Morning Wrap (06.05.2025)

Asian markets rise on U.S.-China trade optimism with China's Shanghai Composite gaining 0.8% and the CSI 300 jumping 0.9% as investors returned from holidays amid renewed hope for trade talks. Hong Kong's Hang Seng added 0.5%, while Australia's S&P/ASX 200 and Singapore's Straits Times remained largely flat as traders exercised caution ahead of the Fed meeting. 

U.S.-China trade talks gain momentum as Treasury Secretary Scott Bessent told CNBC he expects "substantial progress in the coming weeks," noting that current 145% tariff levels are "the equivalent of an embargo." President Trump claimed China wants a deal "very badly," though Beijing maintains no negotiations will occur until the U.S. reduces tariffs. China signaled openness to dialogue last week but emphasized talks must be based on "sincerity" and removal of unilateral tariffs.

Fed faces tariff policy dilemma ahead of its meeting starting today, with officials caught between waiting too long to cut rates and acting prematurely amid trade-related inflation risks. The central bank is expected to maintain rates while carefully monitoring how tariffs affect both inflation and employment. Internal divisions are emerging over whether short-term price increases will be temporary and whether to prioritize avoiding recession or reinforcing inflation-fighting credibility.

Trump signs pharma executive order aimed at boosting domestic pharmaceutical production by reducing approval times for new plants and instructing the FDA to streamline reviews. The president also warned he will impose import tariffs on the sector within two weeks, potentially affecting over $200 billion in annual prescription drug imports. European companies, along with producers in India and equipment makers in China, are expected to be most impacted.

DOJ seeks breakup of Google's ad business calling for the company to divest its AdX advertising marketplace immediately, followed by a "phased" divestiture of its DoubleClick for Publishers ad server. The move follows a federal judge's finding that Google illegally dominated two online ad-tech markets. Google opposes the proposed remedies, arguing they "go well beyond the Court's findings" and would harm publishers and advertisers.

Oil rebounds over 1.5% after steep selloff with Brent crude rising to $61.15 and WTI climbing to $58.02. Prices had settled at their lowest since February 2021 on Monday after OPEC+ decided to further accelerate oil production increases for a second consecutive month. Oil has lost over 10% in six straight sessions and over 20% since April when Trump's tariff announcements sparked global economic slowdown concerns.

Chinese services activity slows to seven-month low as April's Caixin/S&P Global services PMI fell to 50.7 from 51.9 in March, with businesses citing U.S. tariffs as a major concern. Despite consumer spending during the May Day holiday rising 8% year-on-year to 180.27 billion yuan, per capita spending increased just 1.5% and remains below 2019 levels. Cinema ticket sales during the five-day holiday dropped to roughly half of the same period in 2024.

Asian currencies mixed after volatile trading with the Chinese yuan strengthening 0.6% to a six-week high on trade talk optimism. Hong Kong's monetary authority bought $7.8 billion to defend its currency peg as the Hong Kong dollar hit the upper limit of its band for the fourth time this month. Meanwhile, the Taiwan dollar weakened 3.7% after its unprecedented 8% surge over two previous sessions, with analysts pointing to unwinding of dollar-long positions amid waning confidence in the U.S. economy.