Too good to be true? Trade war and real wars pivot sharply to resolution

EU mid-market update: Too good to be true? Trade war and real wars pivot sharply to resolution; US reconciliation bill and CPI in focus this week.

Notes/observations

- Risk appetite surges after US and China agreed to temporarily slash tariffs (US: 145%->30%, China: 125%->10%) for 90 days, sparking a rally in US futures, particular tech, auto and luxury stocks. Safe haven assets were sold as market re-rotates out of plays triggered by Liberation Day (e.g. originally sell everything US). Fed rate cut bets dropping too. Confidence returning on basis that Trump’s aggressive trade rhetoric was for negotiation all along. Nasdaq futures >3%; US dollar >+1.2%, USDJPY >1.8%. Bessent to speak again on CNBC at 7:00ET (11:00 GMT).

- While the scale of tariff cuts exceeded expectations (Trump hinted 80% on Friday, while late April’s rumor said tariffs could go down to 50-65%), key details, particularly on pre-Liberation Day duties, de minimis exception, remain not fully clear. China also simultaneously released some hawkish remarks on new trade retaliation tools and rare earth controls.

- Goods news was plentiful. In geopolitics, Ukraine's Zelenskiy proposes to meet Russia's Putin on May 15 in Turkey, contingent on a 30-day Russian ceasefire. No sign of pullback, but US pressures Zelenskiy to negotiate. India and Pakistan announced a US-mediated ceasefire. Iran agrees to another round of nuclear talks with the US.

- Health care and pharma stocks collapse after Trump announced plan to sign Exec Order later today to reduce drug and pharma prices by 30-80%, almost immediately.

- House Republicans’ draft reconciliation bill tightens Medicaid with new work requirements, eligibility checks, capped provider taxes and modest co-payments for able-bodied adults above poverty level—while preserving federal matching rates and avoiding per-person caps—carries a $5 trillion price tag and leaves offset questions despite a claimed $900 billion in savings. Punchbowl reports SALT-y Republicans will meet GOP leaders and Ways & Means Monday to discuss a $30K SALT cap ahead of the full bill text.

- Economic data was light. US Fed Budget Balance at 14:00 ET.

- Asia closed higher with Nifty50 outperforming +3.6%. EU indices +0.0-1.7%. US futures +2.0-3.7%. Gold -2.9%, DXY +1.1%; Commodity: Brent +2.7%, WTI +2.9%; Crypto: BTC +0.2%, ETH +2.1%.

Asia

- US-China deal outline; us to cut tariffs on Chinese goods from 145% to 30% for 90 days; China to cut tariffs on us goods from 125% to 10% for 90 days - Joint statement.

- China Commerce Ministry (MOFCOM): To suspend 24% of additional ad valorem tariffs for an initial period of 90 days; Parties commit to take the actions by May 14th - Joint Statement with US.

- China releases white paper on national security; notes China is capable of handling impact of US tariffs; vows to add more tools in trade retaliation policies.

- China Ministries hold meeting on mineral export control; China to strengthen exports control of strategic minerals.

Taiwan

-Taiwan is 'willing' to help US mass-produce advanced drones, assist on shipbuilding and military - Taiwan press.

-Taiwan Financial Supervisory Commission (FSC) is stress-testing banks regarding ability to deal with the impact of US tariffs, risks related to China exposure - Local press.

Mid-East

- Iran said to agree to fourth round of indirect nuclear talks with US on Sun in Oman - Iranian state press.

Global conflict/tensions

- Ukraine's Pres Zelenskiy: Ready to meet Russia Pres Putin in Turkey on Thursday, 15th May.

- Russia Pres Putin offered Ukraine to resume direct negotiations which were halted in 2022, on May 15th in Istanbul with no pre-conditions; Russia Defense Ministry continues "special military operation" after Victory Day ceasefire ended on May 10th's midnight; Ukraine Pres Zelenskiy said he expects Russia to confirm a ceasefire – full, lasting, and reliable – starting tomorrow, May 12th, and Ukraine is ready to meet.

- China Foreign Min Spokesperson Lin: Calling on India and Pakistan to avoid further conflict.

- German Foreign Min Wadephul: If no truce we are ready for further arms packages.

Americas

-Treasury Sec Bessent: Neither US not China want to decouple; Both sides showed great respect; We see possibility of purchasing agreements; Would like to see China open to more US goods.

- USTR Greer: Today's agreement with China is really about the reciprocal tariffs which are now at 10% each; Fentanyl tariff talks on China on positive track.

- European Rating agency Scope affirmed the US's long-term ratings at AA with Negative Outlook; The short-term issuer ratings have been affirmed at S-1+ in local and foreign currency and the Outlooks revised to Stable from Negative.

Europe

- Hungary Central Bank (MNB) Gov Varga: Need cautious and patient monetary policy.

- BOE’s Lombardelli: Sensible to continue gradual pace of cutting rates; Current policy stance represents a balance; Caution remains appropriate.

- Greece Fin Min Pierrakakis: Need to lower temperature in room with US on trade; Zero-zero tariffs with US would be best solution.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.97% at 543.18, FTSE +0.45% at 8,593.41, DAX +1.10% at 23,748.02, CAC-40 +1.39% at 7,851.18, IBEX-35 +0.83% at 13,655.00, FTSE MIB +1.66% at 40,023.00, SMI -0.02% at 12,060.50, S&P 500 Futures +2.76%].

Market focal points/key themes: European indices open higher across the aboard and remained upbeat through the early part of the session; market optimism comes after US-China trade deal to reduce tariffs for 90 days; among better performing sectors are materials and industrials; lagging sectors include health care and utilities; health care and Danish index dragged by Novo Nordisk after positive news from competitor; PPF announces intention to raise stake in ProsiebenSat; Tessenderlo to merch collagen and gelatin units with Darling units; earnings expected in the upcoming US session include NRG Energy, Dole and Hochtief.

