MNI US OPEN - US-China Tariff Cuts Exceed Expectations
EXECUTIVE SUMMARY
- TEMPORARY US-CHINA TARIFF CUT EXCEEDS EXPECTATIONS
- SANCTIONS THREATS ON RUSSIA RISING AHEAD OF ZELENSKIY-PUTIN MEETING
- TRUMP TRUCE LEAVES INDIA FURIOUS, PAKISTAN ELATED AS RISKS LOOM
- KURDISH SEPARATIST GROUP PKK AGREES TO DISARM AND DISBAND
Figure 1: E-Mini S&P pierces bull trigger and key resitance on US/China tariff headlines
Source: MNI/Bloomberg
NEWS
US/CHINA (MNI): Temporary US-China Tariff Cut Exceeds Expectations
MNI (London) 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. 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%. The statement confirms that a mechanism has been established that will see talks continue. These will alternate in location between the US and China or a third country. The Chinese Ministry of Commerce says that it will adopt all measures to suspend or remove the non-tariff countermeasures taken against the US since 2 April. Both sides agree to lower tariffs for 90 days by 14 May.
US/JAPAN (BBG): Japan Won’t Do Trade Deal With US Excluding Autos, Ishiba Says
Japan won’t accept any initial trade agreement with the US that excludes an accord on autos, according to Prime Minister Shigeru Ishiba. Ishiba on Monday made his stance clear when asked in parliament about the possibility that Washington might urge Tokyo to strike a provisional agreement that doesn’t address US tariffs on car imports. In the same parliamentary session, top trade negotiator Ryosei Akazawa said that Japan will continue to seek a reprieve from all the tariff measures imposed by the US.
US (BBG): Trump Vows US Drug Price Cuts of Up to 80% in Industry Upheaval
President Donald Trump said he plans to order a cut in US prescription drug costs by mandating that Americans pay no more than people in countries that have the lowest price. In a social media post, Trump said that he’ll sign an executive order at 9 a.m. Monday in Washington to institute what he called a most-favored nation policy. While he didn’t give details, shares in drugmakers across Asia tumbled on Monday as investors grappled with the potential implications for the world’s largest pharmaceutical market.
US (WSJ): Proposal Cutting Medicaid Aims for GOP Middle Ground
House Republicans are releasing their plan to cut Medicaid spending, with the program’s defenders in the GOP appearing to win the intraparty clash over how aggressively to change the system that provides health insurance to more than 70 million low-income and disabled people. A section-by-section summary of the bill text, which was viewed by The Wall Street Journal, includes some of the changes Republicans have weighed for Medicaid, including work requirements and more frequent eligibility checks. But it doesn’t lower the minimum share the federal government contributes to Medicaid in each state, cap per-person federal spending in the program or other steps some spending hawks sought.
US/MIDEAST (WSJ): Hamas Says It Will Release Last U.S. Hostage From Gaza
Hamas said on Sunday that it would release the last American hostage held in Gaza after discussions with the U.S. over a cease-fire and a deal to allow humanitarian aid to enter the strip. In a statement, Hamas said Israeli-American Edan Alexander “will be released as part of the steps aimed at achieving a cease-fire, opening the crossings, and allowing humanitarian aid and relief into our beloved Gaza Strip.” It didn’t make clear what it would specifically receive in return for Alexander’s release.
RUSSIA/UKRAINE (MNI): Sanctions Threats on Russia Rising Ahead of Zelenskiy-Putin Meeting
Ukraine’s Zelenskiy is set to meet Putin in Istanbul on May 15 for direct negotiations, conditional on Russia beginning a 30-day ceasefire on Monday amid sanctions threats. Ukraine and its European allies have insisted that Russia begins a 30-day ceasefire on Monday, threatening a dramatic increase in sanctions on Russia is Putin refused, Bloomberg says. It is unclear if the US would join the effort, with President Trump more guarded in public comments on the topic. A European official told Bloomberg that Trump has said in private that he would go along with further sanctions on Monday if necessary.
