Market Report.
📉 Beijing has stated that it is “evaluating” an offer from Washington to hold talks over U.S. President Donald Trump’s crippling 145% tariffs on Chinese goods. This signals a potential de-escalation in the ongoing trade war between the U.S. and China that has roiled global markets. China’s Commerce Ministry said the U.S. has approached China to seek talks, and Beijing’s door is open for discussions. However, China said the U.S. needs to show “sincerity” in the negotiations and be prepared to take action to correct its “erroneous practices” and cancel the unilateral tariffs. The tariffs have come at a particularly difficult time for China, which is struggling with deflation and a prolonged property crisis. Both U.S. and Chinese officials have expressed hope for progress in easing trade tensions, with Treasury Secretary Bessent saying he is confident China will want to reach a deal.
🚗 Chinese automakers like BYD and Chery are selling more plugin-hybrid vehicles (PHEVs) in the European Union to avoid import tariffs on Chinese-made electric cars (BEVs). BYD sold 3,269 PHEVs in the EU in March, up from near zero sales in July 2024 when provisional tariffs were first introduced. Chery sold 757 PHEVs. BYD pays a 27.5% tariff on BEVs it sells in the EU, but only 10% for PHEVs. This means significant cost savings, with the Atto 3 BEV costing 10,257 euros more than the Seal U PHEV. SAIC, which faces the highest BEV tariff of 35.3%, has not scaled up PHEV sales as much as BYD and Chery. It was “only a matter of time” before manufacturers found a “backdoor to the market” through hybrids, as they adapt to the EU’s tariff regime.
💰 Japan’s Finance Minister Katsunobu Kato has explicitly raised the possibility of using Japan’s $1 trillion-plus holdings of U.S. Treasuries as a bargaining chip in trade talks with the U.S. While Kato did not threaten to sell the holdings, he said Japan needs to “put all cards on the table” in negotiations, though he added that actually using this “card” is a different question. Kato’s remarks contrast with his previous statements ruling out using Japan’s U.S. bond holdings in trade talks. He said the huge Treasury market sell-off in April likely affected Washington’s approach in talks with Japan. Japan’s and China’s massive holdings of U.S. Treasuries make them a point of attention whenever U.S. yields spike, though little is known about their trading activity.
📉 However, there are limits to such threats, as unloading Treasuries would hurt Japan and China by disrupting markets and causing losses on their remaining holdings. While the idea of using Treasury holdings as a bargaining chip was “an absolute non-issue in the past”, countries may need to use all the tools available given the current geopolitical environment.
📊 The European Central Bank (ECB) has almost reached its goal of bringing inflation down to 2%, with April’s reading expected to come in only slightly above that target. This comes after unexpectedly strong GDP numbers on Wednesday, which showed the euro area expanding 0.4% in the first quarter. However, there is a big caveat to this good news – the looming threat of President Trump’s tariffs, which have yet to fully go into effect.
📜 The EU is still hoping to mitigate the impact of the tariffs and is planning to share a paper with the U.S. next week that will set out a package of proposals to kick-start trade talks. The paper will suggest lowering trade and non-tariff barriers, boosting European investments in the U.S., cooperating on strategic challenges, and purchasing more U.S. LNG. At the same time, EU officials are continuing to prepare retaliatory steps in case the tariffs do go into full effect.
🛒 Amazon reported better-than-expected results for the first quarter, but gave soft guidance for the current period as the company navigates uncertainty around President Trump’s tariffs. Amazon’s Q1 earnings per share was $1.59, exceeding the $1.36 expected. Revenue was $155.67 billion, slightly above the $155.04 billion expected. However, Amazon expects Q2 operating income to be between $13-$17.5 billion, below the $17.64 billion consensus forecast. Amazon faces significant exposure to Trump’s tariffs, primarily through its retail unit which sources products from China. Some Amazon sellers have already raised prices and cut advertising spend. Advertising was a bright spot, with sales rising 19% year-over-year to $13.92 billion, outpacing growth in Amazon’s core retail business.
📱 Apple reported Q2 earnings that beat Wall Street expectations, but its closely-watched Services division came in slightly below estimates. Apple’s earnings per share was $1.65, exceeding the $1.63 expected. Revenue was $95.4 billion, above the $94.66 billion expected. iPhone revenue of $46.84 billion topped estimates, while Mac, iPad, and Wearables/Home/Accessories revenues also exceeded expectations. CEO Tim Cook said Apple saw “limited impact” from tariffs in the March quarter as the company optimized its supply chain, but expects tariffs to add $900 million in costs this quarter. Cook noted Apple is already sourcing about half of iPhones for the U.S. from India and most other products from Vietnam to mitigate tariff impacts.
🤖 Additionally, Strong earnings reports from Microsoft and Meta Platforms have reignited excitement around the artificial intelligence (AI) trade, temporarily pushing tariff worries from investors’ minds. There are signs that institutional investors are starting to dip their toes back into the market, after scaling back during the volatile April period.
Geopolitics:
🌍 Kyiv and Washington have hailed a deal giving the United States preferential access to new Ukrainian minerals as a milestone that will strengthen President Trump’s negotiating position with Russia. The accord establishes a joint investment fund for Ukraine’s reconstruction and grants the U.S. preferential access to new Ukrainian minerals projects. U.S. Treasury Secretary Bessent said the deal sends a strong signal to the Russian leadership that there is no daylight between the Ukrainian and American people, and it gives Trump a stronger basis to negotiate with Russia.
🤝 The agreement is central to Ukraine’s efforts to mend ties with the White House, which had frayed after Trump took office. Ukrainian officials say the deal will help Ukraine become more sustainable and self-sufficient, and they plan to have it ratified by parliament in the coming weeks. Talks between Ukrainian President Zelenskyy and Trump in Rome during the Pope’s funeral played an important role in securing the deal.
🛑 Former Russian President Medvedev suggested Ukraine had been forced into the agreement, saying Trump has “broken the Kyiv regime” and Ukraine will have to pay for U.S. aid with mineral resources.
Market View:
📈 As we predicted in our reports this week, the markets are maintaining a cautious but steady upward trend. S&P 500 futures continue to advance, and this week’s corporate results seem to have helped. Mini S&P 500 futures are currently up 5,670 points. Small-cap futures are also advancing and approaching 20,000 points, currently standing at 19,955 points.
📊 In Europe, the DAX 40 is within striking distance of its all-time highs. DAX 40 futures are 500 points away from those highs, currently trading at 22,945 points. EuroStoxx 50 futures, which had appeared more timid, are also beginning to react upwards and are currently at 5,175 points.
💵 The dollar index (DXY) recovered 100 points yesterday, although it has fallen slightly in the last few hours, currently standing at 99.95 points. This is another of the predictions that has come true in our reports this week, as we warned of possible downward movements in the euro/dollar (EUR/USD) pair, which fell yesterday to 1.1280, and of possible upward movements in the dollar/yen pair (USD/JPY), which rose sharply yesterday and approached 146, from where it has fallen back slightly.
🛢️ Crude oil has rebounded strongly in recent hours. Yesterday, Brent crude fell below $60 a barrel, but news of progress in possible trade agreements between China and the United States may have stimulated a rise in prices, leading to a strong rebound to around $62.40 a barrel.
🪙 Gold fell yesterday, with gold futures approaching the $3,200 per ounce mark, although they then rebounded to their current level of $3,260 per ounce. Once again, this seems to be a response to the calm surrounding possible negotiations between China and the United States.
💻 Good news for Bitcoin, which finally managed to consolidate firmly above $95,000. In the last few hours, it approached $97,500, retreating slightly to its current level of $96,780.
