Market Report.
🇨🇳 China’s first-quarter economic growth beat expectations, growing 5.4% year-over-year, underpinned by solid consumption and industrial output. Tariff increases triggered production and sales in China just before trade restrictions were applied. But for 2025, China’s economy is expected to grow at a subdued 4.5% pace, slowing from last year’s 5.0% and falling short of the official target of around 5.0%. While government stimulus has boosted consumption and investment, a “forceful and timely policy response” is needed given the additional pressure from U.S. tariffs. Policymakers have said China has ample room and tools to bolster the economy, and have pledged to roll out more support measures, including fiscal and monetary stimulus.
📹 Dozens of videos of Chinese citizens from local factories in China are going viral on social media, explaining how they produce luxury items such as handbags and shoes for large Western companies and the profit margin these companies take. They mention the names of the Chinese industries behind their production, suggesting that, tariffs notwithstanding, Western citizens could buy the product from them and still pay much less than the price they previously paid for the item.
📉 In previous reports and interventions, we have highlighted the dilemma facing the Fed: Ensuring price stability or protecting Wall Street and the market. Well, Fed Governor Christopher Waller said the Trump administration’s tariff policies are a major shock to the U.S. economy that could lead the Federal Reserve to cut interest rates to head off a recession, even if inflation remains high.
🐘 Waller said the tariff policy, which he referred to as the “elephant in the room” of Fed discussions, had made even the short-term outlook unpredictable. He stated that if the slowdown is significant and threatens a recession, he would expect the risk of recession to outweigh the risk of escalating inflation, especially if the effects of tariffs on inflation are expected to be short-lived.
🛡️ The tough sale we saw last week in US bonds, which usually experience increases in demand in times of uncertainty, could have three possible causes according to Reuters: China, which may be “weaponizing” its Treasury holdings by selling and converting the proceeds to other currencies like the Euro. Japan’s life insurers, who may be reducing their exposure to U.S. Treasuries or Hedge funds unwinding bond-basis trades and being forced to sell Treasuries to raise cash.
🤖 Nvidia announced it will take a $5.5 billion charge after the U.S. government limited exports of its H20 artificial intelligence chip to China, a key market for the company, citing national and economic security concerns. Chinese companies like Tencent, Alibaba, and ByteDance had been ramping up orders for H20 chips. The U.S. Commerce Department is issuing new licensing requirements for exports of chips including Nvidia’s H20 and AMD’s MI308, citing national and economic security concerns. The U.S. government is restricting H20 sales to China because of the risk the chips could be used in building supercomputers, which have been subject to export controls since 2022.
💊 President Trump has directed the U.S. Department of Health to work with Congress on revamping the law that allows Medicare to negotiate prescription drug prices. Drugmakers have been pushing to delay the timeline under which medications become eligible for price negotiations by 4 years for small molecule drugs (pills and capsules), aligning with the 13-year wait for more complex biotech drugs. The executive order aims to reduce healthcare costs and comes a day after the administration initiated a national security report into the pharmaceutical industry, a precursor to potential sector-specific tariffs. Drugmakers have opposed the current timeline for negotiation eligibility.
💵 The proposed changes are expected to yield more savings than the initial round of negotiations under the Biden administration, which saw price cuts of up to 79% for the first 10 drugs. Additionally, the order directs the FDA to encourage more state applications for drug importation programs and streamline approvals for generic and biosimilar versions of branded medicines.
⚙️ China has imposed export controls on seven rare earth elements and magnets, which could threaten the U.S. military’s capabilities as it relies heavily on these materials. China effectively holds a monopoly over the global supply of heavy rare earth processing, and the export restrictions pose a serious threat to the U.S., especially its defense technology sector. The U.S. Department of Defense has set a goal to develop a complete rare earth element supply chain to meet its needs by 2027, but warns the U.S. will still fall well short of China’s capabilities by the time these facilities are operational. The export controls could widen the gap between China and the U.S. in terms of military capabilities, as China is acquiring advanced weapons systems and equipment at a much faster pace.
✈️ China has ordered its airlines to halt Boeing aircraft deliveries in retaliation for the U.S. imposing 145% tariffs on Chinese goods. This escalating trade war shakes the global aerospace industry, with China’s top airlines canceling plans to receive 179 Boeing jets by 2027. Beijing also instructed carriers to cease purchasing U.S. aviation parts, raising maintenance costs for Boeing planes. Already struggling, Boeing faces another blow, having lost 65% of its market value since 2019.
🗣️ Xia Baolong, Director of Hong Kong and Macao Affairs, criticized U.S. tariffs, stating, “It is clear the U.S. cannot tolerate the prosperity and stability of Hong Kong. Let those peasants lament before the 5,000 years of civilization of the Chinese nation.” The bold statement underscores rising tensions as Beijing defends its stance against perceived economic provocations.
🎯 Donald Trump addressed Volodymyr Zelensky’s request for more Patriot missiles, remarking, “When you start a war, you have to know you can win it. You don’t start a war with someone 20 times your size and then expect people to hand you a few missiles.” The statement reflects Trump’s skepticism over Ukraine’s strategy amid its ongoing conflict with Russia.
🤝 Italian Prime Minister Giorgia Meloni is meeting with former U.S. President Donald Trump at the White House, a significant diplomatic win that could firmly establish her in the big leagues with Germany and France. Meloni plans to propose a reciprocal elimination of most industrial tariffs between the U.S. and the EU, effectively creating a free-trade zone. Meloni is also hoping to persuade Trump to agree to a U.S.-EU summit, which would provide a venue for Trump to speak to European Commission President Ursula von der Leyen for the first time. Trump is likely to demand that Italy increase imports of U.S. liquefied natural gas and raise its defense expenditure, which Italy is now ready to bring above the 2% of GDP mandated by NATO, but still considerably lower than the 5% Trump wants.
🇪🇺 As we have suggested in previous interventions, the greatest risk for Europe at the moment is that Trump will propose separate deals for the different EU member states. This, given the current discontent of citizens in Europe, could create an outcry in the EU’s current weak political unity.
🏦 Banco Santander President Ana Botín urged EU authorities to let banks use capital buffers to boost investment in defense, climate, and tech. While praising Germany’s suspension of its debt brake, she stressed the need for private investment where public funding falls short. Critics question if this move risks overreach into private financial decisions, sparking concerns about potential bureaucratic influence in banking. This is another reason to keep thrifty citizens discontented and fearful of their authorities.
Market View:
📊 The markets are turning around. US futures are falling, with the mini S&P 500 back below 5,400 points and trading at 5,350 points. Nasdaq futures are doing the same, falling below 19,000 points and trading at 18,525 points at the moment.
🇪🇺 In Europe, the DAX 40 futures, which were approaching 21,500 points, fell back to 21,145 points. The EuroStoxx 50, which yesterday was already above 4,900 points, has fallen back to 4,825 points.
💱 The DXY dollar index managed to momentarily recover 100 points yesterday, but has fallen back again and is currently at 99.50 points. This caused the most important Forex pair, EUR/USD, to fall back for a few hours after the large rises of the previous days, falling below 1.1275, although it is currently rebounding a full figure to 1.1375.
🏅 Meanwhile, gold has broken a new record, and futures are already trading above 3,300 points.
🛢️ Oil remains static, waiting and without much volatility, with Brent crude at $64 a barrel, tracing what could be bullish patterns on the charts.
💻 Bitcoin, on the other hand, is falling. Yesterday it exceeded 86,000, but has fallen back to 83,500.