UK/RUSSIA (BBG): UK to Unveil New Russia Sanctions as European Ministers Meet
UK Foreign Secretary David Lammy is set to unveil fresh sanctions targeting Russia as Britain hosts a security meeting of European ministers for the first time. The sanctions will target “actors supporting Russia’s illegal invasion” of Ukraine, Britain’s Foreign Office said Monday in an emailed statement, without providing further details. Lammy will announce them at a summit in London of countries from the so-called Weimar + group, including representatives from France, Italy, Germany, Spain, Poland and the European Union. It’s the first time the UK has hosted such a gathering.
INDIA/PAKISTAN (BBG): Trump Truce Leaves India Furious, Pakistan Elated as Risks Loom
After four days that saw the worst fighting between India and Pakistan in half a century, as well as some nuclear saber-rattling, Donald Trump on Saturday declared that both countries had reached a “FULL AND IMMEDIATE CEASEFIRE.” But in the Indian capital of New Delhi, many top officials were seething. The US president’s post on Truth Social caught key officials involved by surprise, according to people familiar with the situation, who asked not to be identified because the discussions were private. What really offended them was not simply the US efforts to de-escalate. Rather, it was Trump’s move to upstage Prime Minister Narendra Modi, undermine India’s longstanding policy to resolve the Kashmir territorial dispute through bilateral talks and — perhaps worst of all — put the sworn enemies on an equal footing, a move officials in New Delhi have resisted as the nation’s economy surges ahead of Pakistan.
BOE (MNI): Lombardelli Was "Balanced Between Holding and Cutting" in May
Summarising Lombarelli's comments: (1) She's in the same camp as Bailey that saw the May decision as "finely balanced". (2) When pushed on whether she would have voted for a cut without the trade uncertainties she didn't fully commit to the answer, just said that she would continue to monitor it and together with the global uncertainties there was enough to justify a vote for a cut. (3) But she's very clear that tariffs and "not the dominating factor" for UK monpol. (4) She's less focused on AWE developments and more focused on pay settlements going forward.
TURKEY (MNI): Kurdish Separatist Group PKK Agrees to Disarm and Disband
The PKK decided to disarm and disband at a congress last week, the pro-Kurdish ANF news agency reported Monday, after declaring a ceasefire on March 1. Local media had reported last week that the PKK, a designated terrorist organization by Turkey, convened its congress last week and ruled to dissolve and disarm imminently. Bloomberg write that the conflict with the PKK has exacted a heavy toll on Turkey, with an estimated 40,000 people – most of them Kurds – killed since the insurgency began in 1984. In February, PKK leader Abdullah Ocalan urged his group to convene a congress and formally decide to disband, marking a pivotal step toward ending the decades-long conflict. Then on March 1, the PKK announced a unilateral ceasefire, but attached conditions, including the creation of a legal framework for peace negotiations.
DATA
CHINA DATA (MNI): China April CPI Remains Negative for Third Month
China's Consumer Price Index fell 0.1% y/y in April, the same as March's 0.1% decline, meeting market expectations, mainly affected by falling global oil prices, data from the National Bureau of Statistics showed on Saturday. CPI rose 0.1% m/m, reversing March's 0.4% decline, mainly driven by price rebounds of food and travel services, the Bureau added. Core CPI, excluding food and energy prices, rose 0.5% y/y, the same as the previous month.
FOREX: EUR Slides, USD/JPY Gets Jolt in the Arm on Trade Talks
- USD/JPY got a jolt in the arm early Monday as the US and China trade negotiation teams confirmed an aggressive cut to trade tariffs. While the drop in tariffs is only entering a 90-day pause, markets are taking the step as a strong sign of intent that both sides want to maintain as healthy a trade relationship as possible - helping stimulate strong equity, USD and CNH gains.
