5 things to know before the stock market opens Tuesday

Adam

Stocks

Economic

China–U.S. Trade War

Summary:

Markets await CPI data after a strong rally from eased U.S.-China trade tensions. Trump targets drug prices, Coinbase joins S&P 500, and UnitedHealth CEO steps down amid rising medical costs.

CPI watch

Investors’ fears of a trade war — and a resulting recession — calmed on Monday after the U.S. and China agreed to drastically lower tariffs on each other’s imports for 90 days. The Dow Jones Industrial Average closed up 1,160.72 points, or 2.81%, while the S&P 500 gained 3.26% and the Nasdaq Composite climbed 4.35%. Stock futures were lower before the bell Tuesday as traders braced for April’s consumer price index report, due out at 8:30 a.m. ET. CPI is expected to remain at a 2.4% rate for the month on a year-over-year basis, according to the Dow Jones consensus. Follow live market updates.

Cure-all?

President Donald Trump on Monday signed an executive order aiming to lower the cost of some prescription drugs by tying their prices to significantly lower ones abroad. The effort, known as the “most favored nation” policy, directs Trump’s trade and commerce officials to crack down on “unreasonable and discriminatory policies” in foreign countries. It also instructs the HHS secretary to establish a way for U.S. patients to bypass middlemen and buy drugs straight from manufacturers. But experts say it is unclear by how much the plan would reduce drug prices, which drugs it will affect, and whether it can be implemented at all. “The road ahead could be muddy,” JPMorgan analysts wrote in a note.

Victory lap

The U.S. and China appear to have avoided an all-out trade war, at least for now, and both countries are declaring victory. Trump on Monday said China “agreed to open up” and suspend its trade barriers as part of the temporary tariff reduction deal, while Beijing cast the agreement as a vindication of its negotiating strategy. “China’s firm countermeasures and resolute stance have been highly effective,” one social media account linked to China’s national broadcaster posted. Meanwhile, the Treasury Department reported a record $16.3 billion in customs duties in April as revenue from Trump’s tariffs began to flow in. That’s 86% more than the $8.75 billion collected in March and more than double the $7.1 billion in April 2024.

New home base

The S&P 500 just announced its newest member. Coinbase will join the benchmark index before trading on May 19, S&P Dow Jones Indices said Monday, causing shares of the cryptocurrency exchange to jump nearly 11% in extended trading. The move comes just days after Bitcoin jumped back above $100,000 for the first time since February. Since going public via a direct listing in 2021, Coinbase has been a volatile stock. It currently trades far below its 2021 peak and has underperformed Bitcoin so far this year, dropping 17% while the cryptocurrency is up 10%. Coinbase will replace Discover Financial Services, which is in the process of being acquired by Capital One Financial.

Stepping down

Shares of UnitedHealth Group dropped more than 10% before the bell Tuesday after the insurer suspended its 2025 guidance and announced that CEO Andrew Witty is stepping down for personal reasons. Stephen Hemsley, who previously served as UnitedHealth’s CEO from 2006 to 2017, will take Witty’s place, effective immediately. The company cited higher-than-expected medical costs as a reason for suspending its guidance. The announcement comes weeks after UnitedHealth reported its first quarterly earnings miss since 2008 and slashed its annual profit forecast.

Source: cnbc

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Glendon

Economic

Stocks

UBS downgraded U.S. equities to Neutral from Attractive following an 11% rally in the S&P 500 since early April.

The bank pointed to reduced upside after progress on U.S.-China trade talks drove market gains.

“We downgrade U.S. equities to Neutral from Attractive,” UBS said, noting that “risk-reward in equities is now more balanced.”

The firm had upgraded U.S. stocks on April 10, arguing that excessive trade-related pessimism was priced in. But with tariffs temporarily paused and markets rebounding, UBS believes the easy gains are behind.

On Monday, the S&P 500 rose 3.3% and the Nasdaq jumped 4.4% after the U.S. and China agreed to reduce tariffs for 90 days while negotiations continue.

