Brazil Central Bank to Sign Currency Swap Deal With China's PBOC

Central Bank

Forex

Summary:

The agreement, to be signed on Tuesday in Beijing during Brazilian central bank governor Gabriel Galipolo's visit to China, aims to provide liquidity to support financial markets in times of stress, the bank said.

Brazil's central bank said Monday it will sign a currency swap agreement with the People's Bank of China, with a maximum outstanding value of 157 billion reais ($27.69 billion) and a five-year term.

The announcement marks another step in strengthening ties between Latin America's largest economy and China, amid heightened global volatility triggered by sweeping trade tariffs imposed U.S. President Donald Trump.

It follows Monday's announcement of more than $4.5 billion in planned Chinese investments in Brazilian sectors ranging from auto manufacturing and renewable energy to pharmaceuticals and semiconductors, as leftist President Luiz Inacio Lula da Silva visits the country.

Washington and Beijing reached a deal to temporarily ease tariffs, but even before tensions escalated between the two, Lula had long emphasized China's global importance, saying on Monday that "if it's up to my government, our relationship with China will be indestructible."

Brazil's central bank noted it already has a similar currency swap arrangement with the U.S. Federal Reserve, made permanent in 2021, which allows the Brazilian monetary authority to access U.S. dollars through repurchase operations backed by U.S. Treasury securities.

The bank added it is also in talks with other counterparts to establish similar agreements, which it said have become common since the 2008 global financial crisis.

China is Brazil's largest trading partner, while the U.S. remains Brazil's biggest source of foreign investment.

Source: Reuters

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Manuel

Stocks

China–U.S. Trade War

News of a U.S. agreement with China to temporarily ease tariffs sent stocks soaring on Monday.

The S&P 500 rose 184 points, or 3.3%, to close at 5,844, while the Dow Jones Industrial Average leapt 1,161 points, or 2.8%, to close at 42,410. Early morning gains helped the S&P 500 index float back above where it was on April 2, the day President Trump announced sweeping tariffs that threatened to upend the global economy and spark a recession.

The Nasdaq Composite rose 4.4%, providing a measure of relief to tech companies at risk of retaliatory Chinese tariffs and export restrictions. Nvidia and Apple shares gained 5.4% and 6.3%, respectively.

In a joint statement released by The White House on Monday, the U.S. and China on Monday announced that they would substantially lower tariffs for 90 days. The agreement was struck over the weekend in Switzerland, where Treasury Secretary Scott Bessent and U.S. Trade Administrator Jamieson Greer met with a Chinese trade delegation.

Starting May 14, both countries will lower tariffs by 115%, according to the White House. That will bring the U.S. tariff on Chinese imports down to 30% from as high as 145%, and China's rate on American goods down to 10% from 125%. The 10% baseline tariff and other U.S. measures will remain in place.

UBS Global Wealth Management projects the U.S. tariff on Chinese imports will ultimately settle around 30% to 40%.

"Investors will now be focused on signs that the temporary fix can be turned into a lasting agreement," said Ulrike Hoffmann-Burchardi, chief investment officer at UBS Global Wealth Management, in a research note.

The value of the dollar climbed against other major currencies, while crude oil prices jumped more than 3% during midday trading. Yields on the 10-Year Treasury also rose to 4.5%, the highest its been since April 11.

Cautiously optimistic

Investors cheered the boom in stocks, but also warned the market rally could falter over the next three months as the U.S. and China approach the end of the tariff pause in August.

"This is a textbook recovery after the market's waterfall declines," said Gina Bolvin, president of Bolvin Wealth Management Group in an email to CBS MoneyWatch. "Expect volatility as we approach the 90-day reciprocal tariffs deadline."

Still, the Trump administration's success in striking an agreement with China — which was viewed as one of the more difficult agreements to negotiate — paves a smoother road ahead for Wall Street investors.

The U.S. reached a deal with the U.K. last week, the first trade pact to be announced since so-called "Liberation Day." Mr. Trump introduced the 10% tariff baseline on most imports on April 2, which remains in place.

"The market is going to take great comfort in the idea that there is a way forward and that all-time highs in the stock market are achievable before yearend," said Chris Zaccarelli, chief investment officer for Northlight Asset Management, in a research note.

