Morning Bid: Tariff rollback hopes rising

By Mike Dolan

LONDON (Reuters) – What matters in U.S. and global markets today

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

It’s Friday, so today I’ll provide a quick overview of what’s happening in global markets and then offer you some weekend reading suggestions away from the headlines.

Today’s Market Minute

* Behind closed doors, Chinese officials have grown increasingly alarmed about the U.S. tariffs’ impact on their economy and the risk of isolation as China’s trading partners have started negotiating deals with Washington.

* From his first moments on the balcony of St. Peter’s Basilica, Pope Leo XIV gave three important clues about what kind of leader of the 1.4-billion-member Catholic Church he will be.

* U.S. President Donald Trump and British Prime Minister Keir Starmer on Thursday announced a limited bilateral trade agreement that leaves in place Trump’s 10% tariffs on British exports, modestly expands agricultural access for both countries and lowers prohibitive U.S. duties on British car exports.

* While many investors survived the market volatility unleashed by U.S. President Donald Trump’s “Liberation Day” with only a few scratches, macro hedge funds suffered one of their worst maulings in years. Check out the latest from Reuters’ columnist Jamie McGeever.

* Forget April, it’s this summer that could prove decisive as investors seek to determine if this shift is a short-term move or a true secular change in market leadership. Read the analysis from TPW founder Jay Pelosky.

Tariff rollback hopes rising

World markets have latched onto the prospect of a gradual rollback of U.S. tariffs to extend their recent recovery from April’s trade shock.

Even though it appears the universal 10% levies leveled on all countries’ imports to America will remain regardless of bilateral talks underway, there is still some optimism that many of the more extreme ‘reciprocal’ tariffs may be negotiated away.

Britain’s trade deal with Washington on Thursday encouraged those hopes, and investors will be paying close attention to the U.S.-China talks set to begin in Switzerland this weekend.

Wall Street rallied again on Thursday, with the dollar surging to its best levels in a month and U.S. Treasury yields hitting their highest in two weeks. Oil prices gained, the VIX ‘fear index’ ebbed to the lowest since April 2 and Bitcoin recaptured the $100,000 level to hit its highest since January.

U.S. stock futures held those gains overnight and equities surged in Japan and Taiwan. MSCI’s all-country stock index is back in positive territory for the year to date, even though Wall Street indexes remain in the red for 2025.

Tech gains have helped. Nvidia plans to release a downgraded version of its H20 artificial intelligence chip for China in the next two months, following U.S. export restrictions on the original model, sources told Reuters.

But ahead of the weekend talks in Switzerland, China reported a surprisingly big beat in worldwide exports for April as demand from countries seeking to capitalise on the 90-day tariff pause offset a 21% drop in Beijing’s bilateral exports to America.

Even that decline in exports to the United States surprised forecasters, who had expected a greater drop given the 145% direct tariffs imposed on China. This suggests many U.S. importers couldn’t switch suppliers easily and may have to pass on the higher costs to consumers. This could spur worries about rising consumer prices and put upward pressure on Treasury yields.

Friday’s diary sees a parade of top Federal Reserve officials speaking following this week’s Fed decision to hold policy rates steady as the central bank waits to see how the trade and inflation picture pans out. April inflation updates are due next week.

President Donald Trump wasted little time in resuming his stinging criticism of Fed Chair Jerome Powell on Thursday, calling him a “fool” for not lowering interest rates.

Vice President JD Vance added to the attacks, saying Powell has “been wrong about almost everything.”

Thursday’s $25 billion sale of 30-year Treasury bonds jarred in the backdrop. The auction’s 2.31 bid-to-cover ratio, a gauge of demand, was the lowest since July 2024 and the 58.9% awarded to indirect bidders, which include foreign investors, was the lowest since 2019.

Elsewhere, UK stocks advanced again as investors digested the runes of Thursday’s U.S. trade deal and the Bank of England’s quarter-point rate cut.

With BoE policymakers surprisingly split on the cut, markets pulled back expectations of further easing this year, and BoE boss Andrew Bailey underlined the fact that tariffs are still set to rise despite the concessions in Thursday’s trade deal.

But key parts of the trade deal, particularly how it sidestepped any compromise on food standards, will allow Britain to more easily engage in parallel negotiations with the European Union this month.

