Art of the deal or has Trump been spooked into backtracking?

EU mid-market update: Art of the deal or has Trump been spooked into backtracking? Reverses course on ousting Powell and aggressive China stance; European Services PMIs shocks to downside.

Notes/observations

- Risk on appetite spurred by two factors at US close. Trump said he never intended to fire Powell but wishes he would have more intent to cut rates. Secondly, he noted US would substantially cut China tariffs if a deal were struck. Market took this as improved creditability for US assets (with Fed independence) and reduction of trade tensions, which has been hampering economic growth expectations since initial announcement of reciprocal tariffs. US dollar index up overnight but still <100. CBOE SP500 VIX down ~7% at 28.

- German DAX is outperforming due to tech sector leading, which was buoyed by SAP earnings, specifically on strong cloud commentary and guidance.

- Tesla is >6.5% in pre-market after Musk said he would reduce hours commitment at DOGE, implying more focus on Tesla (after company had worst earnings miss in nearly 5 years).

- White House has reportedly given Kyiv until Wednesday to accept Trump’s peace framework—if Ukraine doesn’t formally recognize Crimea (and “de facto” Russian control of Luhansk, Donetsk, Kherson and Zaporizhzhia), renounce NATO membership and lift all Russia sanctions, the offer is off. In return, Russia would get U.S. recognition of its gains and sanctions relief, while Ukraine would receive EU-led security guarantees (no U.S. troops), limited territory returns, Dnieper passage rights, reconstruction aid, U.S. operation of Zaporizhzhia NPP and a new minerals deal.

- Positive momentum is helping crypto, as Bitcoin prints ~94.4K, after being stuck in mid-80K range for several weeks.

- For economic data, European flash PMIs showed weakness in services, with miss for UK, France, Germany and Euro Zone as a whole. Manufacturing was less jarring, but still remaining in contraction.

- Asia closed higher with Hang Seng outperforming +2.4%. EU indices +1.5-3.2%. US futures +1.7-2.4%. Gold -1.6%, DXY 0.0%; Commodity: Brent +1.7%, WTI +1.8%; Crypto: BTC +6.5%, ETH +10.5%.

Asia

- Australia Apr Preliminary PMI Manufacturing: 51.7 v 52.1 prior (4th month of expansion).

- Japan Apr Preliminary PMI Manufacturing: 48.5 v 48.4 prior (10th month of contraction).

- South Korea Apr Consumer Confidence: 93.8 v 93.4 prior.

- China said to warn South Korea against rare earth goods export to the US.

Global Conflict/tensions

-Trump will let Vladimir Putin keep almost all the territory he has seized from Ukraine under the terms of a proposed peace deal.

- Pres Zelenskiy stated that would not recognize Russian annexation of Crimea, which would be unconstitutional; Needed a full ceasefire before any Russia negotiations; Once ceasefire was in place, Ukraine was ready for talks with Russia in any format.

Europe

- ECB's Villeroy (France) warned of global economic damage from tariff turmoil; Trump was playing a 'lose-lose game' on trade.

Americas

- President Trump stated that he had ‘no intention’ of firing Fed Chair Powell. Would not play hardball with China; China and other countries have to make a deal; Reiterates that if they don't make the deal, the US will set the deal.

- Elon Musk stated that he would pull back "significantly" his work with the US government starting in May.

- Treasury Sec Bessent: China negotiations would be "a slog"; Described current bilateral trade situation as an embargo. Rebalancing of China economy towards consumption and US economy towards manufacturing in 2-3 years would be "huge win".

- Fed's Kugler (voter noted that tariffs would likely put an upward pressure on prices; Long-run inflation expectations were largely well anchored. Cautioned that tighter financial conditions could weigh on growth.

Energy

- Weekly API Crude Oil Inventories: -4.6M v +2.4M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +1.95% at 517.58, FTSE +1.55% at 8,457.69, DAX +3.13% at 21,946.93, CAC-40 +2.26% at 7,492.23, IBEX-35 +1.48% at 13,190.70, FTSE MIB +1.49% at 36,482.00, SMI +1.88% at 11,854.80, S&P 500 Futures +2.12%].

Market focal points/key themes: European indices opened higher across the board and advanced through the early part of the session; markets apparently reacting in relief to easing uncertainty around the independence of the Fed; among sectors leading the way higher are technology and consumer discretionary; while sectors stuck in the red include utilities and telecom; tech sector and DAX outperforming after SAP earnings overnight; utilities sector impacted as Brent heads towards $70/bbl; earnings expected in the upcoming US session include Boston Scientific, Boeing, Saipem, and Essilor Luxottica.

