs on other countries.

The dramatic reduction in tariffs is only a temporary one for 90 days, but as far as markets are concerned, there’s now a belief that the worst of the trade war has passed, and that the trend is now towards de-escalation. So that unleashed a phenomenal rally across multiple asset classes, with the S&P 500 (+3.26%) building on its recent run as investors priced out the chance of a downturn, with 2 and 10yr US yields up +12.0bps and +9.3bps respectively.

There’s little doubt about how positive this news is, but the US is not out of the woods yet. Our US economists had already assumed a decent amount of de-escalation into their most recent assumptions, with an effective tariff rate of 15%. So that's still not far from where we might net out given all we know after yesterday. Such an effective rate was consistent with a subdued, barely positive, level of US growth in H2. However, if the direction of travel is further tariff cuts then the risks are clearly back to the upside. For inflation, our economists suggest there is now some downside risks to our 3.6% core PCE forecast for this year. However, upside risks remain from sectoral tariffs and greater passthrough from tariffs to consumer prices in response to the broader weakening in the dollar. We maintain our view that the Fed will find it hard to ease in the near term and the first cut pencilled in for December remains the base case. See our US economists reaction to the news yesterday and how it might change their views here.

Yesterday's announcement came around 8am London time, just as European markets were opening, and there was an immediate reaction in response. To be fair, futures were already positive thanks to the weekend newsflow. But there was then a fresh leap higher as the tariff reductions were well above market expectations. Indeed, Trump himself had said on Friday that “80% Tariff on China seems right!”, and he’d been talking about a 60% rate on the campaign trail. So the fact it was only 30% was greeted with a huge sigh of relief. The reversal came with few immediate concessions by China, beyond reversing retaliatory measures imposed since Liberation Day. However, Trump said that China agreed to “suspend and remove all of its non-monetary barriers” without offering specifics.

Looking forward, the mood music around the discussions also sounded very positive, and came in at the upside of market expectations. For instance, Treasury Secretary Bessent said that both sides agreed that they “do not want a generalized decoupling”, and that “as long as there is good faith effort, engagement and constructive dialog, then we will keep moving forward”. So that sounded a long way from the rhetoric of recent weeks, when tariffs moved above 100% and there were fears of a wider trade breakdown, with China describing the US’s tariff moves as a “joke”. Later on in the day, President Trump himself said “I’ll speak to President Xi, maybe at the end of the week”, so that again kept the door open to further communications.

Those headlines led to a continued unwind of the moves since Liberation Day, with the S&P 500 surging another +3.26%, its best daily performance since the original 90-day reciprocal tariff extension was announced on April 9 and its third best day in the last 5 years. The move means the index is now +3.05% above its level on Liberation Day, and only -4.88% beneath its all-time high from mid-February, which is remarkable given everything that’s happened in that time. Moreover, the latest advance leaves the index up more than +17% in just over a month, which is a pace we haven’t seen since Q2 2020 as markets were bouncing back from the aggressive Covid slump. That was supported by a huge rally for the Magnificent 7 (+5.67%). The NASDAQ (+4.35%) is now back in bull market territory and up +22.5% from its lows. And with equities surging back, the VIX index of volatility closed beneath 20pts for the first time since March.

This move back into US assets was clear on several metrics. In particular, the dollar index (+1.44%) posted its best daily performance since November, back when investors were reacting to the news of Trump’s election victory. Moreover, the rally in US equities was much more pronounced than elsewhere, with Europe’s STOXX 600 “only” up +1.21% on the day. And US credit spreads also tightened more aggressively than their European counterparts, with US HY spreads down -38bps on the day, whereas those in Europe were down -22bps. That now leaves US HY spreads at 305bps, clearly beneath their Liberation Day level of 334bps.

With investors pricing out a recession, the announcement also saw investors dial back their rate cut expectations over the rest of the year. For instance, futures moved to price just 56bps of Fed rate cuts by the December meeting, down -9.8bps on the day, and the fewest since February. We were at 131bps at the intraday low on April 7, shortly before the initial 90-day extension. In turn, that led to a big move higher for sovereign bond yields, with the 2yr Treasury (+12.0bps to 4.01%) closing above 4% for the first time since March. Meanwhile, the 10yr yield (+9.3bps) moved up by a smaller amount to 4.47%. Those moves were similar in Europe, where yields on 10yr bunds (+8.6bps), OATs (+6.1bps) and BTPs (+6.8bps) all moved higher.

This shift was also echoed in commodity markets, where oil prices built on last week’s rebound as hopes grew for stronger global trade flows. For instance, Brent crude oil prices (+1.64%) were back up to $64.96/bbl, having closed at a 4-year low ($60.23) just a week earlier. In the meantime, gold prices (-2.66%) fell back to $3,236/oz, which came as the lower tariffs helped to reassure investors about inflationary pressures. Indeed, the 1yr US inflation swap plummeted by a huge -25.2bps on the day to 3.16%, which is the biggest daily decline since November 2022.

Looking forward, inflation will remain in the spotlight today, as we’ve got the US CPI release for April coming out. That’s the first to cover the period since Liberation Day, so it’ll be a good insight into how the tariffs are impacting consumer prices so far. However, the baseline expectations from our US economists is that the April tariffs won’t start showing up in consumer prices until June and the subsequent months. In terms of what to expect today, they forecast that headline CPI will come in at +0.26% on the month, with core CPI only a little bit higher at +0.29%. If realised, that would leave the year-on-year headline rate at +2.4%, and leave core CPI at +2.8%. Click here for more details and to sign up to their subsequent webinar.

Today should also see attention focus on US fiscal news, after Republicans unveiled a draft version of their tax bill yesterday. The House Ways and Means Committee are set to begin debating it today, and Trump yesterday called on Republicans to unify behind “THE ONE BIG, BEAUTIFUL BILL”.

Overnight in Asia, there’s been a mixed performance as they react to the pause in the US-China trade conflict, with the risk-on move losing a bit of momentum. Japanese equities are doing particularly well, with the Nikkei (+1.78%) and the TOPIX (+1.28%) both advancing. Indeed, for the TOPIX, it marks a 13th consecutive increase for the first time since August 2009. Otherwise however, the gains have been more muted, with Australia’s S&P/ASX 200 (+0.42%) seeing a smaller increase, whilst in mainland China, the Shanghai Comp (+0.08%) and the CSI 300 (+0.03%) have only posted a modest advance. Meanwhile, there’ve been some more negative performances, with the KOSPI down -0.18%), and the Hang Seng is down -1.67%, which would end a run of 8 consecutive daily gains. The more risk-off tone has also been evident in the US, where futures on the S&P 500 have fallen -0.41% this morning, and 10yr Treasury yields (-2.0bps) are back down to 4.45%.

To the day ahead now, and the main highlight will be the US CPI release for April. Otherwise, we’ll get UK unemployment for March and the German ZEW survey for May. From central banks, we’ll hear from the ECB’s Escriva, Makhlouf and Knot, along with BoE Governor Bailey and the BoE’s Pill.