The Overnight Report: US Tariff Tango Continues

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US and UK markets were closed last night, but a Sunday evening repreive from President Trump to delay 50% tariffs on Europe to July 9 post a conversation with EC President Von der Leyen was enough to kick start buying in European stocks. The ASX200 futures are positive after a flat trading session yesterday.

World Overnight
SPI Overnight	8410.00	+ 19.00	0.23%
S&P ASX 200	8361.00	+ 0.10	0.00%
S&P500	5802.82	– 39.19	– 0.67%
Nasdaq Comp	18737.21	– 188.53	– 1.00%
DJIA	41603.07	– 256.02	– 0.61%
S&P500 VIX	20.57	+ 0.29	1.43%
US 10-year yield	4.51	0.00	0.00%
USD Index	98.87	– 0.14	– 0.14%
FTSE100	8717.97	– 21.29	– 0.24%
DAX30	24027.65	+ 398.07	1.68%

Good Morning,

President Trump’s backflip, known increasingly as the TACO trade (Trumo always chickens out) on 50% European tariffs, underpinned a rally in Euro stocks with US futures up, and the ASX futures also pointing to a positive start on Tuesday.

The ASX200 ended flat on Monday. Five of the eleven sectors rose, with Information technology up 1.1%, underpinned by a rally in WiseTech Global ((WTC)) shares of 4.7%, post e2Open acquisition confirmation.

Uranium and gold stocks recorded gains and Utilities were the weakest due to Origin Energy’s ((ORG)) revised FY25 guidance with US business Octopus Energy expected to report a loss of -$100m versus previous guidance of $100m profit.

What happened overnight: Extract from NAB Markets Today Research

Unsurprisingly, given the US and UK enjoyed a Monday holiday, we have had a quiet start to the new week. Of note, President Trump’s decision to backtrack on his threat to impose higher trade tariffs on Europe, instead agreeing to a new deadline, supported equity markets with the Euro Stoxx600 index up 1%, fully reversing Friday’s decline. 

In what has become a recurring pattern, after threatening to impose higher tariffs on the EU (50%) on Friday, noting the region was too difficult to deal with, early yesterday following a telephone conversation with EC President Von der Leyen, President Trump backed down on the tariff threat and agreed to extend the negotiation deadline to 9 July.

The news has been supportive for EU and US equities. Continental European equity markets closed in the green with the Eurostoxx600 index up 0.99%, effectively reversing Friday’s losses. 

The US cash market was closed on Monday, but US equity futures are higher with the S&P futures 1.27% and the NASDAQ futures up 1.097%.

Of note China’s CSI 300 and the Hang Seng closed lower on Monday, down -0.57% and -1.35% respectively. 

EV stock were sold heavily following news BYD (China’s leading EV manufacturer) announcement to slash prices of up to -34% on 22 of its electric and plug-in hybrid models. 

China doesn’t sell EVs in America so this is not a direct response to the US China trade war but does illustrate the deflationary winds blowing from China.

Moving onto FX, early yesterday, news that President Trump had retracted his EU tariff threat and agreed to a later deadline triggered a broad USD sell off with the euro briefly moving above 1.14, while GBP almost touched 1.36. 

Similarly, the AUD traded above 65c printing a new year to date high of 0.6537 with the kiwi also recording a fresh 2025 high of 0.6032. All these moves reversed overnight with the USD regaining some strength.

The AUD starts the new day at 0.6490. 

Sticking with currencies, speaking in Berlin overnight, ECB president Lagarde gave a politically charged speech and called for the euro to play a bigger role as a reserve currency. 

Lagarde noted that “Multilateral cooperation is being replaced by zero-sum thinking and bilateral power plays”, adding that “Openness is giving way to protectionism”. 

“There is even uncertainty about the cornerstone of the system: the dominant role of the US dollar…and with the euro as the world’s second-largest currency, there is another international currency alongside the dollar. But this has not yet convinced investors”. 

