MNI ASIA OPEN: Well That De-Escalated Quickly

EXECUTIVE SUMMARY

• MNI TARIFFS: Temporary US-China Tariff Cut Exceeds Expectations
• MNI US: Trump-"China Agreed To Open Up", "Total Reset" Achieved
• MNI US: Bessent Warns Of August X Date, Ways And Means Omits Trump Tax Demands
• US FISCAL: Cumulative Deficit Narrows On Solid Apr Tax Take, Still On Wide Side

US

MNI TARIFFS: Temporary US-China Tariff Cut Exceeds Expectations

The escalating trade war between the US and China has, at least for now, entered a period of detente as both sides agree to a significant reduction in tariffs from their previous three-figure highs (see 'CROSS ASSET: Risk Surges as US/China Slash Tariffs for 90 Days', 0809BST). A joint statement outlining the reprieve comes after talks over the weekend in Geneva. Beforehand, these talks were viewed as initial discussions, unlikely to result in a notable breakthrough. Indeed, prior to the talks, US President Donald Trump had indicated that he viewed a tariff level of 80% as reasonable.

MNI US: Trump-"China Agreed To Open Up", "Total Reset" Achieved

Speaking in a press conference, US President Donald Trump says that the pause in reciprocal tariffs with China announced earlier this morning does not include tariffs on cars, steel, aluminum, or pharmaceuticals. Says that the talks in Geneva were friendly, adding, "We achieved a total reset with China." Says that he "will speak to [Chinese President Xi Jinping a the end of the week maybe". 

MNI TARIFFS: China Tariffs Will Be "Substantially Higher" If No Deal Struck - Trump

US President Donald Trump has spoken on issues related to trade and foreign policy at a White House press conference to announce an Executive Order on pharmaceuticals. Trump says that discrepancies in drug prices will be added to tariffs levied on foreign countries. He says that revenue will be used for initiatives like the 'Golden Dome' missile defence system.

NEWS

MNI US: Bessent Warns Of August X Date, Ways And Means Omits Trump Tax Demands 1/2

Treasury Secretary Scott Bessent has urged Congress to increase or suspend the debt limit by mid-July as he believes there is a “reasonable probability” that the government will exhaust extraordinary measures to stave off a default during the Congressional recess in August. As Republican leaders intend to address the debt limit as part of their ‘Big Beautiful’ reconciliation bill, the letter puts a hard deadline on the legislation that Senate Majority Leader John Thune (R-SD) hopes to pass by July 4.

MNI US: Bessent Warns Of August X Date, Ways And Means Omits Trump Tax Demands 2/2

The CRFB estimate highlights the maths problem facing House Speaker Mike Johnson (R-LA) as the budget resolution passed by Congress in April only provides for $4.5 trillion in spending. Ways and Means is expected to release their full tax bill today. If the text doesn’t include offsets, the GOP may be forced to pursue a budget gimmick championed by Thune and Bessent that would cost extending the TCJA at zero dollars. 

MNI US TSYS: US/China 90-Day Tariff Pause, Rate Cut Pricing Retreats

• Treasuries gapped lower in early London trade, stocks surged (DJIA +1103 at 42,352) to the pre-Liberation Day levels (April 2) after the US and China agreeing to pause their retaliatory reciprocal tariffs for 90 days.
• After a collective sigh of relief, Treasuries traded sideways, near session lows for much of the session, Jun'25 10Y futures -20.5 at 110-05.5 after the close (110-01.5 low/110-19.5 high) on heavy volumes (TYM>1.880M).
• The next support to watch is 110-01+, a Fibonacci retracement point. Clearance of this level would strengthen a bearish theme and expose a key support at 109-08, the Apr 24 low.
• Curves bear flattening while projected rate cut pricing retreats from this morning levels (*) as follows: Jun'25 at -2.0bp (-2.8bp), Jul'25 at -10.8bp vs. (-13.1bp), Sep'25 -27.0bp (-29.3bp), Oct'25 -40.3bp (-42.6bp).
• Aside from some Fed speakers, tomorrow's focus is on April CPI figures at 0830ET. 

