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If this trade deal with the UK was announced two or three weeks ago, I would have said that it’s really good for the markets and would have been very upbeat on risk sentiment. The context is a bit different now, in my opinion.

Recall back in the middle of April, Fed’s Waller outlined his strategy to deal with tariffs. He had two scenarios in mind: tariffs around 25% on average and tariffs around 10%. The second scenario is the one that is playing out and it involves the Fed being less inclined to cut rates faster.

In fact, the market is taking this first trade deal as the more hawkish scenario for the Fed and the pricing is converging towards the original Fed’s baseline of two rate cuts in 2025 (the pricing is now showing 68 bps by year-end compared to 80 bps at the start of the week).

The problem here is that with new information throughout the weeks, the 10% has become a “meh” outcome. After April 9 pause, the market rallied on expectations that eventually the US would have gone for 10% reciprocal tariffs and would have lowered the tariffs on China back to the original 50-60% rate. This is what the whole “de-escalation trade” was based on.

We have now reached the peak in this trade because the US said that the 10% will be the floor for all other deals and we got a report from New York Post yesterday saying that the US is considering lowering the tariffs on China to 50-54%. Recall, the market was expecting 10% global tariffs and 50% on China before the April 2 surprise.

All of this should now be priced in and the market’s reaction to the news of the US lowering tariffs on China could be a hint. In fact, you would have expected a strong rally, but the market actually went in the opposite way. Nonetheless, this has opened up for a weekend risk scenario in which the market opens up with a positive gap next week, so the selling pressure into the weekend could be limited (I mean it doesn’t look good from a risk management perspective for the bears).

So, what makes this first trade deal a “meh” outcome is that not only we have some overstretched positioning but we also have the risk of retaliation now. The EU has been repeating that they won’t accept the 10% tariff rate and has been threatening a retaliation in case negotiations fail. But the US is saying that 10% is the best anyone can get and tariffs could be even higher.

Next week will be the tell. If we open up with a positive gap and the stock market then performs badly throughout the week, then it could be a signal that we have indeed reached the peak (at least in the short term). I would expect the bears to seize the opportunity and start selling at the start of the week. You either catch the top or you get it wrong, but from a risk/reward perspective it doesn’t look bad at all.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

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• Taking all stake continues to be the starting point for negotiations with the US government
• We are presenting a range of proposals in talks with the US government
• CFIUS expected to make a recommendation to US Steel deal to Trump by 21 May
• A decision by Trump is expected by 5 June

At least now we have some key dates to attach to how things are playing out on this matter. As a reminder, Biden blocked the deal as one of his final acts as president. And in his most recent comments last month, Trump said that “we don’t want to see it go to Japan”. So, there’s that.

This article was written by Justin Low at www.forexlive.com.

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In overall terms, the numbers here were much better than expected as China exports in particular held up. However, the devil is always in the details. China’s exports to the US actually fell by nearly 18% on the month from March to April. So, what gives?

It is basically this: How China has been preparing itself ahead of this tariffs eventuality with the US

China is pretty much just rerouting goods by origin washing as exports to Vietnam especially surged on the month.

The good news for the US is that perhaps this might even just be a temporary thing. After speaking to US retailers last week, Trump looks to have given some assurance of sorts as we’re starting to even see a pick up in China container ships leaving for the US now:

Is this a start of a return to some form of new normality? If so, it’s possibly a hint that the US will lower China tariffs as we look to talks over the weekend.

This article was written by Justin Low at www.forexlive.com.

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• AUD popped above 0.6400 after better than expected China exports data … be careful folks

• China January – April yuan denominated exports +7.5% y/y

• Goldman Sachs expects Bank of England hold at the June meeting
• China Vice Foreign Minister Hua: On US trade talks … ‘come on. We have no fear.’
• US Treasury to establish a fast track program for foreign investors
• Fed speakers Friday: Williams, Barr, Kugler, Barkin, Goolsbee, Cook, Hammack, Musalem
• China’s SMIC warns of weak Q2 amid trade uncertainty, projects revenue decline
• ECB’s Schnabel is speaking after market close on Friday
• PBOC sets USD/ CNY reference rate for today at 7.2095 (vs. estimate at 7.2581)
• Bank of England Governor Andrew Bailey is speaking on Friday
• China weighs nationwide ban on home pre-sales to stabilise property market
• Japan finance minister Kato: Not appropriate to lower consumption tax
• Westpac forecast RBNZ rate cut of 25bp in May and 25bp cut in July
• Japan data – March household spending +2.1% y/y (expected +0.2%, prior -0.5%)
• Japan data – March Labor Cash Earnings +2.1% y/y (expected +2.3%, prior +3.1%)
• Tesla has scrapped the range extender accessory it was making for Cybertrucks
• Standard Chartered say they were wrong on US$120K BTC Q2 forecast – too low!
• Preview: China export growth likely slowed sharply to +1.9% y/y in April (+12.4% in March)
• Bitcoin hits a high circa US$104K
• China intends to buy around US$900 million of soybeans, corn, vegetable oil from Argentina
• Forexlive Americas FX news wrap 8 May:UK in the news. BOE cuts. UK makes trade deal w/ US
• Lutnick says the UK deal helps, wants a trade deal with a big country from Asia
• Lutnick says the best any country can do is a 10% US tariff
• Major US indices close higher for the second consecutive day
• Trade ideas thread – Friday, 9 May, insightful charts, technical analysis, ideas

Trade policy developments, weak Japanese wage data, and surprisingly strong Chinese exports were key themes in Asia today, ahead of a high-stakes weekend meeting between U.S. and Chinese officials in Switzerland.

U.S. Commerce Secretary Howard Lutnick said new trade deals with Japan and South Korea may take significantly longer to conclude than the recently announced UK framework agreement. The comments signal a slower path ahead for deepening trade ties in Asia. Lutnick also said that 10% tariffs were the lowest countries could hope for.

Japan’s real wages fell 2.1% year-on-year in March, marking the third straight monthly decline and the steepest drop in two years. The data underscores continued pressure on household purchasing power and complicates the Bank of Japan’s case for normalising policy.

Chinese Vice Foreign Minister Hua Chunying struck a defiant tone ahead of trade talks, saying Beijing has “no fear” in the face of U.S. tariffs and calling Washington’s current policy unsustainable. Her remarks come as China and the U.S. prepare for their first high-level talks aimed at easing tensions.

China’s latest trade data showed exports jumped 8.1% y/y in April, well above expectations (Reuters poll consensus was 1.9%) and continuing from a strong March when exporters moved swiftly ahead of tariff hikes. Imports fell a modest 0.2%, a smaller decline than forecast and an improvement from March, though underlying domestic demand remains weak.

China’s goods trade totalled 14.14 trillion yuan ($1.96 trillion) in the first four months, up 2.4% year-on-year, with the pace of growth picking up slightly from Q1.

Bitcoin climbed toward USD 104,000 amid reports that El Salvador had resumed government purchases. The move spilled into other cryptocurrencies as well.

***

Major FX rates traded in a subdued fashion after a hectic week. Gold bounced from under $3280.

Bitcoin update:

This article was written by Eamonn Sheridan at www.forexlive.com.

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