• S&P 500 and Nasdaq 100 hit record highs, Russell 2000 outperformed for the second consecutive day.
• Fed’s Waller says they should cut by 25bps at the July meeting and thereafter adjust meeting-by-meeting.
• APAC stocks predominantly higher, China shrugged off a 93.5% tariff on graphite; European futures point to a firmer open.
• DXY rangebound, EUR/USD reclaimed the 1.16 handle, Antipodeans outperformed after Thursday’s AUD pressure.
• Fixed benchmarks marginally higher, JGBs in-fitting into the weekend’s Upper House election.
• Crude holds onto Thursday’s upside, XAU rangebound, base metals post mild gains.
• Looking ahead, highlights include German Producer Prices, US Building Permits/Housing Starts, UoM prelim, G20 Finance Ministers Meeting, Speakers including ECB’s Nagel & German Finance Minister Klingbeil, Earnings from 3M, American Express, Charles Schwab, Atlas Copco, Hexpol, Boliden, Skanska, Telia & Danske Bank.
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US TRADE

EQUITIES

• US stocks traded higher with all major indices in the green and both the S&P 500 and Nasdaq 100 printed fresh record highs, while the small cap Russell 2000 outperformed for the second consecutive day with sentiment underpinned by encouraging data releases including better-than-expected US Retail Sales and Retail Control, although analysts highlighted the growth was not as strong in real terms. Furthermore, the Philly Fed headline index topped the most optimistic of analyst estimates and Initial Jobless Claims surprisingly declined, while sectors were almost exclusively positive on the day, led by Technology, Financials, and Industrials, with only Healthcare in the red which was weighed on by disappointing Elevance Health (-13.5%) earnings.
• SPX +0.54% at 6,297, NDX +0.74% at 23,078, DJI +0.52% at 44,484, RUT +1.20% at 2,254.
• Click here for a detailed summary.

TARIFFS/TRADE

• White House said the EU continues to be very eager in trade negotiations.
• US is set to impose a 93.5% tariff on graphite used for battery material from China.
• China Commerce Minister Wang said China and US economic and trade relations have gone through storms and remain important to each other, while he added the US has adopted more unilateral, protectionist measures since 2018, provoking frictions and that decoupling is doomed to fail as it contradicts economic development. Wang stated that mutual benefit is the essence of US-China commercial ties, as well as noted that ups and downs have taught both sides that there are things they need from each other. Wang also commented that differences and frictions are inevitable but dialogue and consultation are the best way to fix problems, and the key is to respect each other’s core interests and major concerns. Furthermore, he said China still faces high US tariffs and that overall tariffs are in excess of 50%, while China wants to bring China-US commercial ties back to a state of healthy, sustainable development.
• Canada’s International Trade Minister said they are getting officials to talk to Chinese counterparts as soon as possible to work through trade challenges, while the official also commented that there is appetite from both sides to have conversations with Mercosur and there seems to be energy to get things done quickly with ASEAN countries.
• Canada said it reached a mutually satisfactory solution with New Zealand to resolve the CPTPP dairy TRQs dispute, while a dairy agreement with New Zealand will result in minor policy changes to Canada’s TRQ administration and does not amend Canada’s market access commitments.
• Brazil’s President Lula said regarding US tariffs that Brazil always has been open to dialogue, as well as stated that trying to interfere in the Brazilian justice is a serious attack on Brazilian sovereignty and that Trump’s letter about tariffs was unacceptable blackmail. Furthermore, he said the defence of Brazil’s sovereignty also applies to the operation of digital platforms in the country. In relevant news, US President Trump posted a letter to former Brazilian President Bolsonaro voicing sympathy and said he will be watching Brazil closely.

