MNI EUROPEAN OPEN: US Expected To Announce Trade Deal With UK

May-08 05:19By: Jonathan Cavenagh

Europe

EXECUTIVE SUMMARY

TRUMP TO ANNOUNCE TRADE DEAL WITH BRITAIN - NYT
TRUMP SAYS HE WON’T LOWER CHINA TARIFFS TO JUMP-START TALKS - BBG
POWELL IN NO HURRY AMID HEIGHTENED UNCERTAINTY - MNI FED WATCH
NIESR SEES 3.75% TROUGH FOR BOE BANK RATE - MNI BRIEF

Fig 1: Global Supply Chain Pressures Not Rising Yet

Source: MNI - Market News/Bloomberg/Refinitiv.

BOE (MNI BRIEF): The Bank of England will make two further policy rate cuts this year, and one more in 2026, with the trough at 3.75%, the National Institute of Economic and Social Research predicted in its latest forecasts.

FISCAL (BBG): “Chancellor of the Exchequer Rachel Reeves is on track to miss both her fiscal rules by tens of billions of pounds in the UK’s autumn budget, according to a prominent economic think tank, leaving her no option but to raise taxes or cut spending.”

GERMANY (BBG): “Polish Prime Minister Donald Tusk pushed back against plans by Germany’s new Chancellor Friedrich Merz to tighten border controls with its European Union neighbors, saying the focus should rather be on reinforcing the bloc’s outside frontier.”

BUSINESS (POLITICO): “Apple is preparing to appeal the European Commission’s €500 million fine for breaking the bloc’s digital rules, accusing the EU executive of spurning the firm’s efforts to comply with the law and resolving to impose a large fine months ahead of the official decision.”

FRANCE (POLITICO): “French President Emmanuel Macron called on the United States and the European Union to lift sanctions against Syria on Wednesday after hosting the Syrian leader Ahmed al-Sharaa on his first visit to Europe.”

UKRAINE (RTRS): “Ukraine is starting to consider a shift away from the U.S. dollar, possibly linking its currency more closely to the euro amid the splintering of global trade and its growing ties to Europe, Central Bank Governor Andriy Pyshnyi told Reuters.”

CHINA (POLITICO): ““China has a very complex, organized cyber system. And we are not able to have a full grasp on what they can do,” Vice Adm. Peter Reesink, director of Dutch military intelligence agency MIVD, told POLITICO during an interview. “I would say that it's more threatening than Russia.””

TRADE DEAL (NYT): “A deal would be a positive sign for both governments, which have eyed an agreement since President Trump’s first term. President Trump is expected to announce on Thursday that the United States will strike a trade agreement with Britain, according to three people familiar with the plans.”

TARIFFS (BBG): “President Donald Trump said he’s unwilling to preemptively lower tariffs on China in order to unlock more substantive negotiations with Beijing on trade.”

FED (MNI FED WATCH): The Federal Reserve's monetary policy is well-placed to allow policymakers to sit tight for now as increased uncertainty from President Donald Trump's tariffs policies have yet to feed through perceptibly to a still-robust economy, Fed Chair Jerome Powell said Wednesday.

FED (MNI): Rough Transcript Of Fed's Powell's May Press Conference

TARIFFS (MNI INTERVIEW): U.S. monetary policy was neutral at best before President Trump's trade war, and tariffs are set to exacerbate the existing decline of potential growth and increase upside risks to inflation, Evan Koenig, former senior aide to the president of the Dallas Fed, told MNI.

NATO (POLITICO): “Nancy Pelosi (D-Calif.) on Wednesday warned that the United States cannot afford to neglect its commitment to mutual defense to its NATO allies in the face of Russian provocations.”

SEMICONDUCTORS (BBG): “The Trump administration plans to rescind Biden-era AI chip curbs as part of a broader effort to revise semiconductor trade restrictions that have drawn strong opposition from major tech companies and foreign governments, according to people familiar with the matter.”

