Waiting on readout from US-China talks in London – Trump-Musk relations never been worse

Notes/observations

-Focus is on US-China trade talks, which resume in London today, with rare earths and tech export licenses on topic. China approved some rare earth exports after a Trump-Xi call. Analysts note Trump could reinstate higher tariffs if no deal by Aug. Trump and Musk fallout shows no signs of reconciliation with Trump threatening ‘severe consequences’ for Musk if he sponsors Democrat party/candidates.

-Also from UK, is London Tech Event, held across entirety of week. Already heard from PM Starmer and Nvidia CEO about how UK is in ‘goldilocks’ zone, prime for AI growth.

-European bond yields fell slightly but downside seen as limited after ECB signals end of rate cuts and strong US jobs data.

-Couple deals of note: Qualcomm acquiring Alphawave at $2.48/shr in $2.4B deal, while IonQ acquires Oxford Ionics for $1.075B (quantum computing space).

-Liquidity is lighter as Cyprus, Denmark, Egypt, Greece, Hungary, Iceland, Norway, Romania and Switzerland markets are closed for Pentecost. Accordingly, economic data calendar is sparse.

-Asia closed mixed with Hang Seng outperforming +1.6%. EU indices 0.0% to +0.4%. US futures +0.1%. Gold +0.4%, DXY -0.3%; Commodity: Brent +0.1%, WTI +0.1%; Crypto: BTC +0.7%, ETH -0.2%.

Asia

- China May CPI Y/Y: -0.1% v -0.2%e; PPI Y/Y: -3.3% v -3.1%e (32nd month of negative readings).

- China May Trade Balance: $103.2B v $101.1Be [record high amid weaker components].

- China May Foreign Reserves: $3.285 T v $3.282T prior.

- Japan Q1 Final GDP Q/Q: 0.0% v -0.2e; GDP Annualized Q/Q: -0.2% v -0.7%e.

- BOJ said to be considering cutting its quarterly bond buying plan to range ¥200B to ¥400B [currently ¥400B per quarter] through March 2027 [current plan scheduled to end March 2026); Arguments for include mitigating yield pressure vs those against include improving market functioning. No official decision had been confirmed, with discussions set for the BOJ's June 17, 2025, policy meeting.

Europe

- ECB's Nagel (Germany) stated that ECB could take its time on interest rates with monetary policy now set at a neutral level that was no longer restrictive.

- ECB's Schnabel (Germany) stated that did not expect a sustained decoupling between the ECB and Fed.

- ECB’s Escriva (Spain) stated that was very comfortable with the current, gradual approach of successive 25-basis-point rate cuts.

- ECB’s Vujcic (Croatia) stated that ECB should not "overreact" to euro-zone inflation edging below its 2% target as there were good reasons to believe it would come back.

-BOE’s Greene noted that the disinflation process was still ongoing; Expected inflation to continue to come down to target over the medium term.

Americas

- Trump tweeted that was thinking about the next Fed Chair, "it was coming out very soon"; If we had a good Chair he would lower rates (**Note on Apr 22nd Polymarket was pricing 37% chance for Kevin Warsh to become next Fed's Chair; Price 6% chance Arthur Laffer, 5% chance for Kevin Hassett, Larry Kudlow and Judy Shelton.

- Fed's Musalem (voter): See 50-50 chance that Trump tariffs could either boost inflation for a quarter or two, or cause sustained inflation.

Trade

- President Trump tweeted that were 'very far advanced' on a China deal ahead of high level talks on Monday; China deal was complex but would bring in a lot of money.

- Treasury Sec Bessent, Commerce Sec Lutnick and USTR Greer to meet with China in London on June 9th.

- Japan Trade Negotiator Akazawa reiterated view that strongly urged US to reconsider its tariffs; Believed had made further progress; Nothing was decided on for further talks; would make a deal as early as possible (**Note: Akazawa said to be arranging 6th visit to the US for tariff talks).

- South Korea President Lee calls for measures to respond to rising prices.

- Thailand Fin Min Pichai stated that had agreed to high level talks with the US on tariffs.

- Chinese President Xi Jinping said to have agreed to let rare earth minerals and magnets flow to the United States.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.1% at 553, FTSE -0.1% at 8830, DAX -0.4% at 24208, CAC-40 -0.1% at 7802, IBEX-35 +0.3% at 14276, FTSE MIB -0.1% at 3967, SMI +0.4% at 12336, S&P 500 Futures +0.1%].

Market focal points/key themes: European indices opened mixed with a bias towards the red and failed to gain direction during the early hours of trading; several bourses in Europe closed including Greece, Switzerland and Norway; markets in holding pattern as US and Chinese trade representatives meet in London; among better performing sectors are real estate and consumer discretionary; underperforming sectors include technology and financials; Alphawave to be acquired by Qualcomm; reportedly Telefonica and MasOrange looking to bid on Vodafone Spain; reportedly Bernard Arnault to sell stake in Lagardere to Vincent Bollore; earnings expected in the upcoming US session include Casey’s.

Equities

- Consumer discretionary: WPP [WPP.UK] -2.0% (CEO to retire).

- Financials: Allianz [ALV.DE] -0.5% (analyst downgrade).

- Technology: Alphawave [AWE.UK] +22.0% (confirms to be acquired by Qualcomm at $2.48/shr).

Speakers

- ECB's Kazimir (acting Slovakia member) noted that needed to keep all options open; Data through summer would indicate whether further fine-tuning was needed.

