U.S. Indices closed lower (SPX -0.6%, NDX -0.5%, DJI, -0.6%, RUT -1.1%) but still remained well in the green for the week thus far, with focus on NVIDIA (NVDA) AMC. Note, NVIDIA beat on profit and revenue, despite incurring a USD 4.5 billion charge in Q1; Q2 revenue outlook fell short, but reflected a USD 8 billion loss in H20 revenue. Sectors closed entirely in the red with Utilites, Energy, and Materials underperforming while Real Estate outperformed. Pressure was seen in the likes of Cadence Systems (CDNS, -10.7%) after US President Trump ordered US chip designers to stop selling to China (via FT). Keeping on trade, a US Commerce spokesperson said the US is reviewing exports of strategic significance to China and has suspended some export license while review takes place. Concerning the EU, In FX, talks between US and EU officials are to occur on Thursday, and then on every other day. Aside from trade, FOMC Minutes was watched but sparked little reaction across markets. Members agreed that they were well positioned to wait for greater clarity on the economic outlook but pointed to tariff policies as posing a larger drag on economic activity than previously assumed. In FX, Dollar strength continued with gains seen across the board, while NZD outperformed following a hawkish RBNZ cut. Treasuries were sold across the curve, leaving yields higher similar to global peers. Treasury downside was aided by commentary from Fed’s Williams, who sounded cautious on inflation expectations, and a poorly received 40 Year JGB bond auction. Note, the USD 5 Year Treasury Note auction was decent, but signalled weaker demand than the prior, and to a lesser extent the six-auction average. Crude prices settled higher amid Trump continuing to disapprove of Russian President Putin’s recent action, noting he is playing with fire and said it will take about a week to find out if Putin is playing them. Meanwhile, Tehran denied Reuters reports of halting uranium enrichment for a year, adding, the continuation of enrichment in Iran is non-negotiable. Concerning OPEC+, the meeting went as expected with no oil output decision made, but the door was left open for a further accelerated output hike for July at the upcoming Saturday meeting. Minutes from the FOMC’s May 7th policy meeting stated that participants agreed that they were well positioned to wait for greater clarity on the economic outlook, adopting a cautious stance on monetary policy amid the risks and challenges facing the economy. Staff pointed to tariff policies as posing a larger drag on economic activity than previously assumed. Officials noted that uncertainty around their outlooks had increased and was unusually elevated. Most participants highlighted a risk that inflation could prove more persistent than expected and agreed that the risks of both higher inflation and higher unemployment had risen. They acknowledged the possibility of facing difficult trade-offs should persistent inflation coincide with weakening growth and employment prospects. It is worth noting that the Minutes of the meeting are an account of information that was available to them at the time of the May 7th meeting, and therefore it will not incorporate the recent de-escalation on trade frictions with China. Still, on asset prices, some participants observed changes in typical correlations across asset prices during the first half of April, while others noted that a durable shift in such correlations or a weakening of the perceived safe-haven status of US assets could have lasting implications for the economy. Elsewhere, for those looking for any clues on how the Fed’s five-year review of its policy framework, due later this year, officials said that maintaining the 2% price target supports transparency, accountability, and monetary policy effectiveness. The Richmond Fed composite manufacturing index rose to -9 in May from -13 in April, remaining in negative territory. Of its three component indices, shipments and new orders rose to -10 (prev. -17) and -14 (prev. -15), respectively, and employment edged up to -2 from -5. Backlog of orders lifted to -19 from -24, but local business conditions declined to -25 from -21. Looking ahead, the Index for future local business conditions rose significantly from -37 to -6. The future indices for shipments and new orders increased notably, with shipments rising from -20 to 2 and new orders increasing from -26 to -3. Prices paid dipped, while received rose slightly, but both notably fell looking ahead. Fed Member Williams said inflation expectations are well anchored, and he wants to avoid inflation becoming highly persistent as that could become permanent; a way to avoid that is to respond relatively strongly when inflation begins to deviate from target. Meanwhile, the NY Fed President said misperceptions about ‘r star’ can lead to long-lasting deviations. He added that you want the whole curve of inflation expectations to be well-behaved. Elsewhere, Oil closed higher by 1.67% while Gold was flat.
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