OTHER

NEW ZEALAND (BBG): “ New Zealand will allocate more money than previously expected in this month’s budget on capital assets, Prime Minister Christopher Luxon said.”

TAIWAN (BBG): “Taiwan’s central bank governor dismissed the possibility of being labeled a currency manipulator by the US Treasury.”

CHINA

FX RESERVES (21ST CENTURY BUSINESS HERALD): “China’s foreign exchange reserves reached USD3.28 trillion in April, up USD41 billion or 1.3% from March, marking the fourth consecutive month-on-month growth, 21st Century Business Herald reported, citing data from the State Administration of Foreign Exchange.”

ECONOMY (YICAI): “Yicai news agency’s Chief Economist Confidence Index reached 49.84 in May, below the expansionary mark of 50 for the first time since September last year, with economists citing the downward trend of external demand and the uncertain prospects of tariff policies.”

CHINA MARKETS

MNI: PBOC Net Injects CNY158.6 Bln via OMO Thurs; Rate Cut

MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY158.6 billion via 7-day reverse repos, with the rate lowered to 1.40% from the previous 1.50%. The operation led to a net injection of CNY158.6 billion as no repos mature today, according to Wind Information.

The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5187% at 09:40 am local time from the close of 1.6802% on Wednesday.
The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 47 on Wednesday, compared with the close of 49 on Tuesday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.

MNI: PBOC Sets Yuan Parity Higher At 7.2073 Thurs; +0.17% Y/Y

MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 7.2073 on Thursday, compared with 7.2005 set on Wednesday. The fixing was estimated at 7.2354 by Bloomberg survey today.

MARKET DATA

UK APRIL RICS HOUSE PRICE BALANCE -3%; EST. -4%; MAR. +2%

JAPAN TOKYO OFFICE VACANCIES APR. 3.73%; MAR. 3.86%

SOUTH KOREA FX RESERVES APR. $404.67B; MAR. $409.66B

MARKETS

US TSYS: Asia Wrap - Yields Edge Higher

TYM5 has traded lower within a tight range of 111-13 to 111-19 during the Asia-Pacific session. It last changed hands at 111-13+, down 0-04 from the previous close.

The US 2-year yield is a little higher, dealing around 3.80%, up 0.02 from its close.
The US 10-year yield is a little higher, dealing around 4.289%, up 0.02 from its close.
Headlines have crossed from the NYT that the first trade announcement from the Trump administration will be with the UK. See this link for more details.
The BOJ minutes via Bloomberg showed a policy committee member expressing the opinion that "there is a good chance that the strengthening tariffs of the United States will have a significant adverse effect on Japan's real economy."
“The committee member emphasized that if the possibility of adverse effects from tariffs increases, "it will be necessary to more carefully consider the timing of raising policy interest rates."
A pretty muted response from US treasuries to the trade deal headlines, stocks had a good pop higher(ESM5 +0.80%) and have held onto these gains for now.
The 10-year Yield range seems to be 4.10% - 4.45%, price is back to the 4.25/30% support/pivot within that range. Awaiting the next catalyst for some direction
Data/Events : US Initial Jobless Claims.

JGBS: Market Reverses Direction, US Tsys & Poor 10Y Auction Weigh

JGB futures are weaker, -17 compared to the settlement levels, after reversing direction following today’s poor 10-year auction.

The 10-year JGB auction delivered weak results, with the low price falling short of expectations, according to the Bloomberg dealer poll. Moreover, the cover ratio decreased to 2.5440x from 3.1475x, and the tail lengthened to 0.18 from 0.11.
This performance came with an outright yield 10-15bps lower than last month and approximately 30bps below the recent cyclical high of 1.596% reached in late March, just before President Trump's announcement on reciprocal tariffs.
“Governor Ueda says the bank can't ignore the potential downside risks to prices stemming from US tariff measures.” (per BBG).
Cash US tsys are ~3bps cheaper in today's Asia-Pac session after headlines from the NYT that the first trade deal announcement from the US administration would be with the UK (slated for 10am US time on Thursday).
Cash JGBs are mixed across benchmarks, with the 20-30-year zone as the outperformer (~1bp richer). The benchmark 10-year yield is 1.4bps higher at 1.321% after being as low as 1.2780 pre-auction.
Swap rates are flat to 2bps higher. Swap spreads are wider.
Tomorrow, the local calendar will see Real & Labor Cash Earnings, Household Spending and Coincident/Leading Index data.

