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Dollar drops, US inflation increases futures, and risk appetite is heightened
Dollar fell, and U.S. Stock Futures rose on February 2, after data showed U.S. Consumer Inflation picked up less in April than expected. This was when President Donald Trump announced a series of tariffs which have caused havoc to global markets and supply chains. On Monday, the U.S. announced that it would suspend its trade war with China for 90 days. It will also reduce reciprocal duties while negotiating a permanent agreement. The agreement has reignited the appetite of investors for stocks, commodities and cryptocurrencies. Tuesday's inflation numbers have also helped fuel this move. The Bureau of Labor Statistics reported that its Consumer Price Index (CPI), which measures consumer prices, rose by 0.2% from March to April. This brings the annual rise from 2.4% to 2.3%. Economists polled had predicted a rise of 0.3% per month and 2.4% per year. The dollar continued to lose ground against a basket currency, while the euro rose 0.4% in a single day and reached a high of $1.113. Futures for the S&P 500, Nasdaq, and Dow Jones rose between 0.2-0.3%, suggesting that Wall Street will start the week with a modestly better start. The S&P gained 3.3% after the U.S./China news. Peter Cardillo is the chief market economist for Spartan Capital, a New York-based firm. The report indicates that Fed officials should be cautious, and the stance they've taken for the moment is likely the best course of action. After the Geneva talks, the U.S. announced it will reduce tariffs on Chinese imports from 145% to 30%. China also said that it would lower duties on U.S. imported goods from 125% to 10%. The change in U.S. China trade relations has caused traders to reduce expectations of Federal Reserve rate reductions, believing that policymakers will have more flexibility to lower rates as inflation risks decrease. The traders are now pricing in 56 basis point cuts for this year. This is down from April's forecasts of over 100 basis points, when the fears of Trump's Tariffs were at their highest. Cardillo stated that "the Fed is on the right track and until there are any real changes in the trade war by June, a rate cut in June remains in doubt." Economists and fund managers have stated that the 90-day break is welcomed, but it hasn't changed the larger picture. Christopher Hodge said that the tariffs would still be higher after all was said and done and this will have a negative impact on U.S. economic growth. The ratings agency Fitch estimates that the U.S. tariff rate has dropped to 13.1% from 22.8% before the agreement, but is still above the 2.3% at the end 2024. After the inflation figures, U.S. Treasury rates dipped below their one-month highs of Monday. The benchmark 10-year rate was down 1.4 basis point on the day, closing at 4.443%. Oil rose by 0.9% to $65.48 per barrel, continuing Monday's rally of 1.2% to a 2-week high over $66 a barrel. Gold increased 0.4% to $3.246 per ounce after falling 2% on Sunday.
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Germany's Merz says EU will tighten sanctions against Russia if there is no progress in Ukraine this week
German Chancellor Friedrich Merz announced on Tuesday that the European Union was ready to impose stronger sanctions on Russia, if there is no progress in ending the conflict in Ukraine this week. He added that a new set of sanctions had been prepared. Merz and his Greek counterpart spoke at a press conference. "We're waiting for the agreement of (Russian president Vladimir) Putin, and we both agree that there will be no real progress made this week. We want to work with you at European level in order to tighten sanctions significantly," Merz stated. He said that he would be looking into other areas such as the financial and energy markets. Merz stated that EU leaders agreed with Ukrainian president Volodymyr Zelenskiy to allow him to take part in discussions with Russia this week in Istanbul, on condition that Russian attacks and bombardments on civilians must cease. Merz said that he was impressed by Zelenskiy’s willingness to compromise in order to achieve a ceasefire. Merz said, "I don't think more concessions and compromises is reasonable." The Greek Prime Minister Kyriakos Misotakis stated that the EU should be the center of any settlement for peace. Reporting by Rachel More, Madeline Chambers, and Lefteris Papadimas from Athens. Editing by Matthias Williams
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Tariff concerns could lead UK chip supplier IQE to move some production from the UK to the US
Apple supplier IQE wants to move some production from China to the United States and share tariff costs with its customers in order for it not be subjected any potential U.S. duties against the chip sector, said its new CEO on Tuesday. Last month, Donald Trump announced that he would consider tariffs on semiconductors starting at "25% and higher", without specifying when they could be implemented. Jutta Meira, confirmed CEO of IQE on Tuesday, stated that IQE constantly talked to customers about ways to mitigate tariff risk. She added that this would require a lot of investment and time. Meier explained that the Cardiff-based firm is looking for gallium outside of China to diversify its supply chain and ensure it does not depend on a single supplier. Trump announced tariffs against global trading partners, as well as industries such as steel and aluminum. While countries negotiate with the U.S. government, some broader tariffs are being delayed. IQE, a company with manufacturing facilities in the U.S.A., Britain, and Taiwan, stated that there is "currently" no direct impact from the implementation U.S. Tariffs. DIVERSIFICATION STATEGY IQE said that it may sell its Taiwan operation as part of a review of strategic options to reduce debt and boost the growth of the company. Previously, IQE had considered an IPO. Meier said that a full sale "makes sense" from both a timing and valuation perspective. We can use the proceeds to accelerate our growth and diversification strategies. According to a consensus provided by the company, IQE anticipates that revenue in 2025 will be between 115.1 and 123 millions pounds ($151.9-162.5 million) within the market expectations. The company reported revenue of 118 million pounds for 2024. In afternoon trading, shares of the company rose 4.6%.