U.S. levies on Chinese imports will fall to 30% from 145%, while China will cut tariffs on U.S. goods to 10% from 125%.

“The pace and scale of tariff reductions agreed in this initial round have exceeded market expectations,” UBS said.

Despite the downgrade, UBS emphasized it is “not a bearish view, nor a call to sell equities.”

“Uncertainty is still high,” UBS cautioned, “and investors will soon begin to focus on whether this temporary fix can evolve into a lasting agreement.”

The bank continues to advise a full strategic allocation to U.S. stocks and expects equities to be higher 12 months from now.

UBS’s sector preferences remain unchanged, with Attractive ratings on communication services, tech, health care, and utilities.

Looking ahead, UBS said the “durability of this rally will depend on two key factors: whether U.S.-China negotiators can turn this into a lasting trade agreement, and how Beijing proceeds with anticipated stimulus.”

Source: Investing

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Warren Takunda

Economic

U.S. consumer prices rebounded moderately in April, but inflation is likely to pick up in the coming months as tariffs boost the cost of imported goods.

The consumer price index CPI increased 0.2% last month after dipping 0.1% in March, which was the first decline since May 2020, the Labor Department's Bureau of Labor Statistics said on Tuesday. Economists polled by Reuters had forecast the CPI would rise 0.3%. In the 12 months through April, the CPI climbed 2.3% after advancing by 2.4% in the 12 months through March.

Excluding the volatile food and energy components, the CPI rose 0.2% last month after gaining 0.1% in March. The so-called core CPI inflation increased 2.8% on a year-on-year basis in April after rising 2.8% in March.

The data likely only captures tariffs, including a doubling of fentanyl-related taxes on all Chinese imports to 20% and a 25% levy on imported cars and light trucks, imposed before President Donald Trump's April 2 "Liberation Day" announcement.

While Trump in April paused for 90 days most of his country-specific tariffs, a 10% blanket duty on almost all imports remained in place. Economists said they expected the hit from the tariffs on prices to start showing up significantly beginning with May's CPI report.

The U.S. and China took a major step towards de-escalating their trade war over the weekend, with Washington agreeing to slash duties on Chinese goods to 30% for the next 90 days. Tariffs on U.S. goods imported into China would decline to 10% from 125%.

Economists still expect inflation to rise this year because of tariffs, but probably not as sharply as they had anticipated before the 90-day truce between the world's two largest economies, allowing the Federal Reserve to maintain its wait-and-see stance. They also see the easing of trade tensions to help the U.S. economy to avert a recession, though growth was likely to be sluggish this year.

"Inflation will likely rise to a lesser degree, peaking at around 3.4% year-over-year in the fourth quarter this year instead of our prior forecast of 4%," said Kathy Bostjancic, chief economist at Nationwide. "Economic growth still slows since tariff rates will be higher than before President Trump took office."

The Fed has a 2% inflation target. U.S. duties are looming on pharmaceutical products and semiconductors. Trump sees tariffs as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining U.S. industrial base.

The Fed last week kept its benchmark overnight interest rate unchanged in the 4.25%-4.50% range. Financial markets expect the central bank to resume its policy easing in September.

Source: Reuters

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Adam

Economic

China–U.S. Trade War

US inflation slowed to its lowest rate in more than four years, an unexpected and welcome development at a time when President Donald Trump’s dramatically escalated tariffs are expected to cause prices to rise.

Consumer prices rose 0.2% last month, bringing the annual inflation rate to 2.3%, an unexpectedly cooler reading than the 2.4% seen in March, according to the latest Consumer Price Index data released Tuesday by the Bureau of Labor Statistics. It’s the lowest annual rate since February 2021.

Consumers got some relief at the grocery store, where prices fell 0.4% from March, and that brought down overall food prices by 0.1%. Egg prices sank 12.7% for the month, reflecting declines seen on the wholesale side as the industry starts to recover from a deadly bout of avian flu.

Economists had expected inflation not to slow on an annual basis last month: Gas prices dropped off less last month than they did earlier this year, and higher costs associated with President Donald Trump hiking of import taxes on US trading partners was expected to start filtering through to the store shelves.