AUSSIE BONDS: Modestly Cheaper But Off Bests After Trade Deal HLs

ACGBs (YM flat & XM +2.5) are modestly stronger but at session cheaps.

Cash US tsys are 2-3bps cheaper, with a slight flattening bias, in today's Asia-Pac session after President Donald Trump has announced an upcoming news conference to reveal a "major trade deal" with an unnamed but "highly respected" country, calling it "the first of many" such agreements to come. Subsequently, the NYT stated that the first trade deal announcement from the US administration would be with the UK (slated for 10am US time on Thursday).
"ANZ bank's net profit increased over the latest half year to $3.64bn, up 7 per cent compared to the same time last year, with big bank bosses tipping further rises in home prices." (per ABC)
Cash ACGBs are flat to 3bps richer with the AU-US 10-year yield differential at -5bps.
Swap rates are lower by around the same amount, with the 3s10s curve flatter.
The bills strip pricing is flat to -2.
RBA-dated OIS pricing has changed little across meetings today. A 50bp rate cut in May is given a 4% probability, with a cumulative 105bps of easing priced by year-end.
Tomorrow, the local calendar will be empty apart from the AOFM’s planned sale of A$700mn of the 2.75% 21 November 2029 bond.

BONDS: NZGBS: Bull-Flattener Pared By Trade-Deal Induced Risk-On

NZGBs closed showing a bull-flattener. Benchmark yields finished 1-3bps lower after being 3-4bps lower early.

While the NZ Treasury published financial statements for the nine months ended March 31, the key driver for the local market was US tsys. After a positive lead-in from a post-FOMC rally, US tsys cheapened 2-3bps in today’s Asia-Pac session after headlines from the NYT that the first trade deal announcement from the US administration would be with the UK (slated for 10am US time on Thursday).
Today’s supply showed solid demand metrics, with cover ratios ranging from 3.90x (May-36) to 3.44x (May-51).
“New Zealand Minister of Finance Nicola Willis asked the central bank to explain why it planned to keep interest rates at a restrictive level before Governor Adrian Orr's resignation. Willis also sought advice from the Treasury Department on the frequency of Monetary Policy Committee meetings and requested a meeting with Orr to discuss bank capital settings.” (per BBG)
Swap rates closed 1-4bps lower, with the 2s10s curve flatter.
RBNZ dated OIS pricing closed little changed across meetings. 26bps of easing is priced for May, with a cumulative 78bps by November 2025.
The local calendar will be empty until Card Spending data next Wednesday.

FOREX: G10 Wrap - USD Struggling To Hold Onto Gains

The BBDXY has had an Asian range of 1220.34 - 1223.25, Asia is currently trading around 1221. The USD continues to struggle on any rallies, Asia has seen it give back all of its FOMC gains to a trade deal reportedly with the UK as per the NYT. MNI BOE Decision - Consensus is for a 25bp cut with a question mark over how many members will vote for a 50bp cut. Since the last meeting, most MPC speakers have stuck to the script of tariffs being negative for growth but that the impact on inflation was unclear. The forecasts in the MPR may give them more to base updated communications on. However, with uncertainty so high, we think there is a good chance that some of the structure of the existing guidance remains.

