Written Commentary
STOCK INDEX FUTURES
Stock index futures were sharply higher in overnight trade, with the June Nasdaq surging as much as 4%, the S&P over 3%, and the Dow rising over 2.5% as the US and China agreed to slash tariffs on each other’s goods. The June S&P and Nasdaq reached a two-month high, reaching their highest levels since mid-February.
Tariffs on China will fall from 145% to 30%, while China will cut their tariffs on the US to 10% from 125%. The reductions will last for 90 days while negotiations continue. China has also agreed to suspend or cancel retaliatory, nontariff measures that could potentially include export restrictions on critical minerals.
President Trump announced he would sign an executive order aimed at lowering drug costs in the US by tying US prices to those of other countries, while a major pharmaceutical trade association said the order would hurt innovation and competitiveness with China.
Weekly jobless claims are due Thursday along with PPI inflation figures, while the Michigan consumer sentiment survey for May will be due Friday.
CURRENCY FUTURES
The dollar surged against major currencies in overnight trade as investors welcomed the tariff reductions between the US and China. The brighter picture for the US economy sparked renewed confidence in the dollar, which has come under pressure in recent months due to the fallout caused by tariffs.
US CPI inflation data will be released Tuesday, followed by retail sales and producer price figures on Thursday. These figures will likely represent a more accurate figure of the near-term impacts of tariffs than in previous months.
GDP data from the eurozone and UK are due Thursday, as well as eurozone trade balance data due Friday, in what is a relatively light week in economic data for the eurozone. Euro and pound futures are both lower, as the currencies fell against the dollar.
Japan GDP figures are due Thursday evening and are expected to show Japan’s economy contracted in the first quarter. The Bank of Japan recently slashed its growth forecast in half for the fiscal year ending March 2026.
INTEREST RATE MARKET FUTURES
Treasury futures are lower following a risk-on appetite fueled by US-China trade developments. The 10-year yield rose above 4.46%, reflecting an improved US economic outlook, and could potentially reduce expectations for future rate cuts from the Fed.
Focus will now move onto US inflation figures due Tuesday and Thursday, which may gauge the short-term impact of tariffs on prices. Markets are pricing in two 25 basis point cuts this year from the Fed, with the first cut now likely to come in September, per CME data.
The gap between the two- and 10-year yields narrowed to 45.9 bps, down from 55.2 bps just under a week ago.
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