However, prices didn’t rise as much as economists thought they would.

Economists expected that the CPI would rise 0.3% from March and hold steady at 2.4% for the 12 months ended in April, according to FactSet.

Food and energy (which rose 0.7% from March) are two of the areas where consumers most frequently encounter inflation; however, they’re also the most volatile and affected by temporary events such as weather, war, disease, supply chain snarls, and demand swings.

The Core CPI gauge, which strips out food and energy, rose 0.2% from March, remaining at an annual rate of 2.8%, according to Tuesday’s report.

Source: cnn

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Michelle

Forex

Economic

Headline CPI rose 2.3% YoY last month, cooler than consensus expectations for an unchanged 2.4% YoY, while core prices rose by 2.8% on an annual basis. So-called ‘supercore' prices, meanwhile, aka core services inflation less housing, rose 2.7% YoY in April, a fresh low since early-2021, and a notable decline from the prior 2.9% annual rate.

April 2025 US CPI: Further Cooling Won’t Force Fed’s Hand_1

On an MoM basis, meanwhile, price pressures firmed compared to the previous couple of months, largely a result of tariffs beginning to boost prices across the economy, the impacts of which will continue to show up over the next quarter or two, even though the most drastic trade levies have been dramatically pared back since ‘Liberation Day'. Headline CPI rose 0.2% MoM in April, cooler than expected but still the firmest print since January, while prices excluding food and energy also rose 0.2% MoM over the same period.

Annualising this monthly data helps to provide a better idea of the inflationary backdrop, and underlying price trends:

3-month annualised CPI: 1.6% (prior 2.6%)
6-month annualised CPI: 3.0 % (prior 3.0%)
3-month annualised core CPI: 2.1 % (prior 3.0%)
6-month annualised core CPI: 3.0 % (prior 3.0%)

Digging a little deeper into the data, the April CPI report pointed to a continuation of recent trends, with goods price pressures continuing to firm, as core goods deflation came to an end for the first time since the start of 2024, even as core services prices continued to ebb.

April 2025 US CPI: Further Cooling Won’t Force Fed’s Hand_2

In the aftermath of the data, money markets underwent a modest dovish repricing, though little moves of any significance, with the USD OIS curve continuing to discount two 25bp Fed cuts by year-end, in September and December.

April 2025 US CPI: Further Cooling Won’t Force Fed’s Hand_3

On the whole, the April inflation figures won't be a game-changer, or anything of the sort, for the FOMC and the near-term policy outlook. Powell & Co. remain firmly in ‘wait and see' mode for the time being, seeking to sit on the sidelines amid a ‘well positioned' policy stance, assessing both incoming economic data, as well as changes in trade policy, and digesting how these shifts may alter the balance of risks facing each side of the dual mandate.

Primarily, though, the Committee's focus remains on ensuring that inflation expectations remain well-anchored as, even in light of the recent reduction in US tariffs on Chinese goods, the substantial rise in the overall average effective tariff rate is near-certain to result in CPI continuing to head higher through the summer.

With these upside inflation risks in mind, as well as the considerable degree of uncertainty that continues to cloud the economic outlook, and the labour market remaining in rude health, the bar to Fed action in the short-term remains a very high one indeed. While the direction of travel for rates remains lower, any cuts before the end of the third quarter seem a very long shot indeed, barring a significant deterioration in labour market conditions and policymakers obtaining sufficient confidence in price pressures remaining contained in the meantime.

Source: Pepperstone

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Warren Takunda

Economic

Faith in a European macroeconomic decoupling has strengthened, with a net 31% of respondents anticipating accelerated growth in the region, driven primarily by hopes for fiscal support in Germany.

With expectations for European economic growth strengthening and relative optimism about inflation, international investors may find European equities increasingly attractive, especially given the contrast with underweight positioning in U.S. equities.

This suggests a tactical opportunity to rotate into European stocks and the potential for relative outperformance of European markets if growth surprises to the upside.

