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What a blast we had yesterday, didn’t we? The week kicked off with the news that the US and China would announce ‘substantial’ progress in trade negotiations — and the progress was indeed close to substantial. Tariffs were pulled down from 145% to 30% for Chinese exports to the US, and from 125% to 10% for American exports to China.

Yes, the deal is valid for just the next 90 days — similar to the trade relief that the rest of the world currently enjoys from the US administration — but it’s still a big surprise given that we had come to the conclusion the two sides would never talk again. Ever.

So, markets raved with joy. The S&P 500 jumped more than 3%, breaking above both its 100- and 200-day moving averages and adding $1.7 trillion in market value. The Nasdaq 100 surged more than 4%, cleared the 20K offers, and broke its 100- and 200-DMAs. Apple, Tesla, and Nvidia — which had remained in the crossfire — all added between 5–6%, while Amazon rallied more than 8%. The Nasdaq Golden Dragon China Index gained 5.40%. The Dow Jones climbed 2.80%, and US crude rose to $63.60 per barrel.

Small- and mid-cap stocks, however, remained more muted despite the news and even posted slight losses, as the developments dented dovish Federal Reserve (Fed) expectations. The US 2-year yield jumped to 4% on thinking that the tariff pause could support the US economy and reduce the need for Fed support. The probability of a June rate cut fell to below 12%, from nearly 14% before the announcement details came out. The US dollar rebounded sharply, gold tanked 2.73%, and the USD/CHF jumped 1.73% — excellent news for the Swiss National Bank (SNB).

In Europe, the Stoxx 600 rose 1.21%, on the realisation that the US administration isn’t as sanguine as it sounds when fundamentals are shaken. The SMI and FTSE 100 lagged behind other major indices, as heavyweight pharmaceutical stocks came under pressure from Donald Trump’s push to reduce prescription drug prices to the lowest global levels. But even that worry faded, as the fine print suggested that companies will be given a chance to lower prices voluntarily before any action is taken.

So yes — it could hardly have been better.

In Asia, the CSI 300 rose more than 1% and the Nikkei surged 3.40%, though gains are being given back today. European and US futures are also down — a bit of a hangover after yesterday’s party, a moment to question how good the news really is, and how long the truce might last.

Because while recent days have brought major progress to the table, this isn’t the end. Talks could be interrupted at any point, as strategic decoupling between the US and China will continue for national security reasons — keeping pressure on key sectors, including semiconductors.

Also worth noting: the so-called de minimis exemption that allows cheap Chinese products into the US remains at 120% — meaning Shein and PDD won’t massively benefit from the tariff relief.

And of course, uncertainty over what happens after the 90-day pause will keep many companies in wait-and-see mode, delaying investment decisions until a more durable truce emerges.

In the best-case scenario, the damage will be contained. In the worst-case, we start all over again.

One certainty: shipments to the US will continue at full speed in fear of another breakdown and frontloading will likely continue to pressure the US Q2 GDP reading.

Today, investors are walking into the US CPI update with a lighter heart. There’s a chance that the 90-day tariff pause — along with the latest dip in consumer sentiment — could help temper inflationary pressures in the US and give the Fed more room to act, if needed.

Bloomberg’s analyst survey suggests that both headline and core inflation likely jumped in April (m-o-m) due to the tariff situation. If the data comes in line or ideally softer-than-expected, it would reinforce the bullish mood — taming selling pressure on US Treasuries, boosting equities and the dollar. A stronger-than-expected read wouldn’t echo well, but might still be partly overlooked, given the dramatic shift in trade expectations.

Speaking of inflation, eurozone countries will also be updating their April inflation figures this week. Early April data had surprised to the upside, denting dovish European Central Bank (ECB) expectations. While the ECB is still expected to continue cutting rates, the expected pace is now slower. The EURUSD is giving back early-year gains as tariff de-escalation improves US growth prospects. But euro bulls see beyond the ECB/data narrative: many believe the ongoing trade war will help cement the euro’s position as a global reserve currency. Currently, the euro makes up about 20% of central bank reserves — versus 60% for the USD — and there’s room for more.

