Markets are reacting positively to tariff relief

EU mid-market update: Markets are reacting positively to tariff relief, but lingering uncertainty about long-term trade outcomes and upcoming inflation data keeps investors cautious.

Notes/observations

- UK labor market data showed signs of cooling, with unemployment edging up to 4.5% and pay growth higher than expected but at a slower pace than last month. BOE is focused on this trend, with potential rate cuts likely if inflation remains subdued.

- US-China tariff truce has lowered recession fears in the US (Goldman cut US recession odds from 45% to 35%), while supporting stronger-than-expected growth in China. The US clarified its tariff reductions with a White House Executive Order, cutting the "de minimis" tariff on Chinese shipments to 54%. Key questions remain regarding China’s commitments to reducing business barriers and its future purchase commitments. Markets remain cautious about the potential for tariff reintroduction after 90 days.

- On US Reconciliation bill front: Reportedly Democratic governors warned en masse Monday that it will be "impossible" for states to make up for the hundreds of billions in Medicaid spending cuts that House Republicans are proposing.

- Upcoming US inflation data for Apr at 08:30 ET (12:30 GMT), expected to remain elevated.

- Asia closed mixed with Hang Seng underperforming -1.9%. EU indices +0.1-0.9%. US futures -0.2% to -0.5%. Gold +0.6%, DXY -0.2%; Commodity: Brent +0.3%, WTI +0.4%; Crypto: BTC -1.5%, ETH -3.2.

Asia

- BoJ Summary of Opinions noted that price stability target of 2% was likely to be realized; Should not be too pessimistic. Noted that bank's stance to continue to raise the policy interest rate was unchanged.

- Australia Apr NAB Business Confidence: -1 v -3 prior.

- Australia May Westpac Consumer Confidence: 92.1 v 90.1 prior.

Europe

- ECB's Nagel (Germany noted that should not overreact to individual announcements; Monetary policies must be approached cautiously.

- ECB's Kazaks (Latvia noted that expected gradual rate reductions if CPI converges to the 2% target; Saw reason for another rate cut, but must remain cautious.

- BOE's Taylor noted that saw self as being a bit of an activist (voted for 50bps rate cut last week); Would rethink a rate cut if progress were made on trade - comments at conference.

- UK Apr BRC LFL Sales Y/Y: 6.8% v 2.3%e [largest rise since early 2022].

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.18% at 545.46, FTSE +0.04% at 8,608.10, DAX +0.15% at 23,587.49, CAC-40 +0.11% at 7,859.02, IBEX-35 +0.90% at 13,752.89, FTSE MIB +0.32% at 40,051.00, SMI +0.30% at 12,232.70, S&P 500 Futures -0.44%].

Market focal points/key themes: European indices opened mixed with an upwards bias that became more pronounced through the early part of the trading session; markets taking cautious optimism around progress on tariffs; sectors pulling higher include materials and industrials; lagging sectors include real estate and financials; Unicaja denies merger rumors with Sabadell; focus on US CPI figures later in the day; earnings expected in the upcoming Americas session include Alcon, Patrizia, and Under Armour.

Equities

- Consumer discretionary: DCC [DCC.UK] -2.5% (FY24 results).

- Financials: Munich Re [MUV2.DE] -3.5% (earnings), Hannover Ruck [HNR1.DE] -3.5% (Q1 results).

- Healthcare: Bayer [BAYN.DE] +9.5% (Q1 results).

- Industrials: Maersk [MAERSKB.DK] -2.0% (Flexport CEO: Our ocean freight bookings from China to US increased 35% in the first day since the trade deal. A big backlog is looming, soon the ships will be sold out), Renault [RNO.FR] +1.5% (Nissan earnings), Fraport [FRA.DE] -2.5% (Q1 results).

- Real Estate: Leg Immobilien [LEG.DE] -2.5% (Q1 results).

Speakers

- ECB's Makhlouf (Ireland) noted that agility and flexibility was important for policymakers; interest rates remained default policy lever in toolbox

- ECB’s Escriva (Spain): Situation requires agile responses.

- US Treasury Sec Bessent commented that had a very 'active' dialogue in Geneva with China this weekend; There was a possibility of ‘big beautiful’ re-balancing.

