Trump officials seem to lower temperature on China

US Treasury Secretary Scott Bessent said that bilateral tariffs between the US and China weren’t at “sustainable levels” and that they were at the “equivalent of an embargo.” However, Bessent said that the US would not drop tariffs unilaterally. Earlier in the week US President Donald Trump said that tariffs on Chinese goods would “come down substantially but it won’t be zero.”

The S&P Global services PMI for the US dropped sharply in April to just 51.4, down from 54.4 a month earlier. Manufacturing ticked marginally higher to 50.7 in April from 50.2. The overall composite PMI fell to 51.2 from 53.5 thanks to the drop in services. Since the start of 2025 there has been a steep decline in tourist arrivals in to the US from nearly all origins while firms are reporting higher prices that they are attributing to tariffs and labour costs.

PMI data for the Eurozone dipped in April according to preliminary estimates from HCOB. The regional services PMI dropped to 49.7 in April from 51 a month earlier, falling short of market expectations. Manufacturing ticked marginally higher but was still negative at 48.7 leaving the composite number at 50.1, down from 50.9 a month earlier.

At a national level, manufacturing in Germany was 48.0, marginally weaker than a month earlier, while services dropped more substantially to 48.8 from 50.9. In France the services PMI fell to 46.8 from 47.9 while the manufacturing index declined to 48.2 from 48.5. The overall picture from the Eurozone data is of a regional economy treading water while the effect of US tariffs on trade take hold and spending plans from Germany’s new coalition government unfold. Earlier in the week the IMF expected very muted activity from the Eurozone economy.

In the UK the S&P Global composite PMI fell sharply in April at 48.2, down from 51.5 a month earlier. Services contributed to the bulk of the decline with the sector recording a level of 48.9, down from 52.5 a month earlier and the weakest level since January 2023. Uncertainty over the impact of the US tariffs on the UK’s economy long with higher taxes will likely all be dampening activity.

India’s PMI for April remained robust. The manufacturing sector improved to 58.4 from 58.1 according to estimates from HSBC while the services sector jumped to 59.1 in April. The overall composite level recorded a very strong 60 for April.

Today’s Economic Data and Events

• 10:00 KSA trade balance Feb
• 12:00 GE IFO Business climate Apr: forecast 85.2
• 16:30 US Durable goods order Mar p: forecast 2%
• 16:30 US Initial jobless claims Apr 19: forecast 222k

Fixed Income

• US Treasuries were lower overnight at the front end with the 2yr UST yield higher by 5bps at 3.8709%. The 10yr UST yield edged lower by nearly 2bps at 4.3812%. Markets have faded out some of their expectations for rates this year, with 83bps of cuts now priced in.
• Bahrain’s sovereign rating was put on a negative outlook by S&P while the country’s ‘B+’ rating was affirmed. The rating agency cited lower oil prices and “stalling fiscal reforms” as responsible for the outlook change.
• Ajman Bank priced a USD 500m 5yr sukuk at T+130, tighter than initial guidance. Book interest was more than USD 2.6bn.
• OCP priced a dual tranche USD bond, raising USD 1.5bn. A 5yr USD 750m tranche priced at +235 while a USD 750m 10yr priced at 260.

FX

• The US Dollar extended gains for a second day in a row as Trump administration officials have made more constructive comments about trade. EURUSD pulled lower by 0.9% at 1.1316 while USDJPY pushed up to 143.45, gaining 1.3%. GBPUSD was more moderate but still lost about 0.6% at 1.3254.
• In commodity currencies CAD led the way softer with USDCAD adding 0.5% to close at 1.3882 while AUDUSD fell by 0.1% at 0.636 and NZDUSD dropped 0.4% to 0.5945.

Equities

• US equity markets popped higher overnight with the Dow Jones up 1.1% and the S&P 500 adding 1.7%. The NASDAQ was the most prominent of the major US indices, with a gain of 2.5%. European markets also pushed higher with a 2.8% gain in the Euro Stoxx index while the FTSE 100 added 0.9%.
• Local markets also had a push higher with the DFM up by 1.4% while the ADX 15 gained 1.1%. In Saudi Arabia the Tadawul rose by 0.8%.

Commodities

• Oil prices weakened overnight as discord bubbled to the surface within OPEC+. Brent futures fell nearly 2% to USD 66.12/b while WTI was off by 3.2% at USD 62.27/b. Kazakhstan’s energy minister said that it couldn’t make substantial cuts to its output and would “prioritize national interests”, according to reports in Bloomberg. Other OPEC+ members are reportedly considering whether to accelerate production increases in June to further enforce production discipline.
• The EIA reported a small build in commercial crude stockpiles last week, set off by draws in gasoline and distillates. Oil production in the US was stable at 13.46m b/d while implied demand picked up by 1.8m b/d to 20.9m b/d.
• Gold pulled lower again overnight, dropping by 2.7% at USD 3,288/troy oz while the rest of the precious metals complex pushed higher. Industrial metals were broadly positive overnight.