The EURUSD fell to its 50-DMA yesterday on broad-based dollar strength. For those betting on the euro’s long-term fortunes, current levels could present interesting dip-buying opportunities.

In focus today

In the US, the most important data release for today will be the April CPI. We expect the tariffs to start putting gradual upward pressure on especially core goods prices and look for both headline and core inflation to accelerate to +0.3% m/m SA. NFIB's Small Business Confidence index is also due for release ahead of the CPI.

In Germany, focus turns to the ZEW index for May. The estimate of the current economic situation has shown a bottom in German activity like hard data on industrial production. It has yet to show a clear rebound, and expectations for future growth declined greatly in April following 'Liberation Day'. Expectations will likely rebound partly due to the less negative signals on trade barriers from the Trump administration like we saw in the Sentix indicator. Focus will thus centre on whether the current situation has deteriorated due to the tariff uncertainty.

Economic and market news

What happened yesterday

In the trade war, the joint statement from the US-China trade talks announced a successful de-escalation, with tariff reductions exceeding expectations. The US will lower tariffs on Chinese imports from 145% to 30%, while China will reduce duties on US goods from 125% to 10% for an initial 90-day period. Later, news reports added that the agreement does not include reinstating "de minimis" exemptions for low-value e-commerce shipments, and President Trump noted that it does not cover the possible separate tariffs on cars, steel, aluminium, or pharmaceuticals. The cuts will take effect on 14 May, with both nations committed to establishing a mechanism for ongoing discussions on trade relations. The agreement has led to a rally in global stocks, higher yields, and declines in EUR/USD and USD/CNY, indicating risk-on and reduced concerns over a US-driven growth slowdown. Markets now predict only a 10% chance of a Fed rate cut in June, with a 25bp cut expected by September. Read more in US-China Flash: Trade talks succeed in de-escalation, 12 May.

In the US, President Trump signed an executive order aimed at setting price targets for pharmaceutical manufacturers, with provisions for direct consumer purchases, eliminating intermediaries. Should pharmaceutical companies fail to meet government pricing expectations, the administration intends to implement rulemaking to align drug prices with international levels. Potential measures include importing medicines from other developed nations and imposing export restrictions. The President is targeting price reductions of 59% to 90%. That said, the exact details on the planned implementation and whether the measures needed congressional approval remained unclear.

In Denmark, Statistics Denmark reported inflation at 1.5% for April, with lower energy prices and increased travel costs due to Easter timing. Food prices decreased slightly but remain 3.7% higher than last year. Core inflation rose to 1.7%, still below the ECB target, indicating controlled price pressures in Denmark. Despite elevated concerns from Trump's trade war, these fears may be overstated, as the trade conflict could ultimately lead to lower inflation through decreased global demand and cheaper imports driven by a stronger euro. Although EU tariffs on US goods might counteract these effects, they are unlikely to significantly affect Danish consumers.

Equities: You could almost hear the unwinding off puts and shorts squeezing yesterday, as equities rallied on tariff relief. S&P 500 added 3.3% and Nasdaq a full 4.4%, with indexes rallying into the close. As such, US recovered much of its underperformance, with European equities "only" gaining 1% yesterday and Chinese equities even lower this morning. Defence sold off in Europe, suggesting investors shaved off some of their long positions to buy into US. Sector-wise, this was not a "buy everything" rally but believe it or not, a selective one. Defensives and real estate missed out entirely while cyclical sectors added between 2-5%. VIX closed below the important 20-level, which typically resonates with positioning support for risk parity funds. US futures are retreating somewhat this morning and European futures are little changed.

FI&FX: Yesterday's session in FX and FI markets was all about the unwind of the post-Liberation Day trades. Rates curves bearish flattened across currencies amid not least short-ends coming higher on markets pricing in less monetary policy easing this year. Credit spreads tightened, Bund-Periphery spreads performed and US Treasury ASW spreads tightened (richer bonds). In FX space the CNY and USD strengthened considerably with EUR/USD falling back to the 1.11 level. Also, CAD and AUD did well while the CEEs, the EUR and JPY where all underperforming. Interestingly, the SEK was caught between opposing forces leaving the trade weighted Krona little changed on the day.