OVERNIGHT DATA

MNI US OUTLOOK/OPINION: April Too Early For Material Tariff Impact To Show

The below is taken from the MNI US CPI Preview (which can be found in full, here)

• A broad takeaway from analysts is that the tariff-induced acceleration in inflation will only really materialize from May with perhaps largest increases in June and July.
• That’s in part down to a strong build in inventories in tariff front-running, allowing firms to wait longer to pass through the sizeable input cost increases that various business surveys highlight amidst greatest price sensitivity from consumers.
• Selling price inflation is increasing though judging by the April S&P Global US PMI releases. The story is clear cut in manufacturing where there were “steep increases in both input costs and selling prices” and “output charges notably rose to the greatest degree in over two years”.
• Services were more mixed however: “Input costs continued to rise at an elevated pace during April, although the rate of inflation eased considerably from March’s one-and-a-half year high to its weakest of 2025 so far […] Despite evidence of slowing demand growth, service providers chose to increase their own selling prices to a stronger degree in April. Efforts to pass on increased costs to clients was the principal reason reported by panelists for the uptick in output price inflation to a three-month high.”

MNI US FISCAL: Cumulative Deficit Narrows On Solid Apr Tax Take, Still On Wide Side

A slightly larger-than-expected fiscal surplus in April of $258.4B ($256.0B survey, $209.5B prior year) provides some evidence that the fiscal trajectory isn't quite as worrisome as it appeared earlier in the year, but overall deficits remain wide.

• The $1.05T deficit through the first 7 months of the 2025 fiscal year (October to September) is nearly $200B higher than at the same point of the previous FY, though as usual a sizeable April tax take helped pare the cumulative shortfall.
• Total revenue rose $74B vs April 2024, to $850B, with expenditure up $25B to $591B. The April 15 tax deadline of course makes this the key month for revenue in the fiscal year.
• Despite the latest uptick in individual corporate ($+1.7B vs last year) and individual (+$55.1B) tax collection, if one assumes May-Sept budget balances are unchanged from last year's, the FY2025 deficit is on pace to come in around $2T, which would be above most estimates coming into the year.
• However, there is some sign that tariffs are contributing in a direct way to the smaller overall deficit: customs duties totaled $15.6B in April, easily an all-time record for a single month and up from $6.4B in April 2024. Indeed that's a pace not far from $200B on an annualized basis.

MARKETS SNAPSHOT

US TREASURY FUTURES CLOSE

3M10Y +1.262, 6.32 (L: 3.684 / H: 11.271)
2Y10Y -2.012, 46.528 (L: 42.403 / H: 49.082)
2Y30Y -4.216, 90.119 (L: 83.451 / H: 93.772)
5Y30Y -3.76, 79.424 (L: 74.477 / H: 82.582) 
Current futures levels:
Jun 2-Yr futures down 6.875/32 at 103-10.625 (L: 103-09.25 / H: 103-15.62)
Jun 5-Yr futures down 16.5/32 at 107-18.5 (L: 107-15.5 / H: 107-29.75)
Jun 10-Yr futures down 22/32 at 110-4 (L: 110-01.5 / H: 110-19.5)
Jun 30-Yr futures down 30/32 at 113-13 (L: 113-08 / H: 114-05)
Jun Ultra futures down 1-08/32 at 116-26 (L: 116-25 / H: 118-05)