Thus for the euro to play a bigger role Lagarde suggested the EU should expand its role in global trade by pursuing a win-win approach to trade deals. She said the new focus on European rearmament would support the currency’s use as a reserve currency. Lagarde also suggested the region needs to increase the supply of safe assets, perhaps through joint financing for defense.

CNY strength was another theme over the past 24 hours. The recent broad USD decline has not entirely been reflected in CNY strength (CNY is a low beta to USD), but from a technical perspective USD/CNY is now on a steady downtrend with not a lot of support nearby. 

Yesterday the PBoC signalled willingness to see a stronger CNY via a stronger fixing. Favouring this view, Bloomberg reported the PBoC has asked major lenders to increase the share of the yuan in cross-border trade transactions to 40% from 25%. While not mandatory, banks missing the target often receive a lower score in any regulatory review, which will impact their future business expansion.

My BNZ colleague, Jason Wong, has provided a reader’s digest which I thought was worth sharing. In his daily. Jason notes that holiday trading conditions give more time and space to note articles of interest that wouldn’t normally make the cut for his daily report, most of them bad news. 

The FT notes China has improved its ability to launch a sudden attack on Taiwan, with faster-paced air and operations, new artillery systems and more alert amphibious and air assault units. Great, add World War III to your bingo card. 

The WSJ notes how millions of Americans suddenly owe billions in student debt after years of forbearance and delinquency rates are now back to pre-COVID levels.

There is also a neat article spelling out the impact of tariffs, using patio furniture as an example, showcasing one importer who de-constructs the new price based on tariffs on steel and Chinese goods. On three different products, proposed new prices will rise by 8%, 15% and 18%.

Markets waltz between tariff threat and reprieve: Stephen Innes, SPI Asset Management

Welcome back to the casino, where the dealer wears a red tie and the house rules shift with every Trump soundbite.

On Monday, traders shoved their chips back on the table as President Trump spun the “threat-and-retreat” wheel yet again. After a Friday haymaker in the form of a 50% tariff threat on European goods, Sunday delivered the familiar climbdowna diplomatic phone call, a new July 9 deadline, and a green light for risk to rally.

The Stoxx600 bounced like a bruised boxer shaking off a standing eight count, while U.S. futures surged over 1% in a holiday-thinned session. It was textbook Trump volatility: bark, rattle, retreat and markets, conditioned like Pavlov’s dogs, responded on cue.

Investors know this act by heart. Trump brandishes the tariff bat, markets duck, then he pockets the lumber after a “very nice” call (with Brussels this time).

The volatility is still there, but like a horror franchise on its fifth sequel, the jump scares are losing their bite. Panic-selling into a Trump pirouette doesn’t pay like it used to, markets have seen this dance before. It’s become the macro equivalent of shorting volatility right before a Fed meeting: high on drama, but low on reward.

Yet, stock snapbacks are getting limited this time around as bond vigilantes still lurk. Yields are still hovering over markets like a grand piano suspended from a penthouse, thread by thread ready to pancake risk sentiment the moment the so-called fiscal risk premium explodes again.

Until those yields flush lower, stock rallies remain capped by the cold arithmetic of equity-to-rate re-rating.

Meanwhile, the dollar is staggering like a punch-drunk heavyweight, DXY pinned near two-year lows as traders question whether the next catalyst is an uppercut or the final towel toss.

But this week’s real tightrope act belongs to Nvidia. Earnings land on Wednesday, and Wall Street is treating it like the AI World Cup final. A miss, and the entire artificial intelligence narrative could wobble.

Leak wires suggest CEO Jensen Huang is prepping a budget Blackwell GPU for China, cheaper than the export-curbed H20 and designed to sidestep the Commerce Department’s geopolitical tripwires. One eye on ASPs, the other on Washington redlines; welcome to the age of AI diplomacy.

Macro traders hoping for a breather won’t get one. Friday delivers April core PCE, the Fed’s inflation barometer of choice. A whisper-soft 0.1% is expected, but even that won’t quiet the noise. Powell may be stuck in “wait-and-see” but fiscal policy continues firing like a shotgun across global supply chains.