The news also eased fears that the tariffs could tip the U.S. into a serious slump. Oxford Economics dropped their odds of a recession this year to 35%, citing the tariff truce. Still, they maintained a conservative outlook.

"But as we learned in the first trade war, we don't want to read too much into a single agreement," said Ryan Sweet, chief US economist at Oxford Economics, in a research note on Monday.

Tech, retail and travel gains

Companies across retail, tech and travel saw widespread gains, with news of reduced tariffs bringing a wave of relief to businesses like Apple that rely on Chinese imports for their inventory of name brand products.

Amazon, which has already hiked prices on hundreds of goods as a result of the tariffs, rose 8%. Over 70% of the products sold on Amazon are produced in China, according to a survey conducted by Jungle Scout.

The travel industry also saw a jump, with Delta Air Lines and American Airlines each soaring more than 5% by the end of the trading day. Carnival cruise line rose 9.6% and Norwegian cruise line surged 8.2%.

Among the biggest gains were apparel and footwear companies, whose production is often based in China and elsewhere in Asia. Lululemon leapt 8.7% and Nike rose 7.3%.

Source: CBS News

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Stocks

Political

President Donald Trump on Monday delivered a blow to the private-sector middlemen who negotiate U.S. drug prices in his executive order on drug pricing, saying he would cut them out as part of a goal to bring the U.S. in line with other countries.

The news drove their shares down even as pharmaceutical stocks rose in investor relief about the broad order.

"We're going to cut out the middlemen and facilitate the direct sale of drugs at the most favored nation price, directly to the American citizen," Trump said during a press conference.

The U.S. pays about three times more than other nations for drugs, and Trump's wide-reaching executive order directs pharmaceutical companies to charge similar prices in the U.S. and Europe.

The order says its health department will establish a mechanism for patients to buy more drugs directly from manufacturers.

Shares of CVS Health, UnitedHealth Group and Cigna fell 5%, 0.5% and 6%, respectively. The companies individually operate pharmacy benefit managers Caremark, Optum Rx and Express Scripts.

Pharmacy benefit managers have already been under regulatory pressure from the Federal Trade Commission, which had sued them under the Biden administration over their insulin pricing practices.

The pharmaceutical industry has blamed them for high prices, saying the aftermarket discounts and fees add hidden costs to drug prices.

Jeff Jonas, portfolio manager at Gabelli Funds, said the executive order would keep that negative pressure on companies like Cigna, CVS, and UnitedHealth.

"The system of high list prices and big, hidden rebates makes the system very opaque and hard to navigate," he said.

A spokesperson for CVS said the company welcomed the president’s focus on pricing by pharmaceutical companies and aimed to have discussions with the administration on making pricing more affordable.

He said that its negotiations with drugmakers in health plans it operates for Medicare prescription drug insurance had resulted in "significantly lower" costs than that which the government had been able to extract in the 7 of ten drugs it has directly negotiated under the Inflation Reduction Act.

Cigna and UnitedHealth did not immediately respond to a Reuters request for comment.

Industry spokesman Greg Lopes, vice president of public affairs at the Pharmaceutical Care Management Association, said the problem was with the drugmakers and that PBMs were the only check against drug companies’ unlimited pricing power.

American reliance on employer-sponsored health plans poses a challenge to the implementation and may require congressional oversight to enforce, one analyst said.

Because pharmacy benefit managers provide bundled services to clients, companies could raise the costs of other services or administrative fees, effectively maintaining the same plan pricing, said Julie Utterback, an analyst at Morningstar.

She said UnitedHealth shares had not fallen as much because the company is more diversified than Cigna and CVS, which also has a retail pharmacy that could be negatively impacted by lower drug prices.

Source: Reuters

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Manuel

Commodity

China–U.S. Trade War

Oil and most other commodities powered higher, while gold fell, after China and the US ratcheted down trade tensions that had threatened to slash demand for raw materials.

West Texas Intermediate crude rose 1.5% to settle at $61.95 a barrel in New York, while copper advanced 0.8%. European natural gas, soybeans and iron ore also rallied. Shares of the top mining companies surged.

The truce between the world’s two largest economies brought some temporary relief to commodity markets roiled by tariffs that dented the outlook for global economic growth in recent weeks. Oil watchers have slashed demand forecasts, and the trade war already was showing signs of reducing the volume of goods arriving in the US.

