Market Report.
📈 The relief and optimism that swept through global markets on Monday, with stocks, the dollar, and bond yields surging, was driven by the surprisingly cooperative tone and progress in the U.S.-China trade talks. This raised hopes that the worst of the trade crisis is over.
🤝 A preliminary trade agreement was reached between China and the United States on Monday, implementing a 90-day suspension on the majority of import tariffs. The mutual tariff rates between the nations will be reduced from 125% to 10%, though American tariffs of 20% on Chinese fentanyl-related imports will continue, resulting in an aggregate 30% tariff rate on Chinese goods. Speaking to CNBC on Monday, Treasury Secretary Scott Bessent characterized the agreement as a step forward in America’s strategic separation from China regarding essential interests.
🇨🇳 According to a social media channel affiliated with China’s state television network CCTV, “The determined position and strong retaliatory actions taken by China have proven remarkably successful.”
🛒 In an interview with CNBC, Deer Stags’ president Rick Muskat explains that while the reduced 30% tariff rate will enable them to restart their Chinese imports, shipping container costs are expected to surge due to accumulated demand. “We anticipate our overall expenses increasing by approximately 40%,” Muskat stated, indicating that this would necessitate price increases for autumn merchandise.
💊 The Trump administration has singled out powerful new weight-loss drugs like Wegovy and Zepbound as targets in its push to lower prescription drug prices in the United States. President Trump’s executive order demands that drugmakers cut prices on their products to better align with what they charge in other developed countries, or face new regulations and enforcement actions.
💉 Injected weight-loss drugs Wegovy (from Novo Nordisk) and Zepbound (from Eli Lilly) have U.S. list prices of over $1,000 per month, though some patients’ costs are covered by insurance. With 40% of Americans estimated to have obesity, there is pressure on these drug companies to make the treatments more affordable. In other countries with government-run healthcare systems, prices for these weight-loss drugs are significantly lower, but access is more limited.
🇪🇺 Progress within the European Union has been sluggish to date, and the organization found itself once again under criticism from President Donald Trump, who remarked that the EU was “in many ways nastier than China”.
🤔 The U.S. has welcomed European Union proposals to cooperate on mutual investments and economic security challenges, but has provided little clarity on the possible outcomes of trade negotiations between the two sides. EU and U.S. negotiators have kicked off talks, with the EU presenting a menu of options that could form the basis of formal trade negotiations. These include investments in areas like LNG and AI, as well as cooperation in strategic sectors like steel, cars, chips, and pharmaceuticals. Officials in Washington have indicated interest in the EU proposals, but have given little indication of whether this could translate into a lowering of the sectoral tariffs that President Trump has introduced.
⏳ The EU has delayed implementing counter-tariffs against the U.S. for 90 days, after the U.S. lowered its reciprocal rate on most EU exports. However, the bloc has presented proposals to hit $108 billion of U.S. exports with additional tariffs if the ongoing trade talks fail.
🇩🇪 German Finance Minister Lars Klingbeil voiced support for the EU Commission’s proposals, saying “we want a dialogue with the Americans, we want to find common solutions, but we are also ready if, in the coming weeks, it isn’t possible to find a common path.”
🇵🇹 Portuguese Finance Minister Joaquim Miranda Sarmento struck a similar tone, stating that “Europe has to look at what are its interests, but seek to reach an understanding so that tariffs aren’t applied or that if they are it’s as mitigated as possible”.
🇫🇷 The French Finance Minister Eric Lombard said more efforts are needed to de-escalate global tariff tensions. He stated that “discussions must continue between the EU commission and US” and that there needs to be a “disarmament to substantially decrease tariffs” in order to boost the global economy.
🇬🇧 The UK and European Union are still trying to resolve disagreements over fisheries and food checks just a week before a summit in London where Prime Minister Keir Starmer plans to announce a major reset in post-Brexit relations. A sticking points have emerged in the technical negotiations. On fishing rights, the UK is proposing that current quota sharing arrangements, due to expire in June 2026, remain in place for another four years. The EU is seeking ongoing access to UK waters but considers a four-year extension too short. The European Commission has told the UK that if London insists on a four-year time limit on fishing arrangements, the same limit should apply to a proposed agreement aimed at easing checks on imports of food and agricultural products.