Currencies/fixed income

- USD was consolidating its post US-China thaw on the trade front which both sides agreed a temporary reduction in tariffs. Focus now turns to US inflation data.

- GBP/USD at 1.3200 area as UK wages continued to recede towards levels that no longer were fueling UK inflation to uncomfortable levels. A slowing UK labor market also potentially increasing the prospect of more BOE interest-rate cuts.

- EUR/USD holding above the 1.11 level.

- USD/JPY continued to probe the 148 neighborhood.

- 10-year German Bund yield at 2.66% and 10-year Gilt yield at 4.66%. 10-year Treasury yield at 4.45%.

Economic data

- (NO) Norway Q2 Consumer Confidence -16.4 v -13.4 prior.

- (NL) Netherlands Apr CPI M/M: 1.0% v 0.4% prior; Y/Y (final): 4.1% v 4.1% prelim.

- (NL) Netherlands Apr Final CPI EU Harmonized M/M: 1.8% v 1.8% prelim; Y/Y: 4.1% v 4.1% prelim.

- (FI) Finland Mar Current Account Balance: -€3.3B v +€0.5B prior.

- (UK) Apr Jobless Claims Change: +5.2K v -16.9K prior; Claimant Count Rate: 4.5% v 4.5% prior; Payrolled Employees Monthly Change: -33K v -32Ke.

- (UK) Mar Average Weekly Earnings 3M/Y: 5.5% v 5.2%e; Weekly Earnings (ex-bonus): 5.6% v 5.7%e.

- (UK) Mar ILO Unemployment Rate: 4.5% v 4.5%e; Employment Change 3M/3M: +112K v +115Ke.

- (RO) Romania Apr CPI M/M: 0.1% v 0.1%e; Y/Y: 4.9% v 4.9%e.

- (CZ) Czech Apr final CPI M/M: -0.1% v -0.1% prelim; Y/Y: 1.8% v 1.8% prelim.

- (CZ) Czech Mar Import Price Index Y/Y: 0.7% v 2.2% prior; Export Price Index Y/Y: 0.8% v 2.1% prior.

- (TR) Turkey Current Account Balance: -$4.1B v -$4.0Be.

- (DE) Germany May ZEW Current Situation Survey: -82.0 v -77.0e; Expectations Survey: 25.2 v 11.3e.

- (EU) Euro Zone May ZEW Expectations Survey: +11.6 v -18.5 prior.

Fixed income issuance

- (EU) European Union opened its book to sell Oct 2045 NGEU bond; guidance seen +112bps to mid-swaps.

- (NL) Netherlands Debt Agency (DSTA) sold €1.98B vs. €2.0B indicated in 2.00% Jan 2054 DSL Bonds; Avg Yield: 3.228% v 2.953% prior.

- (ES) Spain Debt Agency (Tesoro) sold total €2.74B vs. €2.0-3.0B indicated range in 3-month and 9-month bills.

- (UK) DMO sold £1.0B in 0.625% Mar 2045 Inflation-linked Gilts (UKTi); Real Yield: 2.235% v 1.732% prior; bid-to-cover: 3.19x v 3.48x prior.

- (IT) Italy Debt Agency (Tesoro) sold total €7.5B vs. €6.0-7.5B indicated range in 3-year, 7-year and 20-year BTP bonds.

Looking ahead

- (DE) Germany Mar Current Account Balance: No est v €20.0B prior.

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

- 05:25 (CH) Switzerland to sell 3-month Bills; Avg Yield: % v -0.198% prior; bid-to-cover: x v 5.75x prior.

- 05:30 (ZA) South Africa Q1 Unemployment Rate: No est v 31.9% prior.

- 05:30 (DE) Germany to sell €4.5B in Jun 2027 Schatz; Avg Yield: % v 1.67% prior; bid-to-cover: x v 1.69x prior (Apr 22nd 2025).

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills; Avg Yield: % v 6.34% prior; bid-to-cover: x v 1.42x prior.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell combined €2.8B in 3-month and 12-month bills.

- Sells € vs. €indicated in 3-month bills Avg Yield: % v 1.974% prior; Bid-to-cover: x v 1.68x prior (May 6th 2025).