China will reduce tariffs on US goods to 10% from 125%, while America will cut its own curbs to 30% from 145% in an arrangement lasting for 90 days. At a briefing after the talks, US Treasury Secretary Scott Bessent said neither nation wanted their economies to decouple. Both countries said they would establish a mechanism to continue discussions on economic and trade relations.

“The oil market got caught up in the euphoria, but the damage has already been done to demand in the short term,” said John Kilduff, founding partner of Again Capital LLC. Still, reduced trade war tensions have removed $3 to $5 of downside from the market, rendering the new price floor near $60 a barrel, he said.

Commodities have been volatile ever since President Donald Trump first announced so-called reciprocal tariffs in early April. Oil prices are still down more than 10% since then as the market contends with rising supplies from the Organization of the Petroleum Exporting Countries and its allies.

While commodity trading advisers are still largely betting against crude, they’re moving off their extreme bearish stance. The funds, which can accelerate price momentum, liquidated short positions to sit at 82% short in both WTI and Brent on Monday, compared with 91% short on May 9, according to data from Bridgeton Research Group.

The commodity eased off of intraday highs as Trump signaled positive progress in nuclear talks that took place on Sunday between the US and Iran, boosting expectations of relaxed restrictions on Tehran’s crude in the near future. Traders are also focused on Trump’s first overseas trip to the Middle East. Saudi Arabia, OPEC’s de facto leader, will be the first stop.

Companies Rally

Top miners including Glencore Plc and Rio Tinto Plc rose on Monday and were among the best performers in Europe’s equity markets. Energy companies including Exxon Mobil Corp. and Chevron Corp. also climbed.

Copper prices, which fell sharply after tariffs were first announced, have rebounded on signs that demand in China is holding firm for now. But the price increase lagged the pace of gains in crude as investors caution against more trade uncertainty.

“There are still questions as to what the end game will be, as the measure will be operational for 90 days, and what the eventual level of tariffs will be,” said Ewa Manthey, commodity strategist with ING Groep NV. “Although these new levies are lower than expected, they still are significant and that could still hit demand for raw materials.”

In agricultural markets, soybean futures in Chicago extended gains to trade at the highest since February. China is the world’s top soybean buyer, and the trade thaw could help get crop flows moving again.

Meanwhile, gold lost ground as haven demand eased. The decline was compounded by a de-escalation of military hostilities between India and Pakistan after four days of clashes brought the two nuclear-armed nations close to a full-blown war.

The world’s top bullion producers slid following gold’s decline. Newmont Corp., Barrick Mining Corp. and Agnico Eagle Mines Ltd. — the top three miners of the precious metal — all were down more than 6% in New York.

Shares of companies that sell battery systems that rely on cells from China rallied. Fluence Energy Inc. jumped 23% while Sunrun Inc. climbed 16%. Sunrun said last week that the series of tariffs that had been put in place could result in additional costs of $100 million to $200 million.

Source: Bloomberg

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China–U.S. Trade War

Economic

U.S. new-vehicle prices surged in April, data released on Monday showed, a sign that the effects of President Donald Trump's auto-tariff measures are rippling through the car market.

The average price consumers paid, after discounts and promotions, rose 2.5% from March, more than double the typical 1.1% increase over those two months in recent years, Cox Automotive's Kelley Blue Book showed. In the past decade, the only larger such increase was in April 2020, when prices rose 2.7% during pandemic-related factory shutdowns.

Automakers are adjusting to 25% U.S. tariffs on vehicle imports from many countries, including major trading partners Mexico and Canada, but few have raised sticker prices. Some, like Hyundai, Ford and Jeep-maker Stellantis, have even rolled out deals to reassure buyers and keep sales flowing.

Still, consumer demand has risen over the past few months as buyers rush to get ahead of any tariff-related price increases, dealers and auto executives have said. That has translated into new-car shoppers shelling out more on average at dealerships, according to Cox.

Yet even if carmakers hold prices steady, consumer expectations that tariffs will eventually send prices higher likely led to inflation on certain models, said Cox executive analyst Erin Keating.

"Those models got more demand, and therefore the local pricing dynamics at the dealership level likely helped those prices go higher."

