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Today

The possibility that the trade wars may shift from blistering threats to “constructive” negotiations is giving markets a bit of optimism. Investors seem increasingly hopeful that the onslaught of U.S. tariffs introduced to the global stage will ultimately have a more muted impact on the economy than initially feared. U.S. stock futures are notably higher this morning, with the S&P 500 and Nasdaq pointing upward on signs that the White House is open to negotiations, highlighted by the expected announcement of its first trade “deal” with the UK later today. This comes as the BOE cut rates earlier this morning with the trade war weighing on UK growth (more in fixed income). Meanwhile, Treasury Secretary Scott Bessent is on route to meet with China’s top trade officials, a positive signal for the potential revival of broader talks with the world’s second-largest economy. U.S. officials have also indicated that negotiations with Japan and India remain active and ongoing.

There’s a deal…with the UK at least.  Trump is expected to announce a trade agreement with the United Kingdom today, the first in what the administration claims will be a series of new deals, following the White House’s shake-up of the global trade order.  In a typical pre-announcement on social media, Trump stated that the UK deal would be the first, with several others “in serious negotiations” to follow. While this morning’s White House announcement is unlikely to provide al the details (Trump tends to be light on those), it’s expected to outline a framework for how the two nations plan to move forward with a new trade relationship.  According to Trump, a press conference is scheduled for 10 a.m. at the Oval Office, so stay tuned for more information. 

Used car prices re-accelerate on tariff worries. Used vehicle prices rose in April, with the Manheim Used Vehicle Value Index rising 4.9% year-over-year to 208.2, its highest level since October 2023, driven by consumer demand amid fears of price hikes from new auto tariffs. The index also jumped 2.7% from March, far exceeding the usual 0.2% monthly increase. Although the 25% tariffs apply to new vehicles and parts, they influence the used market by affecting supply and demand dynamics. Retail used-vehicle sales dipped 1.7% from March but rose 13% year-over-year, with average listing prices up 2% to over $25,000. While prices remain below pandemic-era peaks, they are still elevated compared to pre-2020 levels. 

Donald Trump stated he will not reduce tariffs on Chinese imports to initiate trade negotiations, highlighting the deep divide between the U.S. and China. This comes ahead of the first confirmed trade talks since the U.S. imposed 145% tariffs on Chinese goods. Despite China’s claim that the U.S. initiated contact, Trump rejected that notion and reiterated his belief that Americans can bear the economic costs to restore domestic manufacturing. While both nations face economic pressure (seen by a U.S. contraction and weak Chinese factory data) Treasury Secretary Scott Bessent emphasized the need for de-escalation over a comprehensive deal. Markets remain tense amid ongoing tit-for-tat tariffs and uncertainty over the path forward. 

The Fed kept interest rates unchanged yesterday afternoon, highlighting heightened risks of both inflation and unemployment amid uncertainty stemming from the Trump administration’s tariff policies. While the economy continues to expand and the labour market remains solid, the Fed acknowledged that surging imports ahead of tariff hikes had distorted Q1 growth. Officials now face a delicate balancing act between managing inflation and avoiding a growth slowdown, with most analysts seeing the Fed remaining on hold until more clarity emerges. Market reactions were mixed, reflecting cautious sentiment. Many strategists noted the Fed is constrained on both sides, unable to ease due to inflation or tighten due to growth risks which risks creating a classic stagflation dilemma. 

Step aside Wall Street. If you’re looking for a job in finance, you can always try Vatican City. A new report found the tiny country has the most Bloomberg terminals per capita in the world. Specifically, it has 17 Bloomberg terminals for a population of 882, resulting in a per capita ratio of 0.019, significantly higher than other countries. These terminals, used for monitoring markets and executing trades, support the Church’s mission through the Institute for the Works of Religion (IOR), which manages over €5.2 billion in assets. 



Diversion: Oh, that’s what they do when we’re not home 

Commodities

Oil prices are higher on trade war optimism with Trump expected to announce a deal with the UK. The news comes ahead of trade talks between U.S. and Chinese officials this week, though Trump said on Wednesday that he’s unwilling to preemptively lower tariffs on China to jump-start negotiations. Crude has been on a recent downward trajectory due to concerns around the potential hit to global growth from Trump’s sweeping tariffs, as well as recent OPEC+ decisions to boost idled output. American shale producers are cutting spending in the Permian Basin following the slide in oil prices. In the U.S., data from the Energy Information Administration showed crude inventories fell for a second week to the lowest level since late March, and stockpiles at the oil storage hub at Cushing, Oklahoma, also shrank.

Gold extended a decline as the U.S. dollar ticked higher with President Trump looking to unveil a “major” trade deal with the UK, boosting optimism that negotiations to soften some of the US’ sweeping tariffs are making headway. The unfolding trade war has helped fuel a 27% rally in the precious metal this year as investors seek safe havens from widespread market chaos. Bullion’s ascent has also been driven by speculative demand in China and central-bank purchases. Yesterday, gold fell after the Federal Reserve held interest rates and Chair Jerome Powell said the central bank isn’t in a rush to cut despite trade-war uncertainty. Powell warned that Trump’s tariff agenda raises the risk of both higher inflation and slowing growth, but added the Fed could afford to keep policy on hold until officials have a better understanding of where the economy is headed. The dollar pushed higher after the Fed chief’s comments, making bullion more expensive for most buyers. The possibility of fewer rate cuts is also negative for gold as it doesn’t offer interest, so becomes relatively more attractive in a lower-rate environment.  

Fixed income and economics

The Bank of England cut interest rates by a quarter point to 4.25% as Trump’s global trade war weighed on UK growth. It was not an easy decision as the senior officials were split into three groups – five members voted for a quarter-point cut, two wanted a larger half-point reduction, and two voted to hold rates steady. The committee held its guidance that easing should continue to be “gradual and careful” in light of volatility in the global economy caused by Trump’s sweeping tariffs. Despite the prospect of a deal, the BOE made clear that main threat to the UK is from the global impact of US tariffs on Britain’s open economy. The BOE said the hit to activity due to higher costs and greater uncertainty would knock 0.3% off UK output over three years and lower inflation by 0.2% over two years. The forecasts in the BOE’s Monetary Policy Report backed up the market curve for three more cuts by December, taking interest rates to 3.5%. On that path, inflation is at the 2% target by the first quarter of 2027. The BOE now expects inflation to peak at 3.5% in the third quarter of this year, below the 3.7% previously expected, largely due to falling energy prices. The decision came a day after the Federal Reserve held U.S. rates in a range of 4.25% to 4.5%, with Chair Jerome Powell making clear the central bank won’t be rushed into easing until there is more certainty on the direction of trade policy. Even after the rate cuts, monetary policy is still bearing down on growth and inflation, the bank said. While the risk to growth is “somewhat to the downside,” the risks to inflation remain “two-sided,” it added. As a result, the committee will “remain sensitive to heightened unpredictability.”

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Commitment is the nucleus of all success Diana Nyad