Equities

- Consumer discretionary: LVMH [MC.FR] +5.0% (US-China slash tariffs on each other for 90 days) - Consumer staples: Danone [BN.FR] -2.0% (to acquire majority stake in US-based Kate Farms; No terms disclosed).

- Financials: Unicredit [UCG.IT] +2.5% (Q1 beats estimates, raises guidance; bond yields rise globally), Banco Sabadell [SAB.ES] +1.5% (Said to be exploring merger with Abanca) - Healthcare: Almirall [ALM.ES] +8.0% (Q1 results) - Industrials: Stellantis [STLA.NL] +6.5% (US-China slash tariffs on each other for 90 days), Rheinmetall [RHM.DE] -5.5%, Hensoldt [HAGG.DE] -4.5%, Renk Group [R3NK.DE] -4.0%, Leonardo [LDO.IT] -5.5%, BAE Systems [BA.UK] -2.5% (EU defense names drop as Zelenskiyy offered Putin to meet in person this week) - Technology: Infineon Technologies [IFX.DE] +6.0% (Nvidia said to have raised the official prices for almost all of its GPUs, as well as H200 and B200 chips and modules; Samsung earlier in May reach agreement with 'major' clients to raise DRAM prices).

- Materials: Salzgitter [SZG.DE] -4.5% (Q1 results, affirms guidance).

Speakers

- Hungary Central Bank (MNB) Gov Varga: Need cautious and patient monetary policy.

- BOE’s Lombardelli: Sensible to continue gradual pace of cutting rates; Current policy stance represents a balance; Caution remains appropriate.

- Poland Central Bank (NBP) Kotecki: See target interest rate is approx 3.5%.

- Treasury Sec Bessent: Neither US not China want to decouple; Both sides showed great respect; We see possibility of purchasing agreements; Would like to see China open to more US goods.

- USTR Greer: Today's agreement with China is really about the reciprocal tariffs which are now at 10% each; Fentanyl tariff talks on China on positive track.

- Fed's Cook (voter): Any supply-chain disruptions resulting from the policy changes would make production slower and less efficient; Lower productivity could cause me to support keeping rates at a higher level for longer.

- Fed's Musalem (voter): Should not commit to rate cuts until tariff impact becomes certain; Possible that tariff impact on inflation will be short-lived, but just as likely it will be more persistent.

- ECB’s Vujcic (Croatia): Consumer-price growth will hit the ECB’s 2% target by the end of 2025.

- ECB's Schnabel (Germany): By keeping interest rates near their current levels, we can be confident that monetary policy is neither excessively holding back growth and employment, nor stimulating it.

Economic data

- (HU) Hungary Apr YTD Budget Balance (HUF): 2.931T v -2.554T prior.

- (CZ) Czech Apr Unemployment Rate: 4.3% v 4.2%e.

- (TR) Turkey Mar Retail Sales Y/Y: 9.2% v 12.2% prior.

- (DK) Denmark Apr CPI M/M: +0.1% v -0.5% prior; CPI Y/Y: 1.5% v 1.5% prior; CPI EU Harmonized M/M: +0.1% v -0.6% prior; Y/Y: 1.5% v 1.4% prior

- (JP) Japan Apr Eco Watchers Current Survey: 42.6 v 44.6e [lowest since Feb 2022]; Outlook Survey: 42.7 v 44.6e.

- (SE) Sweden Apr SEB Housing-Price Indicator: 34 v 36 prior.

Fixed income issuance

- (NO) Norway sells NOK2.0B vs. NOK2.0B indicated in 3-month Bills; Avg Yield: 4.32% v 4.33% prior; Bid-to-cover: 2.81x v 3.15x prior.

Looking ahead

- 05:30 (DE) Germany to sell €3.0B in 12-month BuBills.

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

- 06:00 (IL) Israel Apr Consumer Confidence: No est v 54 prior.

- 06:00 (IL) Israel to sell combined ILS1.90B in 2027, 2031, 2035 and 2051 bonds.

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

- 06:30 (UK) BOE Greene.

- 07:00 Romania to sell RON500M in 7.2% Oct 2026 bonds.

- 07:00 Romania to sell RON500M in 6.85% July 2030 bonds.

- 07:00 (US) Treas Sec Bessent.

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

- 08:00 (MX) Mexico Mar Industrial Production M/M: No est v 2.5% prior; Y/Y: No est v -1.3% prior; Manufacturing Production Y/Y: No est v -0.3% 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 Central Bank Economist Survey.

- 08:30 (EU) Eurogroup meeting.

- 08:50 (UK) BOE Mann.

- 09:00 (FR) France Debt Agency (AFT) to sell €5.8-7.4B in 3-month, 6-month and 12-month bills.

- 10:25 (US) Fed's Kugler in Dublin.

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

- 12:00 (UK) BOE Taylor.

- 14:00 (US) Apr Federal Budget Balance: No est v -$160.5B prior.

- 19:01 (UK) Apr BRC LFL Sales Y/Y: No est v 0.9% prior.

- 19:50 (JP) Japan Apr M3 Money Supply Y/Y: No est v 0.4% prior; M2 Money Supply Y/Y: No est v 0.8% prior.

- 20:01 (IE) Ireland Apr Construction PMI: No est v 53.9 prior.

- 20:30 (AU) Australia May Westpac Consumer Confidence: No est v 90.1 prior.

- 21:30 (AU) Australia Apr NAB Business Confidence: No est v -3 prior; Business Conditions: No est v 4 prior.

- 23:35 (JP) Japan to sell 30-year JGB Bonds.