Equities

- Consumer discretionary: Just Eat Takeaway [JET.UK] -0.5% (trading update) - Consumer staples: Danone [BN.FR] +0.5% (Q1 results, affirms guidance), Reckitt Benchkiser [RKT.UK] -5.0% (trading update), Delivery Hero [DHER.DE] +4.5% (to exit Thailand market on May 23rd; FoodPanda to stop services in Thailand).

- Financials: Randstad [RAND.NL] +8.0% (Q1 results).

- Industrials: Assa Abloy [ASSAB.SE] +4.0% (Q1 results), Valmet [VALMT.FI] +8.5% (Q1 results).

- Technology: SAP [SAP.DE] +9.5% (Q1 results, affirms guidance, cloud metrics impress), BE Semi [BESI.NL] +8% (Q1 results, guides Q2 light).

- Materials: Akzo Nobel [AKZA.NL] +6.5% (Q1 results misses, affirms guidance), Fresnillo [FRES.UK] -7.5% (production metrics).

Speakers

- Portugal said to ask EU to use 'escape clause' for defense spending (**Insight: The "escape clause" in the EU's Stability and Growth Pact allows temporary deviation from budget deficit and debt limits for exceptional needs.

- Indonesia Central Bank (BI) Gov Warjiyo pre-rate decision press conference noted that it needed a policy response to address worsening global conditions. Global uncertainty had risen even higher due to US reciprocal tariffs. Policy needed to respond to potentially slowing economic growth in order to support domestic demand. IDR currency (Rupiah) remained under control and seen stable going forward.

- Indonesia Central Bank Policy Statement reiterated view that decision to keep policy steady was in line with inflation and growth targets. Continued looking for room to cut rates but further easing to depend on inflation and growth prospects.

- BOJ Financial System Report maintained assessment of Country's financial system as stable as a whole.

- China PBOC Dep Gov Lu Lei stated that China's action plan would reduce trade cost. Global economic growth momentum was insufficient. Would support Chinese companies going abroad.

- China Foreign Ministry stated that the US could not say it wanted to reach an agreement with China, and on the other hand, kept exerting extreme pressure; This was not the right way to deal with China and it was not feasible.

- Iran Foreign Min Araghchi noted that US talks were on the right track and that was cautiously optimistic. A good agreement was possible if US avoided unrealistic demands.

Currencies/fixed income

- USD recovered over the past 24 hours as President Trump walked back his weekend criticism of Fed Chair Powell. Greenback was under pressure as Fed independence appeared to be under fire. Trump simply added that he wanted the Fed to be early and more active on lowering rates but not the end if he did not cut rates. Greenback also aided after Trump stated US would substantially cut China tariffs if a deal were struck.

- EUR/USD could only muster slight momentum for a move back above 1.14 level. Mixed EU PMI data helped to keep a lid on price action to the upside.

- GBP/USD dipped below 1.33 as PMI services registered its 1st contraction in 18 months. Pair off its worst levels at 1.3320 by mid-session

- USD/JPY just below the 1.42 area as markets remained split as to the timing of the next BOJ rate hike.

- 10-year German Bund yield at 2.48% and 10-year Gilt yield at 4.53%. 10-year Treasury yield at 4.35%.

Economic data

-(UK) Mar Public Finances (PSNCR): £2.7B v £6.4B prior; Net Borrowing: £16.4B v £15.5Be; PSNB ex-Banking Groups: £16.4B v £12.3B prior; Central Government NCR: £21.1B v £8.4B prior.

-(NO) Norway Q1 Industrial Confidence: 4.0 v 5.3 prior.

- (ES) Spain Feb Home Sales Y/Y: 13.9% v 11.0% prior.

- ID) Indonesia Central Bank (BI) left the Bi-Rate unchanged at 5.75% (as expected).

- (FR) France Apr Preliminary Manufacturing PMI: 48.2 v 47.9 (27th month of contraction); Services PMI: 46.8 v 47.6e; Composite PMI: 47.3 v 47.8e.

- (DE) Germany Apr Preliminary Manufacturing PMI: 48.0 v 47.6e (34th month of contraction); Services PMI: 48.8 v 50.2e; Composite PMI: 49.7 v 50.5e.

- (FR) France Mar Retail Sales Y/Y: -0.8% v -0.2% prior.

- (EU) Euro Zone Apr Preliminary Manufacturing PMI: 48.7 v 47.4e (34th month of contraction; Services PMI: 49.7 v 50.5e; Composite PMI: 50.1 v 50.2e.

- (PL) Poland Mar Real Retail Sales M/M: 14.3% v 14.9%e; Y/Y: -0.3% v +0.6%e; Retail Sales (current prices) Y/Y: 0.6% v 1.7%e.

