UK: Gov't Expects Deal w/US On Car & Aerospace Tariffs In Force By End-June
Reuters reports that the UK gov't expects tariff arrangements with the US on cars and aerospace to come into force by the end of the month. This follows the signing of an order by US President Donald Trump and British PM Sir Keir Starmer at the G7 summit in Canada. The order will bring into force the agreement reached between the two last month, and see a reduction in tariffs for UK cars being exported to the US. The deal includes the 10% baseline tariff on almost all UK goods (including cars, down from 27.5%), but did not include any reduction in tariffs on steel (a move that was expected). A deal on steel is required by 9 July if the UK is not to see its tariff rate increase from 25% to 50% in line with other countries.
- As the BBC reports, "Ministers have hailed the US deal alongside trade deals with the European Union and India. But the US agreement is much more limited than the full-fat trade deal that has long been discussed on Downing Street. The scope of what was signed on Monday also appeared more restricted than the general terms of the deal as outlined last month. Trump has previously declared the pact on tariffs is a "major trade deal", but it is not. The US president does not have the authority to sign free-trade agreements without the approval of Congress."
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BONDS: Upward Pressure In German Yields Stalls; UST Underperformance Reasserts
Upward pressure in long-end German yields has stalled over the past ~90 minutes, with EU-bond supply in the rear-view and brent crude prices softening to fresh session lows.
- USTs meanwhile continue to weaken, with 10- and 30-year yields now up ~8bps on the session, the latter now at 5.03%.
- The 10-year UST/Bund spread has widened back to 191.5bps. The spread reached a session and multi-week high of 192.7bps earlier this morning.
- Fed’s Bostic has re-iterated that he only sees one rate cut this year (see above for a selection of headlines and commentary).
FED: Bostic Notes Potential Downgrade Ripple But Still Sees Just One Cut
Atlanta Fed’s Bostic (non-voter) said to CNBC early this morning that Friday’s Moody’s downgrade of the US could have a ripple through the economy but he still leans “much more” to just one rate cut this year.
- "*BOSTIC: US DOWNGRADE COULD HAVE A RIPPLE THROUGH THE ECONOMY"
- *BOSTIC: TREASURY MARKETS ARE STILL FUNCTIONING QUITE WELL” - bbg
“*BOSTIC: I'M LEANING MUCH MORE INTO ONE RATE CUT THIS YEAR” - bbg
This is a repeat of his prior view, having reiterating just last week that he sees only one rate cut this year, but we're repeating here following the earlier comment on the US downgrade potential ripple effect.
- “*BOSTIC: HAVE TO WAIT 3-6 MONTHS TO SEE HOW UNCERTAINTY SETTLES
- *BOSTIC: IF TARIFF TRANSITION LONGER, MAY IMPACT CONS. BEHAVIOR
- *BOSTIC: I WORRY A LOT ABOUT THE INFLATION SIDE OF OUR MANDATE
- *FED'S BOSTIC: NOT HEARING THAT LARGE LAYOFFS ARE IMMINENT
- *BOSTIC: AS THINGS GET MORE EXPENSIVE, IT WILL AFFECT INVESTMENT
- *BOSTIC: TARIFFS ON CHINA ARE STILL ECONOMICALLY SIGNIFICANT" - bbg
Recall Friday's remarks (taken from a Bloomberg Odd Lots podcast interview conducted Wed): "Our policy is going to have to anticipate - and to some extent - potentially push against those inflationary forces to the extent that we see them, so that will put a limit on where our current policy stance is". He also said last week that he expects slower growth now but for the US to avoid recession with growth of 0.5-1% this year.
OUTLOOK: Price Signal Summary - Fresh Short-Term Cycle Low In Gilts
- In the FI space, Bund futures remain above their recent low. The latest recovery undermines the recent bearish theme and suggests the move down between Apr 22 - May 15, has been a correction. A resumption of gains would strengthen the reversal and open 130.86 next, the May 9 high. Further out, scope would be seen for an extension towards 132.03, the Apr 7 high. Key short-term support has been defined at 129.13, the May 15 low. A break would resume the recent bear cycle.
- Gilt futures are trading lower today, extending the current bear cycle. The recent impulsive sell-off strengthens a bearish theme. The move down exposed 90.92, 76.4% of the Apr 9 - May 2 rally. This level has been pierced, a clear break of it would pave the way for an extension towards 90.47, the Apr 11 low. Resistance to watch is at 92.28, the 20-day EMA. Clearance of this level would be bullish.