Weekend reading suggestions

Here are some articles away from the day-to-day headlines that you may find interesting.

* SUDDEN STOP?: The Institute of International Finance shows portfolio investment flows to the emerging markets came to a standstill in April as the United States tabled trade tariffs across the world and global markets plunged. Only flows to Chinese debt were positive during the turbulent month, with equity flows across China and EM at large in the red and debt flows negative to EM ex-China countries too.

*MOVIE SURPLUS: After President Trump said he would impose 100% U.S. import tariffs on movies made abroad, Gary Hufbauer at the Peterson Institute for International Economics wrote that he thinks the plan should be canceled. Hufbauer argues that retaliation against Hollywood and related services could slash a $37 billion U.S. trade surplus in overall entertainment and would invite countries to retaliate not only against Hollywood but also against all types of U.S. services, including those provided by the likes of Google and Amazon.

* KINDLEBERGER TRAP?: In an article for CEPR’s VoxEU website, central bank adviser and author Robert McCauley addresses an unlikely but widely discussed risk that a re-vamped Federal Reserve might be unwilling to extend emergency dollar credit via global swap lines.

* MIDEAST GAMBLE: President Trump reportedly blindsided Israeli Prime Minister Benjamin Netanyahu last month with a gamble on opening negotiations with Iran. Reuters’ Samia Nakhoul, Humeyra Pamuk and Parisa Hafezi report on how the success of those talks hinges on winning a handful of key concessions to stop the Islamic Republic from developing a nuclear bomb.

* UNEQUAL AGEING: Detailing the scale of Europe’s demographic challenge, a report from the Bruegel think tank by David Pinkus and Nine Ruer shows that by 2050 working-age populations are projected to decline in 22 out of 27 European Union countries. But they point out that the scale of the problem is far greater in Eastern and Southern countries, as higher migration to Northern and Western economies bolsters those populations.

* FLAWED ‘ACCORD’?: In a piece for the Project Syndicate website, former International Monetary Fund chief economist Ken Rogoff critiques proposals by members of Trump’s economic team to reduce the U.S. current account deficit by weakening the dollar. He argues the so-called ‘Mar-a-Lago Accord’ idea is based on a deeply flawed understanding of the relationship between the dollar’s global status and U.S. de-industrialization.

* TRILLION-DOLLAR UPGRADE: Europe’s ageing power grid and limited energy storage capacity mean that the continent will need to invest trillions of dollars to cope with rising green energy output and increasing electricity demand and to avoid blackouts. Reuters Nina Chestney examines the issue in light of Spain and Portugal’s worst ever blackout last month.

* ‘TRUMP TRADE’ HEAD FAKE: In a blog on the Council on Foreign Relations website, former U.S. Treasury official Brad Setser runs through a number of theories as to why currency markets got it wrong so far in betting that Trump’s tariff policies would strengthen the dollar.

* LEGAL BACKLASH: As federal judges rule against the Trump administration in dozens of politically charged cases, the families of at least 11 of the jurists have been targeted with threats and harassment. A Reuters Special Report details the pressure put on some U.S. judges and their families by supporters of the President.

Chart of the day

Trade talks between the world’s two largest economies will begin in Switzerland this weekend. Ahead of those talks, China reported that its exports in April were far ahead of forecasts despite the imposition of 145% U.S. tariffs. The unexpected buoyancy partly reflected demand for materials from overseas manufacturers who rushed to send out goods in order to make the most of 90-day tariff pause. However, China’s direct exports to the U.S. fell 21%, which means the trade surplus with the U.S. dropped to $20.5 billion from $27.6 billion in March.

Today’s events to watch

* Canada April employment report

* U.S. Treasury Secretary Scott Bessent meets Swiss government officials ahead of weekend trade talks with China in Switzerland

* Federal Reserve Board Governors Christopher Waller, Lisa Cook, Adriana Kugler and Michael Barr all speak. New York Fed President John Williams, Cleveland Fed President Beth Hammack, St. Louis Fed chief Alberto Musalem, Richmond Fed chief Thomas Barkin and Chicago Fed boss Austan Goolsbee all speak. Bank of England Governor Andrew Bailey and BoE chief economist Huw Pill speak

* U.S. corporate earnings: Monster Beverage, AMC, Echostar

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(By Mike Dolan; Editing by Anna Szymanski)