- (ZA) South Africa Mar CPI M/M: 0.4% v 0.6%e; Y/Y: 2.7% v 3.0%e.

- (ZA) South Africa Mar CPI Core M/M: 0.5% v 0.7%e; Y/Y: 3.1% v 3.2%e.

- (TW) Taiwan Mar Industrial Production Y/Y: 13.7% v 15.2%e.

- (TW) Taiwan Mar M2 Money Supply Y/Y: 4.4% v 5.2% prior; M1 Money Supply Y/Y: 1.8% v 3.1% prior.

- (UK) Apr Preliminary Manufacturing PMI: 44.0 v 44.0e (7th straight contraction); Services PMI: 48.9 v 51.5e; Composite PMI: 48.2 v 50.5e.

- (EU) Euro Zone Feb Trade Balance: €21.0B v €15.0Be; Trade Balance NSA (unadj): €24.0B v €1.0B prior.

- (EU) Euro Zone Feb Construction Output M/M: -0.5% v +0.6% prior; Y/Y: 0.2% v 0.1% prior.

Fixed income issuance

- (AT) Austria Debt Agency (AFFA) opened book to sell 2029, 2039 and 2053 RAGB bonds via syndicate.

- (DK) Denmark sold total DKK2.39B in 2027 and 2035 DGB bonds.

- (IN) India sold total INR190B vs. INR190B indicated in 3-month, 6-month and 12-month bills.

- (GR) Greece Debt Agency (PDMA) sold €600M vs. €500M indicated in 6-month Bills; Avg Yield: 1.90% v 2.10% prior; bid-to-cover: 2.03x v 2.04x prior.

Looking ahead

- (US) Mar Final Building Permits: No est v 1.482M prelim; M/M: No est v 1.6% prelim.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell €4.0B in 2.5% Feb 2035 Bunds.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).

- 06:00 (IL) Israel Mar Unemployment Rate: No est v 2.7% prior.

- 06:00 (RU) Russia to sell OFZ Bonds.

- 06:00 (CZ) Czech Republic to sell combined CZK9.0B in 2034, 2037 and 2044 Bonds.

- 07:00 (US) MBA Mortgage Applications w/e Apr 18th: No est v -8.5% prior.

- 07:00 (UK) Weekly PM Question time in House.

- 08:00 (PL) Poland Mar M3 Money Supply M/M: 0.1%e v 1.1% prior; Y/Y: 9.6%e v 9.1% prior.

- 08:00 (MX) Mexico Feb Retail Sales M/M: -0.1%e v +0.6% prior; Y/Y: -0.1%e v +2.7% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 09:00 (US) Fed's Goolsbee.

- 09:45 (US) Apr Preliminary Manufacturing PMI: 49.0e v 50.2 prior; Services PMI: 52.8e v 54.4 prior; Composite PMI: 52.2e v 53.5 prior.

- 10:00 (US) Mar New Home Sales: 684Ke v 676K prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:00 (CO) Colombia Feb Trade Balance: -$1.3Be v -$1.3B prior; Total Imports: $5.3Be v $5.4B prior.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 11:30 (US) Treasury to sell 2-Year FRN.

- 12:00 (RU) Russia Mar Industrial Production Y/Y: No est v 0.2% prior.

- 12:00 (CA) Canada to sell 30 Year Bonds.

- 13:00 (US) Treasury to sell 5-Year Notes.

- 14:00 (US) Fed Beige Book.

- 17:00 (KR) South Korea Apr Business Manufacturing Survey: No est v 91.9 prior; Non-Manufacturing Survey: No est v 82.9 prior.

- 18:00 (NZ) New Zealand Apr ANZ Consumer Confidence: No est v 93.2 prior.

- 18:00 (HU) Hungary Apr Business Confidence: No est v -12.3 prior; Consumer Confidence: No est v -29.5 prior; Economic Sentiment: No est v -16.8 prior.

- 19:00 (KR) South Korea Q1 Advance GDP Q/Q (1st of 3 readings): 0.1%e v 0.1% prior; Y/Y: 0.0%e v 1.2% prior- 19:50 (JP) Japan Mar PPI Services Y/Y: No est v 3.0% prior.

- 23:00 (TH) Thailand Mar Customs Trade Balance: $1.2Be v $2.0B prior; Exports Y/Y: 12.8%e v 14.0% prior; Imports Y/Y: 5.6%e v 4.0% prior.

- 23:35 (JP) Japan to sell 2-Year Bonds.

TTN chart of the day: Ukraine Peace Deal Framework, According to Axios Report.