Euro, European futures rise as USD, US futures slip

The week starts with mixed feelings. Market mood improved last week as US President Donald Trump eased pressure on Federal Reserve (Fed) Chair Jerome Powell, announced some progress with trading partners including Japan and India, and said that the triple-digit import taxes on Chinese products will probably be ‘substantially’ revised lower. And happily, we heard no major bombs from Trump or his administration over the weekend. It could hardly get better than this given the situation. So, the week starts with some optimism.

China said it’s confident it could hit its 5% growth target by deploying suitable policy and fiscal responses. On the individual front, BYD announced last Friday that it doubled its profit in Q1 to roughly $1.3bn – that’s more than three times the money Tesla made last quarter! The company’s shares in New York jumped more than 5% on Friday and closed the session some 4.30% higher, while the shares are down by around 4% this morning in HK.

Tesla, on the other hand, jumped almost 10% on Friday and more than 25% last week despite announcing a 70% drop in net profit... Elon Musk’s announcement that he will spend less time at DOGE helped, along with the news that the Transportation Department’s new framework on crash reporting will expand the types of autonomous vehicles that can be tested on American roads. Self-driving cars are exactly where Elon Musk wants to make a difference moving forward – along with humanoid robots – but I am not sure the latest news is worth a 25% jump when the brand value has taken a decent hit from Elon Musk’s political implications.

Anyway, the week starts on a mixed note. Chinese equities are flat despite the government’s efforts to boost stimulus. The Japanese Nikkei trades lower in the early hours of the trading week. The Bank of Japan (BoJ) is expected to make no changes to its policy this week, but the hotter-than-expected inflation figures released last Friday fueled hawkish BoJ expectations, and the yen’s recent strength against a broadly softer US dollar also makes Japanese companies more expensive for foreign investors. As such, the Nikkei is down by more than 10% since January and has room to extend losses. The USDJPY remains offered around the 144 mark, weighed down by a broadly weaker US dollar amid concerns over the wide economic damage expected from Trump’s tariff policies. The pair will likely re-test the 140 level to the downside and could make a sustainable move below this level.

In the US, the S&P500 posted its second-best week of 2025 last week. The meagre flow of bad headlines over the weekend is encouraging, but US futures are pointing to a soft start to a week full of earnings. This week, oil giants and four of the Magnificent 7 companies will report their earnings, and their results could potentially throw a floor under the Trump-led selloff — if Trump doesn’t spoil the market mood.

But trade news remain concerning. I came across a chart showing the impact of the latest tariff escalation between the US and China, and it shows that cargo ships leaving China for the US dropped by more than 30% since April 2nd... That – and the fact that Chinese goods will see their prices rise significantly in the US in the coming weeks are highly concerning. We are talking about triple-digit price hikes – a set of 10 kitchen towels on Shein, for example, is posting a 377% price increase as the US will no longer keep the ‘de minimis’ exemption for small-value shipments in place. Hence, it will be very interesting to watch the supply chain disruptions, potential shortages of goods on US shelves, and the impact on overall inflation and growth in the US... considering that consumer spending makes up around 70% of US GDP.

Speaking of which, the US will reveal its first reading for Q1 GDP. A consensus of analyst estimates on Bloomberg suggests economists expect the US economy to have grown by just 0.4% in Q1 — compared to 2.4% printed a quarter before Trump entered the White House. If you think that’s bad, well, that’s much better than the 2.5% decline that the Atlanta Fed’s GDPNow forecast predicts for Q1 growth. And remember, the impact of tariffs is just from uncertainty for now; they haven’t even taken effect.

Note, however, that a soft GDP number could at least encourage the Fed to cut interest rates sooner rather than later. We have already started to hear some Fed members shifting toward that thinking last week, hence a soft GDP figure could further revive that hope and support the market, as the 2.5% decline has already been widely priced into the major US indices: the S&P500 fell nearly 10% in Q1 and dropped up to 20% after the April 2nd tariff announcement...

Across the Atlantic, we will have a close look at the early CPI updates for the major Eurozone economies in April. The softer the data, the higher the expectation of European Central Bank (ECB) cuts to support the underlying economies — and the better the appetite for the euro and European assets. The euro and European futures are slightly better bid this morning, in contrast to the US dollar and US futures, hinting at a potential return to the divergence in appetite seen in Q1 — this time driven by a diverging inflation outlook that could allow for a more supportive ECB, while keeping the Fed inflation-cuffed.