NOTABLE HEADLINES

• Fed Chair Powell sent a response to questions from OMB Director Vought in which he stated the Fed Board believes transparency is of the utmost importance and cited ongoing reviews including by the Inspector General of the project since it began in 2017, while he added that collaboration with National Capital Planning Commission has been constructive and robust, but was voluntary on the part of the Fed. Powell said changes since the NCPC approval were to scale back and simplify construction and added no new elements, with no further review warranted.
• Fed’s Waller (voter) said the Fed should cut interest rates by 25bps at the July meeting and rising risks to the economy favour easing the policy rate, while he added that if underlying inflation remains in check and growth tepid, more cuts are needed. Waller stated the Fed should not wait until the labour market hits trouble before cutting rates and delaying cuts runs the risk of needing more aggressive action later. Furthermore, he said a July rate cut could give the Fed space to hold rates for a few meetings and noted they should cut rates in July and then adjust policy meeting by meeting, as well as commented that data should determine the pace of rate cuts and there’s nothing wrong with taking out an insurance rate cut, just in case.
• Fed’s Bostic (2027 voter) said the economic outlook remains highly uncertain and the economy’s tariff adjustment could take months. Bostic also stated that his view is that questions (re. if the economy can absorb tariffs) are blocking the path to further cuts for now, especially given lasting scars from the searing inflation the economy weathered in the early 2020s, while he noted that cuts “might be difficult in the short run”. Furthermore, with the Fed facing intense pressure from President Trump and his allies to cut rates, Bostic said the central bank must be ready to make unpopular decisions when they are in the economy’s best long-run interest.
• Fed’s Daly (2027 voter) said they still have some work to do on inflation, while they have solid growth and a solid labour market but what is bothersome still is they haven’t achieved price stability. Daly sees both the economy and policy in a good place and noted that rates have been restrictive for a significant number of years. Daly stated they have not seen evidence that tariffs are spilling over more broadly into persistent inflation and might have a more muted impact from tariffs than they thought. She also said don’t want to lower rates pre-emptively, and two rate cuts this year is a ‘reasonable’ outlook.
• White House said President Trump signed an executive order creating a new classification of non-career federal workers and signed four proclamations, granting two years of regulatory relief from Biden-era regulations impacting sectors vital to security. Furthermore, the proclamations cover coal plants, taconite iron ore processing facilities, and certain chemical manufacturers that produce chemicals related to semiconductors, medical device sterilisation, and national defence systems.
• US President Trump is set to open the US retirement market to crypto investments with Trump preparing an executive order to allow 401k plans to tap a broad pool of alternative assets, according to FT.

APAC TRADE

EQUITIES

• APAC stocks were predominantly higher following the positive handover from Wall St where the S&P 500 and Nasdaq 100 rose to fresh record highs with sentiment underpinned by better-than-expected data.
• ASX 200 outperformed its regional peers and climbed to a fresh all-time high as advances were led by the Mining, Materials and Resources sectors with the former helped by gains in BHP following its Q4 production update and with Novonix shares up around 20% on plans to boost US graphite production as the US sets 93.5% anti-dumping duties on Chinese graphite.
• Nikkei 225 failed to sustain a brief return above the 40,000 level and pared its opening gains amid cautiousness heading into the upper house election on Sunday with Japan facing political uncertainty should the ruling coalition fail to retain its majority in the House of Councillors.
• Hang Seng and Shanghai Comp were underpinned in tandem with the gains across most of the Asia-Pac region and as participants shrugged off reports that the US is setting a 93.5% anti-dumping duty on graphite from China and that China threatened to block the Panama Ports deal unless its shipping giant COSCO is part of it.
• US equity futures marginally extended on the prior day’s data-driven advances following the recent record-setting performance on Wall St.
• European equity futures indicate a positive cash market open with Euro Stoxx 50 futures up 0.3% after the cash market closed with gains of 1.5% on Thursday.

FX

• DXY traded rangebound after strengthening yesterday in a reversal of the recent Trump vs. Powell trade and with momentum facilitated by the US data releases in which Retail Sales, Philly Fed Business Index and Initial Jobless Claims all printed better than expected. Nonetheless, FX trade has quietened overnight with little reaction seen to the latest Fed commentary including from Daly who suggested they don’t want to lower rates pre-emptively and that two rate cuts this year is a ‘reasonable’ outlook, while Fed’s Waller bolstered his call for a July rate cut and stated that if underlying inflation remains in check and growth tepid, more cuts are needed.
• EUR/USD nursed the prior day’s losses and reclaimed the 1.1600 status after having retreated the prior day owing to US data and as trade uncertainty lingered with White House Trade Advisor Navarro noting that non-tariff barriers remain a major challenge for the EU and with the bloc reportedly preparing a list of potential tariffs on US services alongside export controls in the event that trade talks with the US fail.
• GBP/USD mildly extended its rebound following the brief dips beneath the 1.3400 handle, albeit with the upside gradual after recent mixed jobs data from the UK.
• USD/JPY lacked firm direction after a recent failed attempt to reclaim the 149.00 handle and as risk sentiment in Japan deteriorated, while CPI data provided little to shift the dial and printed in line with forecasts.
• Antipodeans outperformed alongside the mostly positive risk appetite and recent rebound in commodity prices.
• PBoC set USD/CNY mid-point at 7.1498 vs exp. 7.1736 (Prev. 7.1461).