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Volkswagen Suppliers on list of first export permits for rare earth magnets issued by Beijing
China has granted export permits to four rare earth magnet manufacturers, including suppliers to Volkswagen. The German carmaker, and industry sources, said that this was the first time since Beijing restricted shipments in the last month. It is a sign the vital materials will continue to flow. Three sources confirmed that Baotou Tianhe Magnetics which produces magnets for electric and hybrid motors received a license from Volkswagen late April. Three sources said that Volkswagen had reached out Beijing for assistance during the process. Volkswagen responded to questions by saying that it was in constant contact with its suppliers. It had also received information that some of the magnet suppliers for Volkswagen AG have been granted export licences by China. Two sources confirmed that Zhongke Sanhuan had received at least one license. One source added that Baotou INST Magnetic, Earth-Panda Advanced Magnetic Material and Baotou INST Magnetic were all granted at least one license. Sources declined to name themselves due to the sensitive nature of the issue. Requests for comment from the four magnet manufacturers and China's Commerce Ministry were not immediately responded to. Beijing does not confirm whether all four companies' clients have received export licenses. According to one source, permits were only granted to suppliers who had customers in Europe or Vietnam. The permits were issued prior to the Monday truce in the trade war with Washington, according to industry sources. This is likely to make approvals easier for U.S. clients. Beijing issued the permits in less than a week after it placed restrictions on seven rare-earth elements and related materials, as a reaction to U.S. president Donald Trump's previous tariffs. Sources said that the permits were the very first ones issued since Beijing implemented its restrictions. China is the dominant supplier of rare earths, which are used in clean energy, defense, and auto manufacturing. Companies have very few alternative suppliers. Volkswagen's involvement and lobbying by other large Western users demonstrate this dependence. Elon Musk stated last month that Tesla was in discussions with Beijing about licenses for its Optimus robotics.
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Salt is dropped from the ODIs against West Indies. Cricket-Dawson will return to England's T20 Squad.
The England & Wales Cricket Board has not selected Phil Salt for the upcoming home white-ball series against West Indies. Will Jacks, a batting all-rounder, has been recalled to the England squads that will face West Indies in three ODIs (over 20-overs) and three T20s between May 29 and July 10. Harry Brook, the white-ball captain, is leading both teams. Luke Wood and Tom Hartley have both returned to England's T20 and ODI teams, respectively, after not playing white-ball cricket since September 2023. Jacks was playing in the Indian Premier League along with Jos buttler, Jacob Bethell and Jamie Overton, before it was suspended due to fighting between India, Pakistan and Afghanistan. The IPL will take place in 2019. Resuming on May 17, The final is now scheduled for 3 June, which coincides with the West Indies ODI series. British media reported that all 10 English IPL players will meet with the Professional Cricketers' Association to discuss security arrangements in case they return to India. Cricket Australia has also stated that they are. Working with the Indian Cricket Board (BCCI). Several of their players are deciding whether or not they will play the remainder of the IPL. England will play a four day test against Zimbabwe starting on May 22 at Trent Bridge. England squads Harry Brook (captain), Jofra Archer, Gus Atkinson, Tom Banton (Surrey), Jacob Bethell (James Smith), Brydon Carett (Ben Duckett), Tom Hartley (Tom Hartley), Will Jacks (Saqib Mahmood), Jamie Overton (Matthew Potts), Adil Rashid (Joe Root), Jamie Smith (Jamie Smith). Harry Brook, Rehan Ahmed, Tom Banton (captain), Jacob Bethell, Brydon Care, Liddell Dawson, Ben Duckett Will Jacks Saqib Mamood Jamie Overton Matthew Potts Adil Rashid Phil Salt Luke Wood. (Reporting by Chiranjit Ojha in Bengaluru Editing by Christian Radnedge)