EUR/USD - Asian range 1.1300 - 1.1336, Asia is currently trading 1.1325. Intra-day support is around the 1.1250 area, should this area not hold demand should remerge on dips back to 1.1100.
GBP/USD - Asian range 1.3286 - 1.3356, Asia is currently dealing around 1.3345, having benefited from the trade deal announcement. Intra-day support is around the 1.3250 area, then the pivotal 1.30/31 support is next.
USD/JPY - Asian range 143.45 - 143.96, pretty muted price action in the Asia session. Sellers should be lining up back towards 146.00/147.00
USD/CNH - Asian range 7.2167 - 7.2369, the USD/CNY fix printed 7.2073. Asia is currently dealing around 7.2340, sellers should return back towards 7.2500.
Cross asset : SPX +0.8%, Gold $3390, US 10-Year 4.29%, BBDXY 1220, Crude oil $58.62.
Data/Events : Ger Industrial Production, Spain Industrial Production, US Initial Jobless Claims
Fig 1: GBP/USD Spot Hourly Chart
Source: MNI - Market News/Bloomberg

FOREX: Antipodean Wrap - AUD & NZD Regain Losses From FOMC On Trade Deal

The Asian session was just digesting the implications of a patient Fed when headlines from Trump announcing a trade deal tomorrow were posted. The NYT later confirmed that the first trade announcement from the Trump administration will be with the UK. Stocks and risk have reacted positively and look to be holding onto their gains going into the London session. The AUD & NZD have both benefited from this, clawing back all their FOMC losses. The real question will be if London will continue with this or was a trade deal with the UK not already in the price ?

AUD/USD - Asian range 0.6424 - 0.6464, the AUD is currently dealing around 0.6460. Support should be seen back towards 0.6400 and a break below 0.6300 needed to reverse direction.
AUD/JPY - Asian range 92.34 - 92.81, price goes into London trading around 92.70. Price continues to stall back towards the resistance seen around 94.00. Support seen back towards the 91.50/92.00 area.
NZDUSD - Asian range 0.5937 - 0.5975, going into London trading around 0.5970. The NZD continues to hold up well, buyers should return back towards 0.5900 again and then the bigger support is towards 0.5800/50.
AUD/NZD - Asian range 1.0801 - 1.0836, the Asian session is currently trading 1.0815. Sellers have returned back towards the 1.0850 area.

Fig 1 : AUD/USD Spot Hourly Chart

Source: MNI - Market News/Bloomberg

ASIA STOCKS: US China Trade Talks Give Stocks a Boost

As news filters through of a US China trade discussion this weekend and the first trade deal under the Trump administration about to be announced. The US is set to announce a UK trade deal in what could be the start of several.

Flows into Asia equity from foreign investors have turned strongly as the steam comes out of the USD. Major markets in Asia have experienced over US$5bn of inflows over the last five trading days with Taiwan gaining the most, followed by India and South Korea.

Despite the various stimulus measures announced yesterday the China bourses rise was modest with the Hang Seng up just 0.13% before jumping over 1% today in signs investors are welcoming the stimulus. The CSI 300 had a better day yesterday up +0.61% and backed that up with 0.75% gain today.
As the government announced an increase in bond issuance to support the economy the KOSPI reacted rising +0.55% mirroring yesterday’s gains.
The FTSE Bursa Malaysia KLCI was treading water ahead of the Central Bank decision later this afternoon, falling -0.20% after yesterday’s gains of +0.85%.
The Jakarta Composite has had a very strong period and after eight successive days of gains, fell today by -0.45%.
Singapore’s FTSE Straits Times is up +0.20% and Philippines PSEi down -0.17%.
Despite the escalation of tensions between India and Pakistan, the NIFTY 50 eked out +0.14% gains but is trending lower in today’s trading by -0.08%

OIL: Rally Following Trade Deal News Leaves Crude Higher On The Week

Global oil markets have been concerned that increased protectionism would reduce global energy demand and so today’s news that the US will announce a trade deal Thursday morning US time has boosted prices today. The NY Times reported that the agreement is with the UK. WTI is up 0.8% to $58.55/bbl, close to the intraday high, and now up 0.6% this week. Brent is 0.8% higher at $61.60 after falling to $61.00 early in the session and is currently +0.5% on the week. The USD index is down 0.1%.

