Market Report.
📉 The Federal Reserve is expected to leave interest rates unchanged at its upcoming meeting today, but the meeting may be the last where the outcome is so “cut and dry” due to the uncertainty created by President Trump’s tariffs. Trump’s tariffs have tanked consumer and business sentiment, squeezed manufacturing, and prompted a rush on imports that contributed to a surprise contraction in U.S. GDP last quarter. The economic data so far does not suggest the economy is crumbling, with consumer spending still growing and job gains remaining solid. However, the tariffs are expected to increase both inflation and unemployment. Fed Chair Powell has said the central bank wants to be “certain” that any temporary tariff-driven price increases do not become an ongoing inflation problem.
📊 A key factor will be the pace of change in the unemployment rate, with Fed Governor Waller saying a rise of more than 0.1 percentage point in a single month would trigger more aggressive rate cuts. However, the Fed’s patience is unlikely to be viewed as a virtue by President Trump, who continues to press for lower interest rates.
🤝 At the White House yesterday, a meeting between U.S. President Trump and Canada’s newly instated Prime Minister Mark Carney offered an opportunity to repair diplomatic ties that have deteriorated since the start of the year.
💬 During the discussion with Carney, Trump asserted in relation with the coming Chinese/US negotiations, “The obligation to secure agreements lies with them, not us. They seek access to our marketplace, while we have no interest in theirs.” This statement directly conflicted with senior White House administrators who had consistently emphasized for weeks that securing such agreements was their primary objective. The financial markets responded negatively to these remarks.
🌐 U.S. Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer will meet China’s economic tsar He Lifeng in Switzerland this weekend for talks that could be the first step toward resolving the U.S.-China trade war. The negotiating teams are expected to discuss reductions to the broader tariffs, eliminating duties on specific products, and ending the U.S. de minimis duty exemptions on low-value imports. Bessent said the goal is to “de-escalate” the trade war before moving forward, as the current situation is “not sustainable.” China signaled increasing openness to talks, saying it is “evaluating” an offer from Washington to hold discussions. However, it warned that if the U.S. “says one thing but then does another,” China will “never agree.”
🏭 The stakes for China’s economy are high, with its factory sector facing the brunt of the tariffs. Many analysts have downgraded China’s economic growth forecasts due to the trade war. The U.S. has been negotiating with 17 major trading partners, but not yet China, and could announce trade agreements with some of them as early as this week.
🇬🇧🇮🇳 UK-India free trade agreement: The agreement is expected to boost bilateral trade between the world’s 5th and 6th largest economies by £25.5 billion ($34.13 billion) per year by 2040. India will slash tariffs on 90% of British products, with 85% becoming tariff-free within 10 years. This includes significant cuts on whisky, gin, cars, machinery, lamb, and other goods. Britain will remove tariffs on 99% of Indian exports, benefiting sectors like textiles, leather, sports goods, and auto parts. The deal includes a “double contribution convention” that will exempt temporary Indian workers in the UK and their employers from making social security contributions in the UK for 3 years. The agreement will give UK businesses access to India’s government procurement market, while also providing some preferential treatment under India’s “Make in India” policy.
🤝 Meanwhile, China, Japan, South Korea and the ASEAN countries have issued a joint statement collectively opposing ‘growing trade protectionism’, a clear reference to Trump’s tariffs.
⚔️ Geopolitics:
🔥 India attacked Pakistan and Pakistani-controlled Kashmir on Wednesday, with Pakistan claiming it shot down five Indian fighter jets in the worst fighting between the nuclear-armed neighbors in over two decades. India said it struck nine “terrorist infrastructure” sites linked to an attack by Islamist militants in Indian-controlled Kashmir last month. Pakistan said six of its locations were targeted, with 8 people killed.
🛡️ Pakistan called the Indian assault a “blatant act of war” and said it had informed the UN Security Council that it reserved the right to respond appropriately to Indian aggression. The risk of escalation is higher than in the recent past due to the severity of India’s attack, which New Delhi called “Operation Sindoor.” The strikes impacted stock futures and led to flight cancellations in the region as airports and airspace were closed.
✈️ Israel’s air force has continued large-scale attacks on Yemen after a Houthi ballistic missile strike on Israel’s Ben Gurion airport in Tel Aviv. The Israeli strikes have hit the Sana’a International Airport, which was destroyed, including civil aviation, power stations, a cement factory, and other civilian infrastructure in the Yemeni capital. The Houthis have demonstrated resolve and are unlikely to back down, and may ramp up efforts to target Israeli and American assets in response.
🇩🇪 For the first time in the history of the Federal Republic of Germany, a candidate for chancellor failed to be elected in the first round of voting in the Bundestag, the lower house of Parliament. Following this setback, a second round of voting was quickly organised on the same day, thanks to the support of other parties to shorten the constitutional deadlines. In the second round, Merz secured 325 votes, exceeding the required absolute majority and was finally sworn in as chancellor. This episode highlighted the fragility of the new governing coalition.
📢 The leader of the AfD party, which according to the latest polls is the largest political force in the country, said: ‘As the AfD, we have set ourselves the goal of turning this country upside down. We are prepared to take on the responsibility of government. And we call for common sense to prevail. Mr Merz should resign immediately. The way must be cleared for new elections in our country!’
📈 Market View:
📊 US futures rose yesterday on the possibility of upcoming trade agreements with various powers, including China. Mini SP500 futures, which had weakened during Tuesday’s session, rose to almost 5,700 points after the announcement of talks between the United States and China in the coming days, and are currently standing at 5,655 points. Nasdaq 100 futures had an identical reaction and are currently at 19,980 points.
💵 The dollar continues to weaken gradually, despite reaching 100 points on the DXY index on Monday. It is currently retreating towards the 99.35 point zone. This is causing the EURUSD pair to regain strength and stand at 1.1365.
📉 In Europe, Dax 40 futures experienced some volatility yesterday due to the political turmoil in the country over the election of its chancellor, falling more than 500 points during the session from their all-time highs, but quickly stabilised and are now trading back at 23,400 points. Eurostoxx 50 futures seem to have found resistance at 5,250 points and have not exceeded these levels since last Friday.
🛢️ Crude oil has also experienced some volatility during the last few sessions, possibly fuelled by the conflict between Israel and Yemen, which is increasing tension in the Middle East. Brent crude has managed to break through $62.50 and is currently trading in the $62.70 range.
💰 In the case of gold futures, the announcement of negotiations between China and the United States seems to have calmed this market, which fell by more than 2% during yesterday’s session and is currently trading in the $3,400 per ounce range.
💸 Bitcoin has once again approached $98,000 in recent hours, briefly exceeding $97,700, but then falling back to its current level of $96,600.
