U.S Indices closed lower on Friday but well off earlier lows, which were induced after US President Trump touted a 50% straight tariff on the EU. On top of this, and weighing on stocks, was US President Trump suggesting at least 25% tariffs on Apple if it does not sell and manufacture iPhones in the US. Nonetheless, after the cash equity open and through the US session, risk sentiment improved to see US equities pare a large chunk of their losses, albeit seemingly not over a single headline driver, ahead of the long weekend due to US Memorial Day and UK May Bank holiday. Back to sectors, there were mixed but the aforementioned Tech lagged, while Utilities was the clear outperformer with names such as Constellation Energy supported in wake of Trump signing a nuclear energy executive order. Elsewhere, the Dollar plunged to the benefit of all G10 FX, snapping a four-week winning streak as fears over US economic growth reared in ugly head given fresh tariff concerns. High-beta FX outperformed, and relative underperformance was seen in the Euro due to the increased aggression from Trump. Treasuries were firmer across the curve and caught a bid on fresh Trump tariff threats, but Treasuries did pare some of the move as equities moved off lows, meanwhile, the inflationary impact of aggressive tariffs may have also been a reason for the downside. The crude complex was choppy but ultimately ended the day with gains as some desks cited short covering into the long weekend and Iran/US nuclear talks, whereby rhetoric seemed more constructive highlighted by a senior US admin official noting US-Iran talks continue to be constructive and they made further progress. There was no tier 1 data to end the week, while there was plenty of Fed speak but did little to move the dial, with more details below. New Home sales in April rose by 10.9%, accelerating from the prior 2.6% rise to 743k units from the revised down 670k, above the expected 693k. The supply of new homes fell to 8.1months worth from 9.1 months worth in March. Regarding the increase, Oxford Economics highlight how home builders have been offering price concessions to encourage sales and Y/Y new home prices declined for a fourth straight month. Looking ahead, OxEco “expect the pace of sales to weaken in the months ahead, given our forecast for the economy and labor market to soften while mortgage rates stay elevated.” Fed Member Goolsbee said businesses are telling the Fed they want consistency in policy before making big decisions; there is anxiety among firms that continued tariff announcements would disrupt the supply chain and lead to a rising price environment. In the short run, the Fed needs to wait for the dust to clear; the bar for action is higher until that happens. On the recently touted Trump 50% tariffs on the EU, Goolsbee said it is an order of magnitude different from the current situation, and tariff rates that high would be scary for the supply chain. The Chicago Fed President fears that the data is lagging, and upcoming reports will show a more serious impact from actions already taken. Thus far, he believes finance stability worries are overblown, and if there were a crisis over US fiscal stability, interest rates would be moving higher. Concerning the policy path, rate cuts are still possible over a 10-16 month horizon, but if tariffs have a stagflationary impact, then that is the Fed’s worst situation. Ultimately, Goolsbee still believes the economy remains strong, yet he is going to have to reassess his long-term views. Meanwhile, Fed Member Schmid said when deciding monetary policy, the Fed needs to be careful how much weight to put on soft data; will lean heavily on hard data when making interest rate decisions, allowing for less focus on forecasts. On rates, the Kansas Fed President noted nothing good happens when rates hit the zero lower bound, and cutting to zero again would probably mean there is a crisis; hopefully, the Fed is approaching a more range-bound, normalised rate curve. Finally, Musalem stated business execs are trying to figure out how to manage uncertainty about supply chains, inventory, and inflation. The St Louis Fed President expects higher prices for inputs and outputs, and the Fed is watching that carefully. Musalem does not want a rise in short-term inflation expectations to bleed into longer-term ones, and said GDP is close to potential, the labour market around full employment, and inflation still above target. Elsewhere, Oil closed flat while Gold was weak, ending Monday’s session with a loss of 0.5%. President Donald Trump announced just after 6pm on Sunday that the US will delay the implementation of a 50% tariff on European Union products to July 9 from June 1. Sunday’s decision to extend the tariff deadline was made after a phone call with European Commission President Ursula von der Leyen earlier in the day and comes after Trump unexpectedly threatened duties of 50% on the EU on Friday morning. The move surprised European officials who thought they were making progress with his administration on talks to avert the 20% “reciprocal” tariffs Trump announced in April, and then paused for 90 days. The S&P Futures Market rallied 1.3% on the news while the DAX ended Monday’s session with a gain of 1.6%.
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