The news of the first US trade deal will possibly add to optimism of a resolution to the current situation, which is particularly important ahead of the difficult US-China talks taking place this week. US President Trump said that he won’t reduce tariffs on China to smooth the start of negotiations, which are likely to focus on de-escalation rather than a deal.
Supply remains in focus with OPEC announcing a +400kbd increase in output from June after +400kbd in April but the EIA cutting its 2025 US production forecast due to low prices driving less shale output. Talks continue with Iran and a deal there may allow an easing of sanctions on its oil exports. A truce in Ukraine still seems no closer and thus also a lifting of restrictions on Russia.
Later US Q1 preliminary productivity/ULC, jobless claims and April NY Fed inflation expectations as well as German March IP print. The Bank of England is expected to cut rates 25bp to 4.25%.

Gold Erases Some of Overnight Losses.

Despite positive signs on trade talks between the US and China, Gold rallied back again today shrugging off some of yesterday’s losses.
Gold is up +0.85% in today’s Asia trading session reaching US$3,392.32.
As the Federal Reserve remained on hold overnight markets focused on Chairman’s Powell’s comments on the trade war and the uncertainty it creates.
Warning that Trump’s policies could lead to higher inflation and slowing growth re-ignited gold’s safe haven bid after losses overnight.
Data released shows that the Chinese Central Bank continues to add to its gold reserves, adding 70,000 ounces in April, representing sixth consecutive months that the PBOC has increased gold holdings.

UP TODAY (TIMES GMT/LOCAL)

Date	GMT/Local	Impact	Country	Event
08/05/2025	0600/0800	**	DE	Trade Balance
08/05/2025	0600/0800	**	DE	Industrial Production
08/05/2025	0700/0900	**	ES	Industrial Production
08/05/2025	0730/0930	***	SE	Riksbank Interest Rate Decison
08/05/2025	0800/1000	***	NO	Norges Bank Rate Decision
08/05/2025	1102/1202	***	GB	Bank Of England Interest Rate
08/05/2025	1102/1202	***	GB	Bank Of England Interest Rate
08/05/2025	1130/1230		GB	BOE Press Conference
08/05/2025	1230/0830	***	US	Jobless Claims
08/05/2025	1230/0830	**	US	WASDE Weekly Import/Export
08/05/2025	1230/0830	**	US	Preliminary Non-Farm Productivity
08/05/2025	1300/1400		GB	Decision Maker Panel data
08/05/2025	1400/1000		CA	BOC Financial Stability Report and Financial System Survey
08/05/2025	1400/1000	**	US	Wholesale Trade
08/05/2025	1430/1030	**	US	Natural Gas Stocks
08/05/2025	1500/1100		CA	BOC Governor Macklem press conference on Financial System Review
08/05/2025	1500/1100	**	US	NY Fed Survey of Consumer Expectations
08/05/2025	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
08/05/2025	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
08/05/2025	1700/1300	***	US	US Treasury Auction Result for 30 Year Bond
08/05/2025	1700/1300	*	US	US Treasury Auction Result for Cash Management Bill
09/05/2025	2330/0830	**	JP	average wages (p)
09/05/2025	2330/0830	**	JP	Household spending
09/05/2025	0600/0800	***	NO	CPI Norway
09/05/2025	0800/1000	*	IT	Industrial Production
09/05/2025	0840/0940		GB	BOE Bailey Keynote Address at Reykjavik Economic Conference
09/05/2025	0955/0555		US	Fed Governor Michael Barr
09/05/2025	1045/0645		US	Fed Governor Adriana Kugler
09/05/2025	1115/1215		GB	BOE's Pill At National MPC Agency Briefing
09/05/2025	-	***	CN	Trade
09/05/2025	1230/0830	***	CA	Labour Force Survey
09/05/2025	1230/0830		US	New York Fed's John Williams
09/05/2025	1230/0830	***	CA	Labour Force Survey
09/05/2025	1230/0830		US	Richmond Fed's Tom Barkin
09/05/2025	1235/0835		US	New York Fed's Roberto Perli