- This leaves JPY comfortavly the poorest performing currency in G10 as the US/China headlines on reducing tariffs have significantly boosted risk sentiment across global markets. The yen's negative correlation to moves in equity markets has been in prime focus, with the hawkish repricing in core fixed income providing an additional headwind for the low yielders. Broad US dollar strength has translated into a sharp adjustment higher for USDJPY, exacerbated by a clean break of the 50-day EMA resistance that had capped the price action last week.
- Similarly, EUR is sliding. Having been one of the stronger currencies through trade tumult on relative haven status as well as the EU's perceived library of counter-tariff measures, the EUR is now performing poorly as while countries including the UK, Switzerland and China have taken notable steps toward a cleaner tariff regime, there are few signs of progress with Brussels.
- A BoE watcher conference will be carefully watched today, with appearances from BoE's Greene, Mann and Taylor still set to speak. Fed's Kugler similarly talks on the US economic outlook.
EGBS: German Curve Bear Flattens as US/China Tariff Rollback Supports Risk
The German curve has sharply bear flattened this morning, with risk sentiment supported by a temporary reprieve in US/China tariffs following this weekend’s meetings.
- EGBs opened on a soft note after the US touted “substantial progress” with China, and the move extended after the announced tariff cuts exceeded expectations.
- Year-end ECB rate cut expectations now sit at 48bps (vs 60bps at Friday’s close), pushing Schatz yields up 10bps on the session to ~1.90%.
- The German 2s10s curve is down 3.7bps, with 10s30s down 2.8bps at typing.
- Bund futures are -79 ticks at 129.97, trading close to intraday lows. Initial support at 129.92 (Apr 11 low) has held for now. Clearance of this level would expose the Apr 10 low at 129.02.
- The short-end may have also been pressured by ECB Executive Board member Schnabel’s hawkish speech over the weekend. Schnabel provided her arguments for holding rates at current levels. However, she did outline the conditions required for her to support more easing.
- The BTP/Bund spread reached a fresh year-to-date low of 102bps in the immediate aftermath of the US/China tariff reprieve details, but has since widened back to opening levels of around 104bps.
- This week’s Eurozone data calendar is fairly light, with the second estimate of Q1 GDP due on Thursday. This will keep focus on the trade complex, and non-EZ macro data (e.g. US CPI tomorrow).
GILTS: Early Losses Intact, Curve Flatter
Gilts hold early losses after being pressured by the dialling down of Sino-U.S. trade tension and news of a Putin-Zelenskiy meeting being scheduled for later this week.
- Futures traded as low as 91.69 around the open, before recovering to the 91.90 area.
- Both the May 9 (92.07) & April 17 (91.73) lows were pierced, with next support located at the April 15 low (91.43).
- Yields 4-7bp higher, curve flattens.
- 2-Year yields trade as high at 3.997%, next upside area of interest located at the April 17 high (4.015%).
- 10s as high as 4.642%, next area of upside interest located at the April 15 high (4.672%).
- 2s10s comfortably within the range witnessed since early April, last ~64bp. The same holds true for 5s30s, curve last trades at ~128.2bp.
- BoE-dated OIS covering the next 7 meetings sit 1-8bp less dovish on the day.
- 3bp of cuts priced through June, 21bp through August, 30bp through September, 45bp through November and 51bp through year-end.
- SONIA futures off lows but still 0.25-11.5 lower on the day.
- Comments from BoE’s Lombardelli (outlined in recent bullets) had little impact on markets, leaving macro cues at the fore.
- Further MPC comments are due at the BoE Watchers’ conference (Greene, Mann & Taylor), ahead of the labour market report (due 07:00 London on Tuesday).
