EQUITIES: Fresh Cycle Highs in E-Mini S&P Reinforces Bullish Conditions
A short-term bear cycle in Eurostoxx 50 futures remains intact, however, the recovery from Monday’s low appears to be a potential reversal. The contract has traded through the 20- and 50-day EMAs. A clear break of both averages would strengthen a reversal theme and signal scope for a stronger recovery. This would open 5486.00, the May 20 high and bull trigger. On the downside, a breach of Monday’s 5194.00 low would reinstate a bearish theme. The trend condition in S&P E-Minis is unchanged, it remains bullish and this week’s fresh cycle high reinforces current conditions. Short-term resistance and a bull trigger at 6128.75, the Jun 11 high, has been breached. The clear break confirms a resumption of the uptrend that started Apr 7. Sights are on the 6200.00 handle, a Fibonacci projection. Key support is at the 50-day EMA - at 5931.43. A clear break of it would signal a reversal.
- Japan's NIKKEI closed higher by 642.51 pts or +1.65% at 39584.58 and the TOPIX ended 22.45 pts higher or +0.81% at 2804.69.
- Elsewhere, in China the SHANGHAI closed lower by 7.521 pts or -0.22% at 3448.453 and the HANG SENG ended 149.27 pts lower or -0.61% at 24325.4.
- Across Europe, Germany's DAX trades higher by 165.3 pts or +0.7% at 23663.66, FTSE 100 higher by 12.15 pts or +0.14% at 8731.25, CAC 40 up 8.78 pts or +0.12% at 7566.94 and Euro Stoxx 50 up 7.02 pts or +0.13% at 5259.03.
- Dow Jones mini up 110 pts or +0.25% at 43416, S&P 500 mini up 20.5 pts or +0.33% at 6167.5, NASDAQ mini up 106 pts or +0.47% at 22567.
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GERMANY: Exports Could Fall Up To 4% In 50% US Tariff Scenario - IFO
German exports could fall by up to E60bln or around 3-4% under a 50% US tariff scenario according to IFO calculations. "A significant proportion of German export business in the USA could become unprofitable”, IFO comments.
- Note that US rhetoric on trade matters with the EU has softened since last week's 50% tariff threat by President Trump, with the threatened start date kicked back from Jun 1 to Jul 9.
- For reference, E60bln would be around 1.4% of German 2024 GDP. Initial IFO calculations following the April 2 'Liberation Day' announcements estimated a negative 0.3pp impact on German 2025 GDP (based on the 20% EU tariff rate planned then).
- Net exports added 0.9pp to quarterly GDP growth in Q1 in Germany ('Q1 Final GDP Comparatively Bright, Potential Growth Muted' - MNI, May 23) although it did follow -1.1pp drags in both 3Q24 and 4Q24, driven by a longer-term downtrend of German exports to China (in place since 2022). With a Y/Y net export contribution of -1.4pps as of Q1, the German economy remains vulnerable to a deterioration in external sector conditions.
US-EU: BBG-EU Focuses Strategy On Key Sectors As Trump Delays Tariff Escalation
With US President Donald Trump confirming a delay to the implementation of 50% tariffs on EU imports, from 1 June to 9 July, Bloomberg reports that the European Commission, which leads trade negotiations on behalf of all EU member states, "will focus its new strategy on critical sectors as well as tariff and non-tariff barriers,[...]. The Commission will also link its approach to addressing regulatory barriers with its plans to simplify rules."
- Trade Commissioner Maros Sefcovic, "will lead political negotiations on industries such as steel and aluminium, automobiles, pharmaceuticals, semiconductors and civilian aircraft, [...]. Those talks will happen in parallel with the technical discussions on tariffs and non-tariff barriers."
- The delay avoids the worst-case scenario of 50% tariffs followed by significant EU retaliation for now at least, but the risk of escalation remains. The EU already has tariffs focused on E21B of US goods ready to go in response to the initial Trump tariffs on steel and aluminium. These levies are geared towards hitting industries and products that are centred on Republican-run states in the US in order to put maximum pressure on GOP leadership and the White House.
- A further E95B in tariffs is being put together in response to the initial 20% 'reciprocal' tariffs. The raising of this rate to 50% could see the EU's retaliation escalate further.
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