By Mike Dolan
LONDON (Reuters) – What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets
A confusing mix of trade policy shifts and opaque economic data has left financial markets and the Federal Reserve searching for solid ground.
In today’s column, I take a close look at this pervasive lack of clarity, examining whether the recent market rally signals a genuine easing of pressures or merely a temporary lull before further economic storms.
Now on to more market analysis.
Today’s Market Minute
* The United States and China said on Monday they have agreed a deal to slash reciprocal tariffs for now as the world’s two biggest economies seek to end a trade war that has disrupted the global outlook and set financial markets on edge.
* U.S. President Donald Trump said on Sunday he would sign an executive order to cut prescription prices to the level paid by other high-income countries, an amount he put at 30% to 80% less.
* The military operations chiefs of India and Pakistan are set to discuss on Monday the next steps for the nuclear-armed neighbours, India said, as a ceasefire returned calm to the border, and their equity markets edged higher.
* China’s imports of crude oil edged into positive territory for the first months of the year, but this is not necessarily a sign of improving fuel demand. Find out why in Clyde Russell’s latest column.
* Holding high levels of cash is usually frowned upon by asset managers because of the “drag” on portfolio returns, but in this uncertain environment, fixed income investors may be wise to consider doing just that. Read Marty Fridson’s latest piece.
Trade peace in our time?
Wall Street stock futures and the dollar soared on Monday after U.S. and Chinese trade negotiators meeting in Geneva agreed to slash sky-high reciprocal tariffs for 90 days, as several hot wars are cooling to boot.
The breakthrough in weekend talks far exceeded most investors’ expectations, even though the pause now ushers in a period of intense talks on details that mean tensions won’t disappear.
But the Geneva climbdown from both sides marks a broader de-escalation of April’s U.S. tariff shock and comes on the heels of last week’s U.S.-Britain agreement to roll back many of April 2’s planned U.S. levies on British imports.
The extent of the market reaction on Monday shows just how much the Sino-U.S. news was a genuine surprise. S&P 500 futures soared almost 3% before Monday’s bell, with Nasdaq and Russell 2000 futures climbing almost 4%.
Hong Kong stocks also surged 3%, with European stocks following with slightly more modest gains of more than 1%.
The dollar index burst higher to its best levels in more than a month, with the euro and yen weakening. U.S. Treasury yields also climbed to their highest in a month. Crude oil prices jumped to two-week highs and Bitcoin hit its best level since January.
Perhaps most significant, given other geopolitical developments in the background, gold tumbled 3%.
Frenetic politicking over the weekend around the Ukraine conflict led Ukrainian President Volodymyr Zelenskiy to say he was ready to meet Russia’s Vladimir Putin in Turkey on Thursday, after U.S. President Donald Trump told him publicly to accept the Kremlin leader’s proposal of direct talks.
Zelenskiy’s suggestion of a meeting with Putin capped a dramatic 48 hours in which European leaders joined Zelenskiy in demanding a 30-day ceasefire from Monday, only for Putin to make a counterproposal to instead hold the first direct Ukraine-Russia talks since the early months of the 2022 invasion.
Elsewhere, a ceasefire between India and Pakistan appears to have held over the weekend. And in Turkey, the Kurdistan Workers Party (PKK) militant group, which has been locked in bloody conflict with the Turkish state for more than four decades, decided to disband and end its armed struggle.
Back to more prosaic economic matters, the trade optimism will dominate later on Monday, but April retail and inflation numbers later in the week should now start to tot up some of the damage caused by the jarring uncertainties of last month.
And shares of U.S. drugmakers fell between 2% and 3% pre-market after Trump pledged to slash prescription prices by about 30%–80%, which aligns with price levels paid by other wealthy nations.
In a post on Truth Social, Trump said he would sign the executive order on Monday morning to pursue what is known as “most favored nation” pricing or international reference pricing.
Make sure to check out my column today, where I look at whether markets are justified in thinking we’re through the worst of the trade fog.
Chart of the day
As the United States and China on Monday agreed a deal to slash sky-high reciprocal tariffs for 90 days, world stock markets and the U.S. dollar rallied sharply. But even before today’s news, measures of trade policy uncertainty were already ebbing from April’s extreme historic highs, helped by last week’s U.S.-Britain agreement to roll back many of April 2’s planned U.S. levies on British imports and Washington’s promise of more bilateral deals to come this week.
The trade component of the Baker, Bloom & Davis model of U.S. Economic Policy Uncertainty rocketed in March and April to record highs – four times the previous peaks of the past 40 years. But weekly moving averages of the index show it has almost halved from those peaks in May, even if it remains well above prior highs from 2019.
Today’s events to watch
* U.S. April Federal budget
* Federal Reserve Board Governor Adriana Kugler speaks. Bank of England policymakers Catherine Mann and Alan Taylor speak
* Eurogroup finance ministers meet in Brussels
* U.S. corporate earnings: Fox, NRG, DaVita, Hertz, Simon Property
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Mike Dolan; Editing by Anna Szymanski and Alex Richardson)
