UK signs trade deal with US

The US and the UK have signed a trade deal, the first from the White House during this current bout of pressure on trading partners. There are still details to be specified but the deal puts UK exports of steel and aluminium back to zero rather than 25%, while the first 100,000 automotives will now only see a 10% levy. For the US there will a lower tariff quota system for food exports, including beef, to the UK, without changing any food safety standards there. The UK will also remove its tariff on up to USD 1.4bn of ethanol. Negotiations are ongoing for a wider trade deal, with points of focus including the UK’s digital services tax and pharmaceuticals. While touted as a comprehensive deal, there is much still not covered by the new agreement, and most of the UK’s exports remain under the 10% baseline tariff, despite President Trump acknowledging in his announcement that trade was balanced.

The Bank of England cut the bank rate by 25bps yesterday in a widely anticipated decision which took its benchmark rate down to 4.25%, from 4.50% previously. The vote – made the previous day, before President Trump announced the new trade deal – was less aligned than had been anticipated, with the move passed by a majority of just 5-4. Two members were in favour of a larger 50bps cut while two others would have preferred to leave the rate unchanged, a more hawkish split than expected. The bank drew attention to ongoing disinflation on the one hand, and uncertainty around global trade policies on the other, and stated that risks to inflation remain ‘in both directions.’ The line stating the bank’s intention to follow ‘a gradual and careful approach to the further withdrawal of monetary policy restraint’ was kept intact, however, suggesting that the bank’s focus remained more on inflation than economic growth. BoE Governor Andrew Bailey subsequently welcomed the trade deal with the US but cautioned that more important would be a US settlement with China.

The UAE has signed an initial agreement with Japan to boost non-oil trade between the two countries which has been growing at a robust rate in recent years. This is a preamble to a comprehensive economic partnership agreement (CEPA) which is anticipated later this year.

Emirates Group released its 2024/25 (ended March 31) financial results yesterday, with a record pre-tax profit of AED 22.7bn (USD 6.2bn), up 18% y/y. Given the introduction of corporate tax at 9% for the first time, profit after tax was AED 20.5bn. Emirates saw a 20% rise in profit before tax to AED 21.2bn, while dnata saw profit before tax of AED 1.6bn, up 2%. Passengers carried rose by 3.4% with passenger seat km up 3.0%.

US initial jobless claims in the week to May 3 were 228,000, just below the forecast 230,000 and down from 241,000 previously. Continuing claims in the week prior were at 1.879mn, compared with the predicted 1.895mn and the previous 1.908mn.

Today’s Economic Data and Events

16:30 Canada unemployment rate, April. Forecast: 6.8%

Fixed Income

• Broad risk-on tone yesterday amid positive news on trade saw USTs fall back, with yields rising sharply along the curve. Yields on the 2yr were up 10bps at 3.8739% while the 10yr was up 11bps to 4.3785%.
• Sobha Realty has mandated banks for a USD 3yr sukuk. Sobha's existing sukuk (2028) is rated 'BB' by S&P with a current yield of close to 7.7%.

FX

• The dollar saw strong gains across the board yesterday as progress on trade talks appears to be accelerating. The dollar index ended the day 1.0% higher for a second straight gain.
• Trade negotiations are the key determinant presently, with GBP only down 0.4% at 1.3246 as a new deal was announced for the UK. By contrast, JPY weakened by 1.5% to 145.91 as the White House warned that deals with Japan and South Korea could take longer. EUR was down 0.7% at 1.1228.

Equities

• Equity markets caught the risk-on sentiment yesterday with most major global indices closing higher. In the US both the S&P 500 and the Dow Jones added 0.6% while the NASDAQ closed 1.1% higher.
• In Europe, the CAC gained 0.9% while the DAX was up 1.0%. The FTSE 100 ended the day 0.3% lower, perhaps underscoring disappointment that there was not greater alleviation of tariffs.
• Locally, the DFM fell 0.4% while the ADX ended the day 0.2% higher. Saudi Arabia’s Tadawul fell 0.3% to end its trading week 1.6% lower.

Commodities

• Oil prices rode higher on the risk-on sentiment yesterday following the UK/US trade deal and with the focus now on China/US talks this weekend. Brent futures closed up 2.8% to USD 62.8/b, while WTI was up 3.2% at USD 59.9/b.