UK labor market data for April showed signs of softening in employment but continued strength in wage growth. Payrolled employment fell by -33k (-0.1% mom), while the claimant count rose by 5.2k. Median monthly pay rose by 6.4% yoy in April, accelerating from 5.9% yoy in the previous month.

In the three months to March, unemployment rate in the three months to March edged up from 4.4% to 4.5%, in line with expectations and marking the highest level since late 2021.

Average earnings including bonuses rose 5.5% yoy, beating expectations of 5.2% yoy. Earnings excluding bonuses rose 5.6% yoy, slightly below forecast of 5.7% yoy.

Full UK labor market data release here.

Daily Pivots: (S1) 1.3910; (P) 1.3963; (R1) 1.4028; More...

Intraday bias in USD/CAD remains on the upside as rebound from 1.3749 short term bottom is in progress. Break of 55 D EMA (now at 1.4043) will target 1.4150 cluster resistance (38.2% retracement of 1.4791 to 1.3749 at 1.4147). On the downside, below 1.3898 minor support will turn intraday bias neutral first.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4150 resistance turned support holds. Firm break of 38.2% retracement of 1.2005 (2021 low) to 1.4791 at 1.3727 will pave the way back to 61.8% retracement at 1.3069.

Daily Pivots: (S1) 0.6332; (P) 0.6397; (R1) 0.6436; More...

AUD/USD recovered after breaching 0.6364 support briefly and intraday bias stays neutral. On the upside, break of 0.6511 will resume the rally from 0.5913 to 61.8% retracement of 0.6941 to 0.5913 at 0.6548. However, considering bearish divergence condition in 4H MACD, break of 0.6364 support should confirm short term topping. Intraday bias will be turned back to the downside for 38.2% retracement of 0.5913 to 0.6511 at 0.6283.

In the bigger picture, as long as 55 W EMA (now at 0.6441) holds, down trend from 0.8006 (2021 high) should resume later to 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. However, sustained trading above 55 W EMA will argue that a medium term bottom was already formed, and set up further rebound to 0.6941 resistance instead.

Daily Pivots: (S1) 1.1022; (P) 1.1132; (R1) 1.1199; More...

For now, EUR/USD's fall from 1.1572 is still seen as a corrective move. Strong support should be seen from 38.2% retracement of 1.0176 to 1.1572 at 1.1039 to bring rebound. On the upside, break of 1.1380 will suggest that the correction has completed, and bring retest of 1.1572. However, sustained break of 1.1039 will dampen this view and target 61.8% retracement at 1.0709 next.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0789) holds.

Daily Pivots: (S1) 1.3112; (P) 1.3205; (R1) 1.3271; More...

Intraday bias in GBP/USD stays on the downside for the moment. Fall from 1.3442 short term top is in progress to 55 D EMA (now at 1.3067) and below. But downside should be contained by 38.2% retracement of 1.2099 to 1.3442 at 1.2929 to bring rebound. On the upside, above 1.3321 minor resistance will turn intraday bias neutral first.

In the bigger picture, price actions from 1.3433 are seen as a corrective pattern to the up trend from 1.3051 (2022 low). Rise from 1.2099 could either be resuming the up trend, or the second leg of a consolidation pattern. Overall, GBP/USD should target 1.4248 key resistance (2021 high) on decisive break of 1.3433 at a later stage.

Daily Pivots: (S1) 146.56; (P) 147.61; (R1) 149.50; More...

Intraday bias in USD/JPY remains on the upside for the moment. As noted before, fall from 158.86 could have completed 139.87 already. Further rise should be seen to 61.8% retracement of 158.86 to 139.87 at 151.60 next. On the downside, below 145.70 minor support will turn intraday bias neutral again first.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.8367; (P) 0.8421; (R1) 0.8512; More….

USD/CHF's rebound from 0.8038 is still seen as a corrective move. Strong resistance is expected from 38.2% retracement of 0.9200 to 0.8038 at 0.8482 to limit upside. Break of 0.8330 resistance turned support will turn intraday bias will turn bias back to the downside. Further break of 0.8184 will bring retest of 0.8038 low. However, sustained trading above 0.8482 will dampen this bearish view and target 61.8% retracement at 0.8756 next.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8750) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.