🌍 Officials have been optimistic about striking a deal to improve post-Brexit relations this month, as President Trump’s tariffs and policy on the Russia-Ukraine war have spurred calls for greater cooperation and lower trade barriers in Europe. The two sides are also expected to seal an agreement on a youth visa program and work to link UK and EU carbon markets.
📉 Bank of England policymaker Alan Taylor voted for a 0.5 percentage point rate cut last week, in defiance of the majority on the Monetary Policy Committee. Taylor cited a “quite perilous” trade situation as well as weakening domestic demand as reasons for his more dovish stance. This contrasts with the views of Deputy Governor Clare Lombardelli and MPC member Megan Greene, who said high wage inflation made them wary of cutting rates further. Taylor said the erosion of confidence has continued, with weak readings on PMI and other indicators, leading to precautionary saving and postponed investment. He described the trade deal reached by the UK government as “quite slender”, with most goods exports to the US still facing a 10% tariff.
🕊️ Geopolitics:
💡 Geopolitical tensions also appeared to be cooling on multiple fronts, including Ukraine, India-Pakistan, and the Kurdistan Workers Party, adding to the positive market sentiment.
🛑 The Kurdistan Workers’ Party (PKK) is set to disband after four decades of conflict with Turkey, aiming to create a Kurdish state or autonomous region. The group claims it has fulfilled its historical mission by enabling the Kurdish issue to be resolved through democratic means.
🇺🇦 U.S. President Donald Trump offered to join prospective Ukraine-Russia talks in Turkey later this week, as European countries pushed for a 30-day ceasefire in the war in Ukraine. Ukrainian President Volodymyr Zelenskyy said he would travel to Istanbul where he would be waiting to meet Russian President Vladimir Putin. Trump said: “Don’t underestimate Thursday in Turkey.” The fighting in Ukraine continued despite the ceasefire proposal, with the Ukrainian military reporting 133 clashes with Russian forces along the front line since midnight. Russia said the ceasefire proposal was made “in order to provide a breather for Kyiv to restore its military potential and continue its confrontation with Russia.”
🏛️ Fears of separate negotiations between EU nations and Trump continue to linger. EU’s obsession with projecting an image of “unity” is seen by the Trump administration as a weakness, with Treasury Secretary Bessent implying the EU lacks the cohesion to effectively negotiate with the U.S. EU’s rhetoric around “unity” often just means quashing dissent from member states that prioritize national interests over EU directives, rather than true unity. Trump team’s dismissive attitude towards the EU’s top leadership, like Commission President von der Leyen, as a deliberate snub aimed at undermining the EU’s self-proclaimed strength.
📊 Market View:
🎉 The markets continue to celebrate the agreement between the United States and China. The Mini S&P 500 futures managed to surpass the resistance level of 5,800 points yesterday and are currently trading at 5,850 points. The Nasdaq 100 futures have also advanced strongly, approaching 21,000 points, and are currently trading at 20,880 points.
💵 The dollar has risen, with the DXY dollar index nearly reaching 102 points before retreating slightly to its current level of 101.60. This has caused currency pairs like EUR/USD to decline sharply, falling to 1.1065 yesterday before appearing to perform a pullback to the current level of 1.11.
📈 European equities have also remained buoyant. The DAX 40 futures momentarily surpassed 24,000 points yesterday before retreating to their current level of 23,670 points. The EuroStoxx 50 futures reached 5,400 points before pulling back slightly to their current level of 5,370 points.
🛢️ Crude oil experienced a spectacular rise following the positive news about the reactivation of trade, with Brent crude surpassing $66 per barrel before retreating to its current level of $64.70.
🥇 Gold futures, which lost the $3,215-per-ounce level amid the general optimism, have rebounded in the last few hours to their current level of $3,250.