Such developments advocate for international capital flow dynamics that would bid up the Euro.

"We remain optimistic on the Euro," says Nick Kennedy, FX Strategist at Lloyds Bank. "Europe's big step forward - which carved out fiscal space (for higher defence spending), alongside an even more powerful German fiscal programme (worth approximately €100BN per annum over the next decade) - provides a constructive and timely push."

Donald Trump's tariffs and domestic policies have dented the U.S. exceptionalism trade, which has weighed on the Dollar in 2025. The Euro has been a major beneficiary, and this can continue if investors continue to see value in Europe, as per Bank of America's survey.

The share of respondents expecting the global economy to slow over the next 12 months fell to 59% in May, down from 82% a month earlier. Expectations for a global recession collapsed from a two-year high of 42% to near zero, while 61% now see a soft landing as the most likely outcome, reversing last month’s majority view for a hard landing.

The survey, conducted between May 2 and 8, came ahead of a new U.S.-China trade agreement, suggesting further room for optimism in future growth expectations.

European inflation expectations remained mixed. While 28% of investors expect inflation in the region to fall over the next year, a net 30% expect global inflation to rise.

Above: "78% of European investors expect US growth to slow over the coming months, down from 89% last month, while 16% expect growth to flatline, up from 7% last month" - Bank of America.

Bullish Sentiment Boosts EU Equities

Investor sentiment toward European equities has turned increasingly positive. Some 59% of respondents now see upside potential for the region’s stock markets, up from 51% in April. None of the investors surveyed forecast significant downside, compared with 11% the previous month.

A net 35% of respondents reported overweight positions in European equities, close to recent highs, while a net 38% said they were underweight U.S. equities—a two-year peak.

The biggest perceived risk to portfolio positioning is reducing equity exposure too aggressively, cited by 28% of participants.

Banks Lead Sector Preferences

As macroeconomic concerns recede, financials have regained favor among investors. A plurality of 22% identified the sector as the likely top performer this year, followed by industrials at 19%. Banks are now the top consensus overweight, at 28%, with insurance (25%) and utilities (19%) also prominent. Autos, chemicals, and basic resources were the most underweighted sectors.

Geographically, Germany remains the most favored market, ahead of the UK, while Switzerland is the largest underweight by a wide margin.

Meanwhile, 56% of respondents expect high-quality stocks to outperform lower-quality names over the next year—the highest reading in nine months.

Source: Poundsterlinglive

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Glendon

Economic

Forex

The British pound has edged higher on Tuesday. In the European session, GBP/USD is trading at 1.3218, up 0.34% on the day.

UK employment, wages cool

Uncertainty over the global economy, particularly US tariff policy, weighed on the UK employment report. The economy added 112 thousand jobs in the three months ending in March, down sharply from 206 thousand a month earlier and shy of the market estimate of 120 thousand. It was the weakest job growth in three months.

The unemployment rate inched up to 4.5% from 4.4%, in line with expectations and its highest level since August 2021. Wage growth including bonuses eased to 5.5% from a revised 5.7%, above the market estimate of 5.2%.

The Bank of England cut rates by a quarter-point to 4.25% last week but remains in a bind. The cooling job market should push inflation lower but wage growth remains stubbornly high and is an upside risk to inflation. The BoE will have to carve out a rate path that balances a weaker labor market with high wage growth – this could mean a delay in further rate cuts until late in the year. The BoE meets next on June 19.

US CPI expected to rise in April

The US releases the April inflation report later today. Headline CPI is expected to rise to 0.3% m/m, up from -0.1% in March, which marked the first decline since June 2024. Annually, headline CPI is expected to remain unchanged at 2.4%. Core CPI is also expected to climb to 0.3% from 0.1%. Annually, core CPI is projected to remain at 2.8%.

The escalating trade tensions due to US tariffs have raised concerns that US growth will fall and inflation will decline, even resulting in a recession in the US. The US-China agreement to slash tariffs, which will be in effect for 90 days, is an important de-escalation in the trade war and should curtail inflation and reduce the risk of a recession.