Global equity markets surged overnight in response to the breakthrough US-China tariff truce, with risk appetite roaring back across the board. DOW jumped more than 1100 points, while S&P 500 and NASDAQ surged 3.26% and 4.35%, respectively. The relief rally extended into Europe, where Germany’s DAX surged to a new record high, reflecting broad optimism that trade tensions have eased significantly—at least for now. In Asia, Japan’s Nikkei jumped nearly 1.8% in early trading as it played catch-up, though the boost faded in Hong Kong where HSI turned lower, signaling some regional caution.

In the currency markets, however, the initial momentum has slowed. Dollar remains the strongest currency for the week so far, supported by rising Treasury yields and expectations that Fed will maintain its high interest rate longer. Commodity currencies like the Australian, Canadian, and New Zealand Dollars are also holding firm, buoyed by improved risk sentiment. Meanwhile, Yen and European majors continue to lag.

The attention now shifts to today’s US April CPI release, which will be the first major inflation print since the April tariff escalation and the subsequent truce. Although the immediate impact of tariffs may not be fully visible yet, any upside surprise could reinforce Fed’s message of caution. While that may further support Dollar, it’s unlikely to significantly dampen the broader risk-on mood, given that markets have already recalibrated expectations following the trade deal.

Indeed, Fed fund futures have responded decisively to the latest developments. A week ago, markets were pricing in a 74% chance of a July rate cut. That probability has now dropped sharply to 41% in the wake of the tariff truce. This suggests that traders have already priced in a “higher for longer” Fed policy stance, reducing the likelihood of any sudden repricing unless inflation data comes in meaningfully above expectations.

Technically, with yesterday's strong rally, DXY will enter into a key resistance zone ahead, between 55 D EMA (now at 102.07) and 38.2% retracement of 110.17 to 97.92 at 102.60. For now, rebound from 97.92 is still seen as part of a correction to the fall from 110.17. Hence, strong resistance should be seen from 102.07/60 to limit upside, at least on first attempt. However, sustained break of this zone will raise the chance of reversal, and target 61.8% retracement at 105.49 next.

In Asia, at the time of writing, Nikkei is up 1.79%. Hong Kong HSI is down -1.67%. China Shanghai SSE is up 0.08%. Singapore Strait Times is up 0.43%. Japan 10-year JGB yield is up 0.07 at 1.459. Overnight, DOW rose 2.81%. S&P 500 rose 3.26%. NASDAQ rose 4.35%. 10-year yield rose 0.082 to 4.457.

Looking ahead, UK employment data and German ZEW economic sentiment will be the main feature in European session. Later in the day, US CPI is the center of focus.

Fed’s Goolsbee warns tariff truce still carries stagflation risk

Chicago Fed President Austan Goolsbee welcomed the weekend’s US-China tariff agreement as a step in the right direction but cautioned that its limited scope offers only modest relief.

In an interview with the New York Times, he said the temporary 90-day reduction in tariffs would be “less impactful stagflationarily than the path they were on.”

But that still represents a significant burden on the economy. With tariffs remaining three to five times higher than pre-trade war levels, Goolsbee warned the deal would still "make growth slower and make prices rise", hallmarks of a stagflationary environment.

Given the persistent uncertainty surrounding US trade policy, Goolsbee reiterated his support for a wait-and-see approach on interest rates. He noted that the Trump administration’s statements acknowledge the temporary nature of the current truce. "It’s going to be revisited in the near future,” he said.

BoE’s Taylor defends 50bps cut, cites perilous trade climate and weak demand

BoE MPC member Alan Taylor explained his decision to vote for a 50bps rate cut last week, warning that both global and domestic conditions have deteriorated significantly.

He pointed to a “quite perilous” international trade environment, driven in large part by broader-than-expected US tariffs. Also, "the erosion of confidence that we saw has continued", he added, with low readings in business surveys like the PMI and REC, along with signs of increased precautionary saving and delayed investment.

Taylor also called the recent UK-US trade deal “quite slender,” noting that most British exports will still face a 10% tariff, offering little near-term relief for exporters.

Taylor warned that waiting for complete confirmation that all inflation pressures had eased before easing policy further could leave BoE behind the curve.