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France reduces its soft wheat area estimates and predicts a drop in maize planting
The French farm ministry lowered Tuesday its estimate for the soft wheat area that will be sown in 2025. However, it expects to see a strong rebound after a rain-damaged planting last year. The Ministry's Crop Report estimated that the area of soft wheat was 4.60 million ha, down from 4.63 millions hectares in April estimates but still 9.1% higher than last year's harvested areas. Last year, France, the largest grain producer in the European Union, harvested the smallest wheat crop it has ever produced since the 1980s after torrential rainfall and lower-than-normal sunlight disrupted and damaged plant development. FranceAgriMer's crop ratings suggest that the wheat plants are better than last year. This reinforces expectations of a strong production rebound this summer. The Ministry's first estimate for this year's corn (maize) area put the total area including the maize sown as seeds at 1,48 million hectares. This is down 7.6% compared to 2024. It is widely believed that the maize area will shrink due to the increased wheat sowing in autumn. The ministry increased its estimate of France's sugarbeet harvest area to 393,000 ha, up from 391,000 ha last month, but still 4.6% less than last year. In the case of sunflower seed, it was estimated that in 2025, there would be 674,000 ha, a decrease of 10.7% from 2024, and a third consecutive annual decline. The Ministry of Agriculture's estimate for rapeseed (France's main oilseed) was slightly increased to 1.3m hectares, up from 1.29m last month. However, this was still 2.3% lower than last year.
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Thames Water in the UK says that fines should be delayed to avoid state intervention
When questioned on Tuesday by lawmakers, the bosses of Britain’s Thames Water claimed that the company needs relief from fines in order to avoid nationalisation. Thames Water has been fighting against financial collapse for the past year. The water sector is under fire for allegedly polluting Britain’s rivers and seas, while at the same time increasing bills. Thames Water has been trying to reach a deal with the financial investor KKR in order to raise new equity and avoid being subject to the Special Administration Regime of government. However, due to its poor performance it will likely face large fines. CEO Chris Weston stated that it would not be able to achieve equity without regulators agreeing to deferred or reduced fines. Weston stated that "Discussing the concept of a turn-around regime with the regulator that could provide some relief from the usual regulatory environment while a business recovers its operation is absolutely imperative for Thames, otherwise we won't be invested in." There is no sense in punishing someone continuously if it will only exacerbate the problem. Steve Buck, the company's CFO, said that he had calculated the potential of 900 million pounds ($1,19 billion) in penalties for the period 2025-2030. Weston stated that if Thames Water fails to raise new equity, the debt investors can proceed with a swap of debt for equity which would put them in control. If this fails, Thames Water may enter SAR. This is a temporary form of nationalisation. Chairman Adrian Montague stated that a SAR would make life difficult for everyone. The government will have to finance the programme because no other funding is available.
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As the trade deal sugar rush fades, stocks edge up and dollar falls.