Markets are asking: how long can the Fed stay neutral while the real economy gets bulldozed by erratic trade policy?

Across the Atlantic, Brussels is trying to buy time with optimism. Ursula von der Leyen posted on X that the EU is “ready to advance talks swiftly”, but also hinted that “a good deal” needs until July 9. In trader-speak, that’s headline risk on a slow drip for six more weeks. Nobody’s ruling out another tariff cliffhanger before Independence Day; implied vol certainly isn’t.

Japan, for its part, is working the diplomatic playbook. Chief negotiator Ryosei Akazawa is eyeing a handshake ahead of next month’s G-7.

Prime Minister Ishiba wants talking points in hand before his sit-down with Trump. Tokyo’s sweeteners range from Arctic ship tech to Alaskan investments. The Rust Belt even got its bone: a vague U.S. SteelNippon Steel “partnership”, more electoral calculus than industrial strategy.

Then came the real swing-for-the-fences moment; SoftBank’s Masayoshi Son pitching a US$300 billion U.S.Japan sovereign wealth fund, a glowing suspension bridge to span the widening tariff canyon.

But not all volatility is man-made.

In a surreal twist, a viral 1990s manga predicting a July 5 mega-quake has spooked Japan’s red-hot tourism sector. Airlines are slashing frequencies, hotels are sweating cancellations, and Tokyo’s own worst-case models price the tail risk at US$1.8 trillion. When superstition collides with balance sheet exposure, even the quants step aside.

Markets are once again dancing on hot coals, front-running White House mood swings while dodging macro landmines. With yields dangling like anvils and tariff threats swinging like wrecking balls, the only thing certain is that the music won’t stop until it does. Traders, keep your running shoes on.

Corporate news in Australia

-Healthscope has entered receivership with McGrathNicol in charge of sales with hospitals remaining open.

-Viva Leisure ((VVA)) has purchased a 33% stake in supplement start up Gorilla X Labs from the Gold Coast.

-United Tractors has been touted as the buyer of the Ravenswood mine ($2bn) as Regis Resources ((RRL)) is reported as dropping out and targeting Bellevue Gold ((BGL)).

-Greatland Gold has launched an IPO ($50m) for ASX listing.

-Eagers Automotive ((APE)) will no longer be the sole supplier of BYD vehicles in Australia in fresh five-year dealership agreement

On the calendar today:

-JP April PPI

-CH April Industrial profit

-US April durable goods

-ALS LIMITED ((ALQ)) earnings report

-AROA BIOSURGERY LIMITED ((ARX)) earnings report

-NEUREN PHARMACEUTICALS LIMITED ((NEU)) AGM

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

Spot Metals,Minerals & Energy Futures
Gold (oz)	3370.70	– 23.80	– 0.70%
Silver (oz)	33.65	+ 0.04	0.11%
Copper (lb)	4.85	+ 0.01	0.22%
Aluminium (lb)	1.12	0.00	0.00%
Nickel (lb)	6.90	– 0.00	– 0.02%
Zinc (lb)	1.23	0.00	0.00%
West Texas Crude	61.53	0.00	0.00%
Brent Crude	64.18	– 0.03	– 0.05%
Iron Ore (t)	99.81	0.00	0.00%

The Australian share market over the past thirty days

Index	26 May 2025	Week To Date	Month To Date (May)	Quarter To Date (Apr-Jun)	Year To Date (2025)
S&P ASX 200 (ex-div)	8361.00	0.00%	2.89%	6.60%	2.47%

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ILU	Iluka Resources	Upgrade to Overweight from Equal-weight	Morgan Stanley
LYC	Lynas Rare Earths	Upgrade to Overweight from Underweight	Morgan Stanley
NUF	Nufarm	Downgrade to Hold from Add	Morgans
SYR	Syrah Resources	Downgrade to Neutral from Outperform	Macquarie
TWE	Treasury Wine Estates	Downgrade to Hold from Buy	Ord Minnett

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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