Global Economy & Markets, Weekly Roundup 13/05/25
US-China trade detente supported risk appetite, with global equities moving higher
Investors’ risk appetite improved since mid-past-week on the back of a partial easing of international trade tensions, as the US made tentative trade agreements with China and the UK. US bourses rallied on Monday May 12th, with the S&P500 up by +3.3%. At the same time, speculative corporate bond spreads narrowed sharply, down by -51 bps to 315 bps in the USD spectrum and by -36 bps to 327 for their EUR peers, at 1½-month lows.
Prices of “safe havens” pulled back, with the US Treasury 10-year yield rising by +15 bps to 4.46% and gold prices shedding -5.7% to $3235/ounce. The US Dollar gained +2.0% against the euro, to €/$1.111, in view of the economic outlook improving somewhat as well as of a modest repricing higher of investors’ expectations for the path of the Federal Funds Rate.
Investors’ expectations now point to -50 bps cuts by end-2025, instead of -75 bps a week ago. Investors will now monitor a speech from Fed Chair Powell on Thursday May 15th, following also April’s US CPI (May 13th). Regarding the latter, the annual growth of both the headline and the core index were little changed from the previous month, at 2.3% from 2.4% and stable at +2.8%, respectively, close to consensus.
The Fed stood pat, as expected (4.25% - 4.50%), in view of elevated economic uncertainty as US federal government policies are being substantially re-configurated in four areas (i.e. external trade, immigration, fiscal policy and regulation) each with significant potential economic effects.
The US and China agreed to suspend for 90 days a big part of their recently imposed bilateral tariffs. Specifically, the US will temporarily cut the additional tariffs recently imposed on imports of goods from China, to 30% from 145%. Similarly, China’s extra levies on imports of goods from the US will decline to 10% instead of 125%.
US President Trump signed on May 12th an executive order calling on pharmaceutical companies to substantially lower prices on medicines, directing price targets to be reached in the next 30 days. Further implementation details are pending, with enforceability challenges being likely.
The People’s Bank of China (PBoC) announced measures to support economic activity via liquidity provision. Financial institutions’ reserve requirement ratio was reduced by -0.50% (to 9% for large banks), a move that the PBoC estimates will free up RMB 1 tn ($137 bn or 0.7% of GDP) of liquidity to be directed towards real economy lending.
In addition, the 7-day repo rate (a benchmark for central bank lending to financial institutions) was reduced to 1.4% from 1.5% previously. Moreover, the PBoC increased the size of lending schemes towards financial institutions for the financing of investment in technological innovation & transformation as well as rural development, a total of RMB 0.6 tn (0.45% of GDP).
The US and the UK struck an initial trade agreement (the bilateral trade in goods is roughly balanced). Main points include a phased reduction of US tariffs on import of cars and steel from the UK. For most products, the baseline US import tariff increase of 10% announced on April 2nd remains in place, while the two countries will work on improving market access to the UK of certain US-made products.
Investors’ risk appetite improved since mid-past-week on the back of a partial easing of international trade tensions, as the US made tentative trade agreements with China and the UK. US bourses rallied on Monday May 12th, with the S&P500 up by +3.3%. At the same time, speculative corporate bond spreads narrowed sharply, down by -51 bps to 315 bps in the USD spectrum and by -36 bps to 327 for their EUR peers, at 1½-month lows.
Prices of “safe havens” pulled back, with the US Treasury 10-year yield rising by +15 bps to 4.46% and gold prices shedding -5.7% to $3235/ounce. The US Dollar gained +2.0% against the euro, to €/$1.111, in view of the economic outlook improving somewhat as well as of a modest repricing higher of investors’ expectations for the path of the Federal Funds Rate.
Investors’ expectations now point to -50 bps cuts by end-2025, instead of -75 bps a week ago. Investors will now monitor a speech from Fed Chair Powell on Thursday May 15th, following also April’s US CPI (May 13th). Regarding the latter, the annual growth of both the headline and the core index were little changed from the previous month, at 2.3% from 2.4% and stable at +2.8%, respectively, close to consensus.
The Fed stood pat, as expected (4.25% - 4.50%), in view of elevated economic uncertainty as US federal government policies are being substantially re-configurated in four areas (i.e. external trade, immigration, fiscal policy and regulation) each with significant potential economic effects.
The US and China agreed to suspend for 90 days a big part of their recently imposed bilateral tariffs. Specifically, the US will temporarily cut the additional tariffs recently imposed on imports of goods from China, to 30% from 145%. Similarly, China’s extra levies on imports of goods from the US will decline to 10% instead of 125%.
US President Trump signed on May 12th an executive order calling on pharmaceutical companies to substantially lower prices on medicines, directing price targets to be reached in the next 30 days. Further implementation details are pending, with enforceability challenges being likely.
The People’s Bank of China (PBoC) announced measures to support economic activity via liquidity provision. Financial institutions’ reserve requirement ratio was reduced by -0.50% (to 9% for large banks), a move that the PBoC estimates will free up RMB 1 tn ($137 bn or 0.7% of GDP) of liquidity to be directed towards real economy lending.
In addition, the 7-day repo rate (a benchmark for central bank lending to financial institutions) was reduced to 1.4% from 1.5% previously. Moreover, the PBoC increased the size of lending schemes towards financial institutions for the financing of investment in technological innovation & transformation as well as rural development, a total of RMB 0.6 tn (0.45% of GDP).
The US and the UK struck an initial trade agreement (the bilateral trade in goods is roughly balanced). Main points include a phased reduction of US tariffs on import of cars and steel from the UK. For most products, the baseline US import tariff increase of 10% announced on April 2nd remains in place, while the two countries will work on improving market access to the UK of certain US-made products.