MNI US 10YR FUTURE TECHS: (M5) Bear Cycle Extension

• RES 4: 112-20+ High May 1 and a bull trigger
• RES 3: 112-01+ High May 2
• RES 2: 111-22   High May 7 and a key near-term resistance
• RES 1: 111-08   20-day EMA
• PRICE:‌‌ 110-07+ @ 1215 ET May 12
• SUP 1: 110-01+ 76.4% of the Apr 11 - May 1 bull leg
• SUP 2: 109-08   Low Apr 24 and key support
• SUP 3: 108-26+ 76.4% retracement of the Jan 13 - Apr 7 bull cycle
• SUP 4: 108-21   Low Feb 19  

Treasury futures are trading sharply lower today as the reversal that started May 1, extends. The next support to watch is 110-01+, a Fibonacci retracement point. Clearance of this level would strengthen a bearish theme and expose a key support at 109-08, the Apr 24 low. Key near-term resistance has been defined at 111-22, the May 7 high. A break of this level is required to signal a potential reversal.

SOFR FUTURES CLOSE

Jun 25 -0.035 at 95.710
Sep 25 -0.080 at 95.975
Dec 25 -0.105 at 96.225
Mar 26 -0.130 at 96.405
Red Pack (Jun 26-Mar 27) -0.175 to -0.155
Green Pack (Jun 27-Mar 28) -0.155 to -0.135
Blue Pack (Jun 28-Mar 29) -0.13 to -0.105
Gold Pack (Jun 29-Mar 30) -0.105 to -0.085

REFERENCE RATES (PRIOR SESSION)
​​​​​​​
US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.28% (-0.01), volume: $2.479T
• Broad General Collateral Rate (BGCR): 4.27% (-0.01), volume: $1.071T
• Tri-Party General Collateral Rate (TCR): 4.27% (-0.01), volume: $1.035T
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $107B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $295B

FED Reverse Repo Operation

RRP usage inches up to $147.505B this afternoon from $142.272B Friday, total number of counterparties at 34. Usage had fallen to $54.772B last Wednesday, April 16 -- lowest level since April 2021. Conversely, usage had surged to the highest level since December 31, 2024 on Monday, March 31: $399.167B.

MNI PIPELINE: Corporate Bond Update: $4B UPS, $3B US Bank Launched

• Date $MM Issuer (Priced *, Launch #)
• 05/12 $4B #UPS $500M +5Y +55, $1.25B 10Y +82, $1.25B 30Y +107, $1.25B 40Y +117
• 05/12 $3B #US Bank $1.25B 3NC2 +73, $500M 3NC2 SOFR+91, $1.25B 6NC5 +98
• 05/12 $2.25B #Toyota Motor Cr $1B 2Y +53, $500M 2Y SOFR+71, $750M 5Y +73
• 05/12 $2B #Caterpillar $1.7B 10Y +78, $300M 30Y +80
• 05/12 $1.1B #Southern California Gas $600M 10Y +105, $500M 30Y +120
• 05/12 $1B Carnival Cruise Line 6NC
• 05/12 $1B #ENI 10Y +140
• 05/12 $800M #Pinnacle West Capital $400M 3Y +93, $400M 5Y +108
• 05/12 $750M #Ally Financial 4NC3 +175
• 05/12 $700M #Lennar 5Y +110
• 05/12 $500M #EIDP WNG 7Y +92
• 5/12 $500M Crown Americas 8NC3 6$
• 05/12 $500M #Blue Owl Capital WNG 5Y +235
• 05/12 $725M #Commonwealth Edison 30Y +105
• 05/12 $Benchmark Woodside Finance TBA
• 05/12 $Benchmark L'Oreal 10Y investor calls

MNI BONDS: EGBs-GILTS CASH CLOSE: Bear Flattening On Sino-US Trade Truce

European curves bear flattened Monday, with periphery / semi-core EGBs outperforming.

