US-EU: Commission Publishes Consultation & Next Steps On Tariff Countermeasures
The European Commission has released a statement regarding a consultation process it will engage with ahead of potential countermeasures against the US if no deal is reached on removing 'reciprocal' tariffs at the end of the 90-day pause announced by President Donald Trump last month and the additional US tariffs on autos and auto parts. The initial list of goods included in the consultation that could face import restrictions amounts to a value of E95bln, while the goods under export restriction consultation total E4.4bln.
- The EU also confirms that it will launch an official World Trade Organisation (WTO) dispute against the US due to the imposition of tariffs by formally requesting consultations. The increasingly mercantilist global stance on trade has seen the WTO's effectiveness as a trade dispute body shrink dramatically, and any (eventual) ruling is unlikely to affect US trade policy.
- The Commission confirms it will both monitor the impact of US tariffs on other countries' trade policies (given concern about dumping on EU markets) and continue to seek trade deals with third countries.
- On the 'next steps', the statement says "anyone affected by potential rebalancing measures currently being considered by the EU is invited to submit their views during four weeks, including on the impact of the US tariffs. Consequently, the consultation will remain open until 10 June." After this, the Commission finalised the countermeasure proposal while consulting with member states. This will enable the legal act to be ready and in place if a deal is not reached when the pause expires (8 July).
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EQUITIES: US Cash opening calls
US Equities are set for a positive Open, Emini is at session high and just short of that huge Equity move seen Yesterday following that erroneous social media Post.
ESM5 printed a 5286.50 high Yesterday, and for the SPX, that level stands at 5246.57.
- Calls: SPX: 5,241.8 (+3.5%); DJIA: 39,330 (+3.6%/+1364pts); NDX: 18,033.9 (+3.5%).
US: Trump To Meet w/House Republicans Today, Urge Support For Budget Blueprint
Jake Sherman at Punchbowl reporting that President Trump will meet House Republicans at 13:00 ET 18:00 BST today to discuss the Senate-approved budget blueprint that needs to pass the House this week to unlock the next stage of budget reconciliation.
- The meeting comes as Speaker Mike Johnson (R-LA) attempts to overcome a rebellion from roughly a dozen deficit hawks (and his Budget Committee chair). Johnson can only drop three votes on the floor, so Trump is likely to exert maximum pressure on wavering lawmakers to fall in line.
- Republican deficit hawks are uncomfortable with what they see as insufficient spending cuts in the Senate budget. They are also unconvinced by the Senate’s decision to endorse ‘current policy base’ to score the renewal of the 2017 Tax Cuts and Jobs Act at $0.
- CRFB notes: “The Senate’s instructions also allow the Senate to increase the debt ceiling by up to $5 trillion, versus the House’s $4 trillion increase. Previously, lawmakers have often coupled debt ceiling increases with deficit-reducing measures or other budget reforms. This budget, however, would couple a debt ceiling increase with measures that would increase deficits by multiple trillions of dollars.”
- Should the House reject the Senate blueprint, it would be amended and returned, compelling re-running the full gamut of Senate procedure, potentially imperilling Trump’s agenda.
Figure 1: Senate/House Reconciliation Instructions Compared
Source: Committee for a Responsible Federal Budget
EGBS: Trump Post On Tariff Negotiations W/ South Korea and China Adds Pressure
Bund futures remain under pressure alongside USTs, with US President Trump’s latest post around tariff negotiations with South Korea and China helping the sell-off extend a little.
- Bunds are now -77 ticks today at 129.59. Initial firm support to watch is 129.15, the 20-day EMA. Today’s FI weakness appears to be tied to the stabilisation in risk sentiment given the lack of further escalation in trade tensions, in contrast to yesterday’s more aggressive US long-end led sell-off.
- Following yesterday’s twist steepening, the German curve has bear flattened, with Schatz and Bobl yields up over 8bps each. The 2s10s curve is back at 80.5bps after reaching a multi-year high of 86.2bps yesterday.
- The modest stabilisation in risk sentiment promotes a continued retracement of recent widening in German ASWs (vs 3-month Euribor). The Bund ASW briefly marked above 0bps for the first time this year yesterday, but has since narrowed back to -5.0bps.
- The 10-year BTP/Bund spread is ~5bps narrower at 120bps after marking above 130bps for the first time since early November yesterday morning. The spread has nonetheless broken outside of the 105-115bp range that contained price action through February and March.
- According to Reuters sources, the ECB has been reassured by bank feedback on market funding/liquidity conditions. They also view recent EGB spread widening as “under control”.
