Market drivers and catalysts
Equities: Moody’s downgrade recovery; US healthcare up; EU-UK deal boosts DAX; Asian stocks rise on China rate cut
Volatility: VIX spikes amid credit rating concerns; hedging signals rise; futures suggest mild stress
Digital assets: BTC holds above $106K; ETH gains; crypto bill advances; corporate treasury interest grows
Fixed Income: US yields reversed lower from local highs. Long JGB yields soar to multi-decade highs on weak auction demand
Currencies: JPY stays firm across the board, the USD mixed after yesterday’s strength, AUD weak post-dovish RBA.
Commodities: Gold’s US downgrade bid fade, platinum deficit lift prices to near key resistance
Macro events: Canada April CPI & Eurozone May Consumer Confidence
Macro data and headlines
Chinese banks lowered their benchmark lending rates for the first time in seven months after the PBoC reduced its key one- and five-year lending rates by 0.1% each to new lows, with the intension to strengthen the sluggish economy and mitigate the impact of U.S. tariffs.
Fed officials Jefferson, Williams, and Kashkari highlighted tariff-related uncertainty. Bostic mentioned that the number of rate cuts depends on tariff details, leaning towards only one cut this year due to the time needed to assess tariffs.
China accused the US of undermining the Geneva consensus on chip export controls, urging correction and warning of measures if the US persists, referring to the Trump administration’s warning that using Huawei Ascend chips violate export controls, according to Bloomberg.
The UK and EU have agreed to reset post-Brexit relations, including energy, defence, and fishing rights until 2038. Investors await Thursday's PMI figures, expecting less contraction in manufacturing and services. April inflation may rise to 3.3%, with core CPI at 3.6%.
- China's industrial production increased by 6.1% year-on-year in April 2025, exceeding the expected 5.5% gain. This growth slowed from March's 7.7%, the highest since June 2021, when factories anticipated significant US tariffs.
JPMorgan CEO Jamie Dimon warned that tariffs' effects hadn't fully impacted the economy and equities might fall due to rising supply costs. Solar energy shares dropped after House Republicans planned to end some clean energy tax credits early.
The Euro Area's growth forecast is revised to 0.9% for 2025 and 1.4% for 2026, down from earlier predictions, due to tariffs and US trade policy changes. Inflation is expected to drop faster, reaching 2.1% by mid-2025 and 1.7% in 2026.
The Reserve Bank of Australia cut its cash rate target 25 basis points to 3.85% from 4.10% as expected. The bank lowered its core inflation forecast by 0.1% to 2.6% for Q2 2027 and its cash rate target forecast another 65 basis points of rate reduction this year. The market took this as a slightly dovish as it raised the likelihood of a further rate cut in July slightly to about 50/50.
Macro calendar highlights (times in GMT)
1230 – Canada April CPI
1400 – Eurozone May Consumer Confidence
Fed speakers: Bostic and Barking (1300), Collins (1330), Musalem (1700), and Kugler (2100)
EU Defence ministers and foreign ministers meet in Brussels
G-7 Finance Ministers and Central Bank Governors meet in Bannff, Canada
Earnings events
Today: Home Depot, Palo Alto Networks
Wednesday: TJX Companies, Lowes, Medtronic, Snowflake, Target
Thursday: Intuit, Analog Devices, Workday, Autodesk, Copart
Equities
US: US stocks recovered from early losses Monday as Moody's downgrade of the US credit rating unsettled markets initially. The S&P 500 rose slightly (+0.1%) after falling over 1% intraday, marking a sixth consecutive gain. The Dow gained 137 points (+0.3%), while the Nasdaq closed flat. Treasury yields retreated from recent highs, with the 10-year yield easing to 4.45% after nearing 4.56%. Healthcare stocks, notably UnitedHealth (+8.2%), outperformed, while tech lagged with Apple (-1.2%) and Tesla (-2.2%) declining. Investors are awaiting key earnings from Home Depot and remarks from Fed officials.
Europe: European equities closed mostly flat after recovering early losses, reflecting cautious optimism from the EU-UK post-Brexit agreement. Frankfurt's DAX stood out, closing up 0.7% at a record high of 23,935, driven by Siemens Energy (+3.6%) and Rheinmetall (+1.7%). The STOXX 50 ended nearly unchanged. Geopolitical developments, particularly Trump's call with Putin regarding Ukraine peace talks, supported investor sentiment. Today, markets expect positive openings ahead of earnings from Vodafone and Greggs.