• A tentative trade war truce between China and the US saw Bund and Gilt yields gap higher at the start-of-week reopen as equities soared in relief.
• Bear steepening was the order of the day, as ECB/BOE rate cuts were priced out, pressuring the short end.
• Elsewhere, headlines from the BOE Watchers' conference were prevalent following last week's 3-way split (ultimately 5-4 in favour of a 25bp cut).
• Lombardelli called the decision to cut 25bp "finely balanced"; Greene said she would still have voted for a 25bp cut if she knew about the US and UK/China trade developments; Taylor, who had voted for a 50bp cut, noted that he could reconsider support for lower rates if "there was a surprising amount of progress on the international trade war situation".
• Bunds underperformed Gilts. Periphery / semi-core spreads narrowed by around 2bp across the board.
• Tuesday's agenda includes UK labour market data - MNI's preview is here. We also get US CPI data.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 12.8bps at 1.913%, 5-Yr is up 12.3bps at 2.222%, 10-Yr is up 8.6bps at 2.648%, and 30-Yr is up 6.2bps at 3.081%.
• UK: The 2-Yr yield is up 9.2bps at 4%, 5-Yr is up 9.9bps at 4.126%, 10-Yr is up 7.6bps at 4.643%, and 30-Yr is up 4.5bps at 5.391%.
• Italian BTP spread down 1.8bps at 102.9bps / French OAT down 2.3bps at 68.1bps   

MNI FOREX: USD Consolidates Impressive Advance Following US/China Tariff Reprieve

• Despite a less volatile US session, the greenback remains the strongest currency in G10 to start the week, following the US and China agreeing to pause their retaliatory reciprocal tariffs that had been the cause of much trepidation in global financial markets. The news has helped the ICE USD index extend its recovery, rising an impressive 1.35% on the session, while EURUSD slips back below 1.11 to fresh one-month lows for the pair.
• The Japanese Yen is the poorest performing currency amid the significant boost to risk sentiment across global equity markets and the hawkish repricing in core fixed income providing an additional headwind for the low yielders.
• USDJPY is currently up 2.05% as we approach the APAC crossover, exacerbated by a clean break of 50-day EMA resistance that had capped the price action last week. Earlier highs were registered at 148.59, breaching a short-term pivot point at 148.18, which provided the initial resistance point on the chart. Further strength would place the focus on the daily highs from around the ‘liberation day’ announcement at 149.28 and 150.49.
• In similar vein, USDCHF has risen 1.5%, marginally outperforming the DXY. Topside momentum has been underpinned by a break back above the key 0.8333 level, the 2023 low and prior breakdown point. The move substantially narrowed the gap to an important resistance for USDCHF, which stands at 0.8485, the 50-day EMA. A break of this average would signal scope for a recovery towards 0.8578, the April 10 high, while the ‘liberation day’ breakdown level remains much further out at 0.8758.
• Higher beta pairs have relatively outperformed given the risk backdrop, with the Canadian dollar the least impacted on Monday. In similar vein, Latin American currencies and the South African rand have had only moderate adjustments given the ties to China optimism are offsetting the broader rally for the greenback.
• All focus turns to Tuesday’s US CPI report on Tuesday. Labour market data from the UK and German ZEW figures are scheduled during the European morning.

TUESDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
13/05/2025	0600/0700	***	GB	Labour Market Survey
13/05/2025	0900/1100	***	DE	ZEW Current Expectations Index
13/05/2025	0900/1000	*	GB	Index Linked Gilt Outright Auction Result
13/05/2025	0900/1000	*	GB	Index Linked Gilt Outright Auction Result
13/05/2025	1000/0600	**	US	NFIB Small Business Optimism Index
13/05/2025	-	***	CN	Money Supply
13/05/2025	-	***	CN	New Loans
13/05/2025	-	***	CN	Social Financing
13/05/2025	-		EU	ECB's De Guindos At ECOFIN Meeting
13/05/2025	1230/0830	***	US	CPI
13/05/2025	1255/0855	**	US	Redbook Retail Sales Index
13/05/2025	1530/1130	**	US	US Treasury Auction Result for 52 Week Bill
14/05/2025	0130/1130	***	AU	Quarterly wage price index