FIXED INCOME

• 10yr UST futures were mildly higher following recent price swings and curve flattening owing to an unwinding of the Trump vs Powell trade and with data in focus.
• Bund futures remained subdued after a pullback from this week’s peak, with PPI data and comments from ECB’s Nagel and Germany’s Finance Minister due later.
• 10yr JGB futures edged higher amid the cautious mood in Japan heading into the upper house election, while the latest CPI data printed in line with estimates and mostly decelerated, but showed headline consumer inflation remained above the 3% level for the fourth consecutive month.

COMMODITIES

• Crude futures held on to the prior day’s spoils after advancing amid further drone strikes on Iraqi oil fields, while there were also late tailwinds coinciding with reports that Iran is moving to rearm its militia allies.
• Spot gold traded rangebound following yesterday’s two-way performance and post-data rebound.
• Copper futures eked mild gains with prices kept afloat amid the mostly positive overnight risk appetite.

CRYPTO

• Bitcoin mildly gained overnight and briefly reclaimed the 120k status after the House voted overwhelmingly to pass the GENIUS Act which sends the legislation to President Trump for signing. Furthermore, the House also passed the Digital Asset Market CLARITY Act, which would create a new market structure for cryptocurrency and passed another bill to prohibit the US offering a CBDC although both still need Senate approval.

NOTABLE ASIA-PAC HEADLINES

• China’s Commerce Minister Wang said the greater challenges are, the more clearly we can see China’s institutional advantages, while he added the 14th five-year plan can be summed up as expansion of a super-large market and that the long-term fundamentals of China’s economy remain unchanged. Wang stated the priority for the 15th five-year plan is to take good aspects of the 14th five-year plan and turn them into long-term mechanisms, as well as noted that China has a rich policy toolbox and will roll out measures when required. Furthermore, he stated that China will introduce policies to further stimulate consumption and boost services consumption.
• China’s Cyberspace Administration said China and the EU agreed to set up a working team to cooperate on bilateral cross-border flows of autodata.

DATA RECAP

• Japanese National CPI YY (Jun) 3.3% vs Exp. 3.3% (Prev. 3.5%)
• Japanese National CPI YY Ex. Fresh Food (Jun) 3.3% vs Exp. 3.3% (Prev. 3.7%)
• Japanese National CPI YY Ex. Fresh Food & Energy (Jun) 3.4% vs Exp. 3.4% (Prev. 3.3%)

GEOPOLITICS

MIDDLE EAST

• Qatar, Egypt, and the US presented Israel and Hamas with an updated Gaza ceasefire and hostage deal proposal on Wednesday, according to Axios.
• Iran is moving to rearm its militia allies and is sending missiles to Hezbollah, while it seeks to smuggle weapons from Iraq to Syria and is moving quickly to replenish Houthi weapons stockpiles after US-Israeli strikes, according to WSJ.
• French, German and UK Foreign Ministers and the EU high representative held a call with the Iranian Foreign Minister with an aim to relaunch talks on Iran’s nuclear programme, while E3 ministers told Iran’s Foreign Minister to return to the diplomatic pathway immediately to reach a verifiable and lasting nuclear accord, as well as stressed again their determination to reimpose UN sanctions on Iran if no concrete progress is made towards a nuclear accord by the end of summer.

EU/UK

NOTABLE HEADLINES

• BoE reportedly asked some lenders to test for resilience to US dollar shocks, while testing follows similar moves by the ECB and scenarios include the US Dollar swap market drying up.