EQUITIES: E-Mini S&P Pierces Key Resistance and Bull Trigger at $5837.25
Strong gains in Eurostoxx 50 futures contract today reinforce current bullish conditions. The contract is extending the recent breach of 5263.01, 76.4% of the Mar 3 - Apr 7 bear leg. The continuation higher signals scope for a climb towards 5516.00, the Mar 3 high and the key bull trigger. Initial support to watch lies at 5127.08, the 20-day EMA. Clearance of this level would signal a possible reversal. The bullish trend condition in S&P E-Minis remains intact and today’s strong start to this week’s session reinforces bullish conditions. The contract has pierced an important resistance at 5837.25, the Mar 25 high and a bull trigger. This strengthens the current bullish theme, paving the way for a continuation near-term. Sights are on 5896.25, a Fibonacci retracement.Initial firm support to watch lies at 5628.71, the 50-day EMA.
- Japan's NIKKEI closed higher by 140.93 pts or +0.38% at 37644.26 and the TOPIX ended 8.59 pts higher or +0.31% at 2742.08.
- Elsewhere, in China the SHANGHAI closed higher by 27.245 pts or +0.82% at 3369.244 and the HANG SENG ended 681.72 pts higher or +2.98% at 23549.46.
- Across Europe, Germany's DAX trades higher by 252.32 pts or +1.07% at 23752.46, FTSE 100 higher by 38.34 pts or +0.45% at 8593.27, CAC 40 up 84.82 pts or +1.1% at 7828.57 and Euro Stoxx 50 up 86.09 pts or +1.62% at 5395.83.
- Dow Jones mini up 859 pts or +2.08% at 42172, S&P 500 mini up 153 pts or +2.69% at 5830.25, NASDAQ mini up 729 pts or +3.62% at 20864.75.
Time: 10:00 BST
COMMODITIES: WTI Futures Approaching Key Short-Term Resistance at 50-Day EMA
A downtrend in WTI futures remains intact and short-term gains are considered corrective. The corrective cycle remains in play for now and price has traded through the 20-day EMA. Key short-term resistance to watch is $63.62, the 50-day EMA, a clear break of this level would highlight a stronger reversal. For bears a reversal lower would refocus attention on $54.67, the Apr 9 low and bear trigger. The latest pullback in Gold appears corrective. The primary trend condition is bullish and a resumption of the uptrend would signal scope for a climb towards the bull trigger at $3500.1, the Apr 22 high. Clearance of this level would confirm a resumption of the uptrend. Key short-term support has been defined at $3202.0, the May 1 low. A clear break of this level is required to signal scope for a deeper retracement.
- WTI Crude up $1.71 or +2.8% at $62.75
- Natural Gas down $0.02 or -0.4% at $3.781
- Gold spot down $94.25 or -2.83% at $3232.01
- Copper down $1.3 or -0.28% at $464.1
- Silver down $0.47 or -1.44% at $32.295
- Platinum down $14.7 or -1.47% at $987.31
Time: 10:00 BST
| Date | GMT/Local | Impact | Country | Event |
| 12/05/2025 | 1030/1130 |  GB | BOE Greene On Monetary policy outlook | |
| 12/05/2025 | - | *** |  CN | Money Supply |
| 12/05/2025 | - | *** | CN | New Loans |
| 12/05/2025 | - | *** | CN | Social Financing |
| 12/05/2025 | - |  EU | ECB's Cipollone At Eurogroup Meeting | |
| 12/05/2025 | 1250/1350 | GB | BOE Mann On Neutral Rate Of Interest | |
| 12/05/2025 | 1425/1025 |  US | Fed Governor Adriana Kugler | |
| 12/05/2025 | 1430/1530 | GB | DMO likely to publish FQ2 consultation agenda | |
| 12/05/2025 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 12/05/2025 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 12/05/2025 | 1600/1200 | *** | US | USDA Crop Estimates - WASDE |
| 12/05/2025 | 1600/1700 | GB | BOE Taylor Fireside Chat With Ed Balls | |
| 12/05/2025 | 1800/1400 | ** | US | Treasury Budget |
| 13/05/2025 | 2301/0001 | * | GB | BRC-KPMG Shop Sales Monitor |
| 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 | - | 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 |