- Japan Govt said to be considering buying back 'some' super-long JGBs issued in the past.

- China Vice Premier met with UK Chancellor Reeves; said to stress sustained, sound and stable development of economic relations.

- China reportedly to raise minimum wage standard and expand coverage of social insurance.

- Iran reportedly to propose counter-offer to US nuclear proposal soon.

- IAEA Dir Gen Grossi urged Iran and US to spare no efforts in talks. Could not ensure that Iran program was exclusively peaceful.

Currencies/fixed income

- FX price action was subdued as Whit Monday holiday kept participants on the sidelines. Dealers noted that diversification out of USD assets had been a major push factor over past few months.

- EUR/USD holding above the 1.14 level as ECB recently flagged that it was close to the end of its rate-cutting cycle. Key resistance still seen at 1.15 after US jobs data on Friday was better than expected, diminishing prospects of a near-term interest-rate cut by the Fed.

- USD/JPY drifted lower to probe end of the 144 area. Dealers noted that Japan's economy was expected to continue to show underlying resilience, leaving inflation elevated and likely will bring the BOJ back to a normalization path.

- 10-year German Bund yield at 2.52% and 10-year Gilt yield at 4.61%. 10-year Treasury yield at 4.48%.

Economic data

- (SE) Sweden May SEB Swedish Housing-Price Indicator: 35 v 34 prior.

- (SE) Sweden May Budget Balance (SEK): +51.5B v -42.2B prior.

- (CZ) Czech May Unemployment Rate: 4.2% v 4.2%e.

- (MY) Malaysia May Foreign Reserves: $119.6B v $119.1B prior.

- (CZ) Czech May International Reserves: $157.2B v $156.2B prior.

- (TW) Taiwan May Trade Balance: $12.6B v $6.5Be; Exports Y/Y: 38.6% v 23.2%e; Imports Y/Y: 25.0% v 25.0%e.

Fixed income issuance

- None seen.

Looking ahead

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

- 05:30 (ZA) South Africa announces details of upcoming I/L bond sale (held on Fridays).

- 06:00 (IE) Ireland May Live Register Monthly Change: No est v +7.4k prior; Live Register Level: No est v 170.5K prior.

- 06:00 (IE) Ireland Apr Industrial Production M/M: No est v 14.6% prior; Y/Y: No est v 46.5% prior.

- 06:00 (PT) Portugal Apr Trade Balance: No est v -€2.4B prior.

- 06:00 (IL) Israel to sell combined ILS1.6B in 2027, 2029, 2035 and 2051 bonds.

- 06:00 (NO) Norway announcement on upcoming bond issuance (held on Wed).

- 07:25 (BR) Brazil Central Bank Weekly Economists Survey.

- 08:00 (MX) Mexico May CPI M/M: 0.2%e v 0.3% prior; Y/Y: 4.4%e v 3.9% prior.

- 08:00 (MX) Mexico May Core CPI M/M: 0.3%e v 0.5% prior; Y/Y: 4.0%e v 3.9% prior.

- 08:00 (MX) Mexico May Vehicle Production: No est v 326.1K prior; Vehicle Exports: No est v 257.0K prior.

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

- 08:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 08:00 (ES) Spain Debt Agency (Tesoro) size announcement on upcoming issuance.

- 08:30 (CL) Chile May Trade Balance: $1.6Be v $1.9B prior; Total Exports: No est v $9.0B prior; Total Imports: No est v $7.0B prior; Copper Exports: No est v $4.5B prior.

- 08:30 (CL) Chile May International Reserves: No est v $45.6B prior.

-10:00 (US) Apr Final Wholesale Inventories M/M: 0.0%e v 0.0% prelim; Wholesale Trade Sales M/M: 0.2%e v 0.6% prior.

- 10:00 (ES) ECB’s Escriva (Spain).

- 11:00 (US) NY Fed 1-year Inflation Expectations Survey: No est v 3.6% prior.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 15:00 (AR) Argentina Apr Industrial Production Y/Y: 4.2%e v 5.2% prior; Construction Activity Y/Y: No est v 15.8%.

- 16:00 (US) Weekly Crop Progress Report.

-19:00 (CO) Colombia May CPI M/M: 0.4%e v 0.7% prior; Y/Y: 5.1%e v 5.2% prior.

-19:00 (CO) Colombia May CPI Core M/M: 0.4%e v 0.6% prior; Y/Y: 5.3%e v 5.3% prior.

- 19:01 (UK) May BRC Sales Like-For-Like Y/Y: 2.6%e v 6.8% prior.

- 19:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 86.4 prior.

- 19:50 (JP) Japan May M2 Money Supply Y/Y: No est v 0.5% prior; M3 Money Supply Y/Y: No est v 0.1% prior.

- 20:01 (IE) Ireland May Construction PMI: No est v 52.4 prior.

- 20:30 (AU) Australia Jun Westpac Consumer Confidence Index: No est v 92.1 prior.

- 21:30 (AU) Australia May NAB Business Confidence: No est v -1 prior; Business Conditions: No est v 2 prior.

- 22:00 (KR) South Korea to sell KRW100Bin 10-year Inflation-Linked Bonds.

- 22:30 (HK) Hong Kong to sell 3-month and 6-month Bills.

- 23:00 (ID) Indonesia May Foreign Reserves: No est v $152.5B prior.