U.S. Trade Policy Developments
Following initial concerns that the historically high tariff rates announced on April 2 would persist, a series of positive developments have indicated that the U.S. administration may be softening its trade stance. The 90-day pause on new tariffs marked a crucial first step, although tit-for-tat tariff hikes with China would still see the average tariff rate on imports rise sharply from around 2.5% last year to over 20%.
More recently, reports suggested that the U.S. might reduce tariffs on Chinese imports to ease tensions, while China is considering lowering tariffs on certain U.S. goods as cost pressures increase. Meanwhile, trade negotiations with South Korea and India have been described as making significant progress, and the White House has adopted a softer tone toward China.
Although uncertainty will likely persist until a major trade deal is finalized, a peak in trade uncertainty and market volatility may already have passed. This is reflected in the easing of the trade policy uncertainty index and the moderation of market volatility since early April, along with Treasury yields retreating from their highs as concerns over Fed independence have cooled.
Equity Market Performance and Outlook
The equity market has rebounded notably since the April tariff-pause announcement, with the S&P 500 rising 10% from its lows, though it remains 10% below its February highs. Despite solid early earnings results, forward guidance has been cautious due to concerns about consumer spending and trade uncertainty.
Earnings growth estimates for the full year have moderated, but mid-single-digit gains remain achievable if the slowdown does not worsen. While a V-shaped recovery appears unlikely given persistent inflation and fiscal constraints, a deep or prolonged downturn is not expected, thanks to the absence of major economic imbalances and the Fed’s shift toward rate cuts.
Global shares continue to perform well relative to U.S. shares. With Treasury yields declining and the bond market pricing in three rate cuts this year, markets are expected to stay rangebound in the near term, awaiting clearer developments on trade and broader economic growth.
Latest Market and Economic Update
Asian Market Movements
Most Asian equities were mixed on Monday. Japan’s Nikkei rose 0.5%, with Toyota’s shares surging 5.5% following news of a potential buyout of its supplier, Toyota Industries. Chinese equities remained subdued, with the Shanghai Composite and Shenzhen CSI 300 showing little movement amid ongoing uncertainties in U.S.-China trade talks and conflicting signals from both sides.
U.S. Market Expectations
U.S. equity futures edged lower ahead of the market open. S&P 500 Futures fell 0.4%, Nasdaq 100 Futures slipped 0.5%, and Dow Jones Futures declined by 0.4%, as investors remained cautious amid mixed signals about U.S.-China trade discussions. Markets are also awaiting key earnings reports from major tech companies, which could significantly influence sentiment.
European Markets Close Higher
European shares closed at a three-week high on Friday, with the STOXX 600 index rising 0.3% and gaining 2.7% over the week, driven by easing U.S.-China trade tensions. Notable movers included Safran, up 4.2% after strong Q1 results, Siemens rising 3%, and Mapfre gaining 8%, while Edenred dropped 9.8% due to regulatory concerns in Brazil.
Currency and Oil Market Update
The U.S. dollar held steady at 99.695 against major currencies, remaining above last week’s low of 97.923, while the euro traded at $1.1356, below its recent high. The dollar’s movement is closely tied to U.S. political developments, with expectations of solid job numbers supporting its recovery from three-year lows.
Oil prices fell slightly during Asian trade this morning, continuing last week’s losses amid concerns over the ongoing U.S.-China trade war and OPEC+ plans to increase production. Brent crude futures dropped 0.2% to $66.71 a barrel, while West Texas Intermediate remained flat at $62.91, with market uncertainty persisting over trade talks and output hikes.
Equities on the Move
Company Highlights
- Huawei Technologies: Preparing to test its advanced AI processor, the Ascend 910D, with sample batches expected by late May. The company aims to create a domestic alternative to Nvidia’s H100 chip amid U.S. trade restrictions.
- Spotify: Plans to raise subscription prices by around €1 for individual plans in Europe and Latin America as early as June, but no U.S. price changes this summer.
- DoorDash: Proposed a cash offer of 180 pence per share for Deliveroo. The Deliveroo board may recommend the offer, pending agreement on other terms.
- Apple: Plans to shift most iPhone production for U.S. sales to India by the end of 2026, accelerating its strategy to avoid potential Chinese tariffs.
- AbbVie: Raised its full-year profit forecast to $12.09–$12.29 per share, supported by strong immunology drug sales and plans for significant U.S. manufacturing investments.
- Colgate-Palmolive: Beat Wall Street’s quarterly expectations and raised its annual sales forecast, planning further price increases to offset tariffs and cost pressures.
- BYD: Reported a 100.4% year-on-year surge in Q1 profit to 9.2 billion yuan, driven by strong EV sales and an aggressive pricing strategy. The company targets exporting 800,000 vehicles this year.
- Safran: Reported stronger-than-expected Q1 revenues, driven by engine spares and services, reaffirming its full-year targets despite global trade tensions.
Analyst Actions
- Siemens: Citi reinstated coverage with a Buy rating, citing strong industrial AI and automation capabilities.
- Lowe’s: Upgraded to Overweight by KeyBanc Capital Markets, highlighting strong cash flow, a solid balance sheet, and Pro customer growth.
- Super Micro Computer: Citi initiated coverage with a Neutral rating and a $39 target price, noting strength in AI infrastructure but concerns about competition and tariffs.
- Nike: Bank of America maintained a Buy rating, acknowledging China and tariff risks but highlighting a diversified supply chain and modest price adjustment capabilities.
- Volkswagen and Renault: Morgan Stanley upgraded Volkswagen to Equal-weight and downgraded Renault to Equal-weight, citing valuation and tariff impact dynamics in Europe.
Upcoming Data and Events
The upcoming week will be crucial for U.S. equities. Earnings from Apple, Microsoft, Amazon, and Meta are due, alongside the U.S. jobs report and Q1 GDP data. Inflation updates and reports from consumer goods companies like Procter & Gamble and PepsiCo will provide further insights into trade tensions and tariff impacts.
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