ECB officials signal cautious path to June cut

Latvian ECB Governing Council member Martins Kazaks indicated overnight that a rate cut in June remains a “pretty possible step,” aligning with market expectations, provided upcoming data confirms progress toward anchoring inflation around the 2% target.

Kazaks added that "gradual cautious cuts could come upon the anchoring of inflation to around the 2% target."

Meanwhile, German and Spanish ECB members Joachim Nagel and Jose Luis Escriva added a note of caution in a joint interview, warning that US President Donald Trump’s aggressive tariff policies have clouded the economic outlook.

“Regarding monetary-policy decisions, it is important to be cautious and not to overreact by overemphasizing specific announcements that could change shortly afterwards,” Nagel emphasized.

BoJ’s Uchida sees temporary inflation pause, but wage growth to persist

BoJ Deputy Governor Shinichi Uchida said today that while Japan’s underlying inflation and medium- to long-term inflation expectations may "temporarily stagnate", wage growth is expected to remain firm as "Japan's job market is very tight."

He added that companies are likely to continue "passing on rising labour and transportation costs by increasing prices".

Uchida also stressed that BoJ will assess the economic impact of US trade policy “without pre-conception,” acknowledging the high degree of uncertainty surrounding the global outlook.

BoJ opinions: Sees tariff risks but maintains flexible rate-hike stance

BoJ’s Summary of Opinions from its April 30–May 1 meeting revealed a generally cautious view on the impact of US tariffs, with board members acknowledging the potential economic damage but not seeing it as enough to derail the pursuit of the 2% inflation target.

One member noted that BoJ may enter a "temporary pause" in rate hikes due to weaker US growth. But it's emphasized that "it shouldn't be too pessimistic".

The member emphasized that rate hikes could resume if conditions improve or US policy shifts.

Other opinions highlighted the high level of uncertainty facing Japan’s economic and price outlook, driven largely by global trade tensions. One board member noted the policy path “may change at any time.”

Another reaffirmed that there has been "no change to the BoJ's rate-hike stance", as projections continue to show inflation reaching the 2% target and real interest rates remain deeply negative.

Australian Westpac consumer sentiment rises to 92.1, weak confidence supports RBA cut

Australia’s Westpac Consumer Sentiment Index rose 2.2% to 92.1 in May, partially recovering from April’s sharp decline triggered by trade-related uncertainty.

Westpac attributed the modest rebound to stronger financial markets and a decisive outcome in the Federal election. However, sentiment remains subdued, with the index still 3.9% below its March level and firmly in pessimistic territory.

With all key inflation measures now back within the 2–3% target range, Westpac expects RBA to cut the cash rate by another 25bps to 3.85%. The combination of soft domestic sentiment and a more "unsettled and threatening global backdrop" strengthens the case for further easing.

Australia’s NAB business conditions weaken to 2, profit pressures mount

Australia’s NAB Business Confidence Index edged up from -3 to -1 in April. However, the underlying Business Conditions Index slipped from 3 to 2. Trading conditions eased from 6 to 5, while profitability dropped sharply from 0 to -4, highlighting the ongoing strain on margins.

Purchase cost growth accelerated to 1.7% in quarterly equivalent terms, up from 1.4%. Labor cost growth remained elevated at 1.6%. Rising input costs appear to be eroding profitability, with businesses struggling to pass through the full extent of these increases. This was reflected in modest increases in final product and retail price growth, which rose to 0.8% and 1.4% respectively—still below the pace of input cost growth.

NAB Chief Economist Sally Auld noted that weaker profitability was at the core of the drop in business conditions, aligning with the uptick in purchase costs and softer trading performance.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.8367; (P) 0.8421; (R1) 0.8512; More….

USD/CHF's rebound from 0.8038 is still seen as a corrective move. Strong resistance is expected from 38.2% retracement of 0.9200 to 0.8038 at 0.8482 to limit upside. Break of 0.8330 resistance turned support will turn intraday bias will turn bias back to the downside. Further break of 0.8184 will bring retest of 0.8038 low. However, sustained trading above 0.8482 will dampen this bearish view and target 61.8% retracement at 0.8756 next.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8750) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.