- Sells € vs. € indicated in 6-month Bills; Avg Yield: % v 1.956% prior; Bid-to-cover: x v 2.58x prior (May 6th 2025).

- Sells € vs. € indicated in 12-month Bills; Avg Yield: % v 1.911% prior: Bid-to-cover: x v 2.99x prior (May 6th 2025).

- 05:30 (ZA) South Africa to sell combined ZAR3.75B in 2032, 2035 and 2040 bonds.

- Sells ZAR1.25B in 2032 bonds; Clearing Yield: %; bid-to-cover: x.

- Sells ZAR1.25B in 2035 bonds; Clearing Yield: %; bid-to-cover: x.

- Sells ZAR1.25B in 2040 bonds; Clearing Yield: %; bid-to-cover: x.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO) (prior €10.6B with 42 bids recd).

- 06:00 (IL) Israel Apr Trade Balance: No est v -$2.9B prior.

- 06:00 (PT) Portugal Apr Final CPI M/M: No est v 0.7% prelim; Y/Y: No est v 2.1% prelim.

- 06:00 (PT) Portugal Apr Final CPI EU Harmonized M/M: No est v 1.3% prelim; Y/Y: No est v 2.1% prelim.

- 06:00 (US) Apr NFIB Small Business Optimism Index: 95.0e v 97.4 prior.

- 06:00 (FI) Finland to sell combined €2.0B in 6-month and 9-month Bills.

- Sells € in 6-month bills; Avg Yield: % v 2.130% prior; Bid-to-cover: x v 1.42x prior (Apr 8th 2025).

- Sells € in 9-month bills; Avg Yield: % v 2.100% prior; Bid-to-cover: x v 1.09x prior (Apr 8th 2025).

- 06:00 (TR) Turkey to sell bonds (2 tranches).

- 06:30 (IN) India Apr CPI Y/Y: 3.2%e v 3.3% prior.

- 07:00 (BR) Brazil Central Bank (BCB) May Minutes.

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

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:30 (US) Apr CPI M/M: +0.3%e v -0.1% prior; Y/Y: 2.4%e v 2.4% prior.

- 08:30 (US) Apr CPI (ex-food/energy) M/M: 0.3%e v 0.1% prior; Y/Y: 2.8%e v 2.8% prior.

- 08:30 (US) Apr CPI Index NSA: 320.88e v 320.880 prior; CPI Core Index: 326.629e v 325.659 prior.

- 08:30 (US) Apr Real Avg Weekly Earnings Y/Y: No est v 1.1% prior (revised from 0.8%; Real Avg Hourly Earning Y/Y: No est v 1.40% prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (RU) Russia Gold and Forex Reserve w/e May 2nd: No est v $677.8B prior.

- 09:00 (RU) Russia Apr Official Reserve Assets: No est v $647.4B prior.

- 11:00 (UK) BOE’s Bailey.

- 11:30 (US) Treasury to sell -Week 52-week Bills.

- 15:00 (AR) Argentina Mar Wages M/M: No est v 3.8% prior.

- 16:30 (US) Weekly API Oil Inventories.

- 18:45 (NZ) New Zealand Apr Total Card Spending M/M: No est v -1.5% prior; Retail Card Spending M/M: No est v -0.8% prior.

- 18:45 (NZ) New Zealand Mar Net Migration: No est v 5.4K prior.

- 19:00 (KR) South Korea Apr Unemployment Rate: 3.0%e v 2.9% prior.

- 19:50 (JP) Japan Apr PPI (domestic CGPI) M/M: 0.3%e v 0.4% prior; Y/Y: 4.0%e v 4.2% prior.

- 21:10 (JP) BOY Bonds buy-back operation.

- 21:30 (AU) Australia Q1 Wage Price Index Q/Q: 0.8%e v 0.7% prior; Y/Y: 3.2%e v 3.2% prior.

- 21:30 (AU) Australia Q1 Home Loans Value Q/Q: 0.0%e v 1.4% prior; Investor Loan Value Q/Q: No est v -2.9% prior; Owner-Occupier Loan Value Q/Q: No est v 4.2% prior.

- 23:00 (KR) South Korea Apr Total Bank Lending To Household (KRW): No est v 1145.0T prior.

- 23:30 (HK) Hong Kong to sell 1-year, 5-year and 15-year bonds.