The dollar and global stock markets lost momentum on Tuesday as investors' concerns over the impact of the trade standoff between the United States, China and other countries on the global economy grew. The two biggest economies in the world have agreed to a 90-day truce in their trade dispute. They will lower tariffs on both sides and remove other restrictions while they work out a permanent agreement. The agreement reignited investors' appetite for stocks and commodities. Wall Street rallied 3.3% on Monday. On Tuesday, the enthusiasm for the stock market had diminished. European stocks were up by 0.2% at midday, thanks to positive corporate results, such as those of the German pharma company Bayer and the Danish wind turbine manufacturer Vestas. Both companies saw their shares jump by 10%. Futures for the S&P 500, Nasdaq and Dow fell between 0.2-0.3%. This shows the caution in the U.S. asset market. It's the pause which refreshes you and makes you feel good. You hope there will be more. This does prove that the current administration is not immune from market volatility. Chris Beauchamp, chief market strategist at IG, said that the market has reached a breaking point. After the Geneva talks, both the U.S. and China announced that they would reduce tariffs on Chinese imports from 145% to 30%. The ratings agency Fitch estimates that the U.S. tariff rate has dropped to 13.1% from 22.8% before the agreement, but is still above the 2.3% at the end 2024. The U.S. Government went further on Tuesday and announced that it would cut the "de minimis tariff" on Chinese shipments up to an amount of $800. This latest concession by the United States was not met with much reaction from the broader market. Amazon shares fell 0.4% on premarket trading after Monday's 8% gain. FAREWELL "CRAZY US EXCEPTIONALISM"? Trump's unpredictable attitude towards the economy, international diplomacy and trade has sparked concern over the outlook for U.S. economic growth. These factors, along with the lack of progress made in negotiating trade deals, have driven investors away from U.S. assets, resulting in a move to safe-haven assets like gold, Japanese yen, and Swiss franc. Economists and fund managers have stated that the 90-day break is welcomed, but it hasn't changed the larger picture. Christopher Hodge said that the tariffs would still be higher after all was said and done and this will have a negative impact on U.S. economic growth. On Monday, the dollar rose against a basket currency by more than it had in any day since April 22, 2007. On Tuesday, the dollar's gains had waned and most major currencies were stronger. The dollar fell 0.3% to 148.04 and the yen rose, causing the euro to rise 0.18%. Meanwhile, the pound increased 0.2%, reaching $1.3206. "You're still getting the sense that people are generally saying that we'll be putting money back into the U.S. for the time being, but that we won't go back to the crazy 'U.S. "We've got to become more circumspect," IG's Beauchamp stated. Investors will now focus on the U.S. inflation figures on Tuesday. Trade relations between the United States and China have changed, leading traders to lower their expectations of Federal Reserve rate reductions. They believe that policymakers will be more flexible if inflation risks decrease. The traders are now pricing in a 56 basis point reduction this year. This is down from the forecasts of over 100 basis points at the height of tariff anxiety in mid-April. The benchmark 10-year Treasury yield is flat at 4.455%. Oil prices rose 0.8% on Tuesday to $65.48 per barrel. They had risen by 1.2% on Monday, reaching a new two-week high. Gold rose 0.6% to $3.254 per ounce after falling 2% on Sunday as investors abandoned some safe havens.
China stocks fall, Hong Kong falls as tariff optimism fades
China shares were flat on Monday, while Hong Kong stocks fell, as initial euphoria about a U.S. China trade agreement that would delay and reduce tariffs was replaced by growing caution due to the long negotiations to come.
The agreement reached between U.S. officials and Chinese officials following weekend talks in Geneva exceeded market expectations, and led to overnight a strong rally on global markets. Investors are still concerned about the prospect of a lengthy negotiation process.
Early morning trading saw the Shanghai Composite Index rise 0.2% and China's blue chip CSI 300 Index gain less than 0.1%.
Hong Kong's Hang Seng China Enterprises Index fell 1.1% while the Hang Seng Index benchmark slid 1% from its six-week high.
It might only be the beginning of an inevitable collision between the two biggest economies. "After enjoying a recovery, the markets may need to consider medium- to long-term risk," Ting Lu said in a Nomura note.
After talks with Chinese officials at the Geneva International Conference, U.S. Treasury secretary Scott Bessent said that both sides agreed to a 90-day suspension of their tit for tat policies.
Both sides announced on Monday that the U.S. would reduce its extra tariffs imposed on Chinese imports in April to 30%, from 145%. Chinese duties on U.S. imported goods will also fall to 10%, from 125%.
Tariff relief has led to a 0.3% increase in the consumer electronics sector. Energy sector grew by 0.8%, and banking sub-index rose 0.7%. These are the main drivers of onshore markets.
The rare-earths industry, which is strategically important but was not discussed in the trade negotiations, fell by 0.4%.
China's stocks have recovered fully from the sharp drop last month that was caused by President Donald Trump's punitive measures regarding tariffs on "Liberation Day". The blue-chip CSI300 Index now trades 0.3% higher than its April 2, 2016 level - when Trump announced reciprocal duties.
Kamil Dimmich is a partner and portfolio manager of North of South Capital's EM fund. He said: "We added to China in recent months, with the belief that the current tariffs will be reduced significantly over time."
We are not in a hurry to add, but we remain satisfied with our exposures to China. There will likely be more ups and downsides in the weeks and months to come, so it may be a better time to add."
(source: Reuters)