UK: The FTSE 100 edged up (+0.2%), continuing gains from the landmark EU-UK trade deal. Travel stocks such as EasyJet and IAG rose over 2%, benefiting from improved EU border access for UK tourists. Conversely, Diageo (-0.9%) warned of a $150 million hit from US tariffs despite strong quarterly sales. Investors now await earnings results from Vodafone and Greggs.
Asia: Asian equities climbed on Tuesday as China’s central bank cut its key lending rates slightly, boosting sentiment. The Hang Seng rose 0.9%, driven by strong debuts from CATL (+11%) and gains in Xiaomi (+3.8%). Markets remained cautious amid ongoing US-China tensions over chip export controls. Australia's ASX 200 (+0.5%) gained after the Reserve Bank cut rates, while Japan’s Nikkei rose (+0.5%) on optimism from ongoing US-Japan trade talks.
Volatility
Volatility rose Monday, with the VIX closing at 18.14 (+5.2%) after swinging between 17.92 and 19.92 amid U.S. credit downgrade concerns and renewed tariff tensions. Ultra-short-term measures diverged: VIX1D edged up to 13.46 (+0.5%), showing calm, while VIX9D jumped to 16.81 (+17.1%), ending a four-day slide and signaling hedging ahead of key U.S. retail sales data and Fed speakers. VIX futures showed limited stress, with May settling at 18.20 and June at 19.65, leaving a shallow 1.4-point contango. Meanwhile, VIX options volume dropped to 343k contracts, indicating less short-term hedging demand.
Digital Assets
Crypto markets steadied, with Bitcoin up 0.6% at $106,213 and Ethereum climbing 1.4% to $2,563. Bitcoin’s correlation with gold significantly decreased, suggesting growing independence as market liquidity increased. Regulatory optimism bolstered sentiment as the U.S. Senate moved forward with the GENIUS crypto bill, creating clearer stablecoin rules. Crypto-related stocks saw mixed performance; Marathon Digital rose slightly (+0.7%), while Riot Platforms declined (-2%). Quantum Biopharma boosted its Bitcoin holdings, reflecting ongoing corporate interest in digital assets.
Fixed Income
US treasury yields fell back after threatening higher early Monday as Trump’s “big, beautiful” tax bill passed a key hurdle in a House committee vote at the weekend. Progress for the bill is slow, as key Republican lawmakers argue over further spending cuts and specific tax breaks. The US 10-year benchmark yield dipped back toward 4.45% after trading as high as 4.56% yesterday.
- An auction of 20-year Japanese Government bonds saw the weakest demand in since 2012. The bid to cover ratio was 2.5 as US 20-year benchmark yields soared 12 basis points to 2.54%, their highest yield since the year 2000. 10-year JGB yields were dragged higher to 1.52%, but are still below the 1.60% area high from March, while the 30-year JGB hits its highest yield since 1999.
Commodities
Crude prices continue to trade with no clear direction, stuck near the centre of established ranges, with headlines the biggest source of directional input for now. Some focus on Russia and Iran where solutions on multiple issues may lead to reduced US sanctions and more barrels of crude. Together with additional barrels from the OPEC+ production hikes, the upside potential seems limited beyond USD 69 in Brent.
Gold is struggling to hold onto Monday’s gains – with resistance established around USD 3250 - after the Moody’s US downgrade bid faded, and rate cut hopes were lowered after two Fed members said rates could be kept on hold until at least September
China’s overnight rate cut failed to give silver and copper a boost, while platinum trades near key resistance at USD 1012 after an industry body said the market is heading for a deficit of nearly 1 million ounces in 2025. Note, London Platinum Week starts today
Currencies
The US dollar was mixed after falling sharply yesterday, with EURUSD not able to stick above the key resistance at 1.1266 that was tested and broken briefly yesterday, with a 1.1288 high before the pair dipped back to 1.1220 and trades near 1.1250 this morning.
- JPY strength was more consistent as USDJPY dipped to new local lows overnight below 144.50 as Japan’s long government bond yields soared overnight (see above in Fixed income)
The Aussie dipped across the board on an RBA meeting that was read as dovish as the bank lowered its inflation and growth outlook moderately and cited considerable uncertainty on the risks from trade policy. AUDNZD dipped below 1.0850 for the first time in more than a week and AUDUSD lost altitude within the tight range, dipping back to 0.6410.