Ford is charging more for its Mexico-built products, Reuters first reported last week. Some models of the Mustang Mach-E electric SUV, Maverick pickup and Bronco Sport will cost as much as $2,000 more, according to a notice sent to dealers.

Wholesale used-vehicle prices rose in April, according to Cox's Manheim Used Vehicle Value Index, which increased 4.9% to 208.2 from a year ago, up 2.7% from March.

Promotions have kept prices steady overall, some automakers said.

Consumer-incentive programs are still very strong, said Todd Szott, dealer partner at Szott Automotive Group, which has Ford, Stellantis and Toyota dealerships in Metro Detroit. "Pricing is fairly stable at this point."

Sales incentives on new cars as a percentage of transaction prices, a measure of discounts and promotions, fell to the lowest since the summer of 2024, Cox said.

A dip in the number of vehicles sitting on dealer lots could point to upward pressure on prices in coming months.

On a recent webinar with the Automotive Press Association, Cox Chief Economist Jonathan Smoke noted that fewer than 2.6 million vehicles are on dealer lots, and that supply could fall even further as sales surge and importers reduce deliveries.

Paul Zimmermann, partner-owner at Matick Automotive Group of Michigan, which owns GM and Toyota stores, said vehicle stocks are getting lighter in some areas after a robust April.

"I do have some concerns just in terms of the pipeline," he said. "It's running healthy right now, but we need to make sure that there's no blip."

Cox previously estimated new vehicles directly affected by a 25% tariff could cost 10% to 15% more, while the prices on vehicles not affected by the full tariff could rise 5%.

Keating does not expect double-digit percentages soon, but maybe over the long term. Automakers may use model-year changeover time in the summer to adjust prices, she added.

Source: Reuters

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Economic

China–U.S. Trade War

The U.S. government posted a $258 billion budget surplus for April, up 23%, or about $49 billion, from a year earlier, reflecting strong tax receipts in the final month of the tax season and surging collections of import duties, the Treasury Department said on Monday.

Treasury reported that net customs duties in April totaled $16 billion, about a $9 billion increase from the year-earlier period. The increase occurred during a month in which President Donald Trump boosted tariffs on Chinese goods to as much as 145% while slapping at least 10% levies on imports of goods from other countries.

The budget results indicate the U.S. collected just over $500 million a day from tariffs in April. Trump last month said the collections were about $2 billion a day.

For the first seven months of the fiscal year, net customs duties totaled $63 billion, compared with $48 billion in the same period a year earlier.

That new revenue, however, is likely to drop off. The U.S. and China over the weekend reached a deal to temporarily ease their steep tariffs on each other, with the U.S. cutting its 145% duties to 30% for the next 90 days, while Chinese levies on U.S. imports will fall to 10% from 125%.

Receipts last month were driven by a 16% increase in individual non-withheld tax payments, which totaled $460 billion. Individual refunds also rose 16% to $86 billion, detracting from net total budget receipts of $850 billion for the month.

Treasury reported a $1.049 trillion budget deficit for the first seven months of fiscal 2025, which started Oct. 1, up 23%, or $194 billion, from a year earlier. Fiscal year-to-date receipts of $3.110 trillion and outlays of $4.159 trillion were both records for the year through April, though the deficit itself was not, a Treasury official said.

After accounting for calendar differences that exaggerated outlays recorded in 2024 and $85 billion in deferred tax receipts from California that had boosted fiscal-year 2024 receipts, the deficit would have been 4% higher, according to the official.

The 5% increase in unadjusted fiscal year-to-date receipts was driven by a 6% increase in individual paycheck tax withholdings to $2.145 trillion, accounting for the lion's share of the total budget receipts.

The 9% increase in unadjusted fiscal-year-to-date outlays was driven by higher spending on the Medicare health program for seniors and the disabled, which was up 16% to $658 billion, and on the Medicaid program for lower-income Americans, which was up 6% to $378 billion. Both programs saw enrollment climb and service costs rise.

Spending on the Social Security retirement program rose 9% to $945 billion on a fiscal-year basis, while payments to cover Treasury debt interest climbed 10% from a year earlier to $684 billion.

The Treasury official said the weighted average interest rate for the month was 3.29%, up 6 basis points from a year earlier, but close to where it has been for the past five months.

Source: Reuters

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Adam

Economic

U.S. President Donald Trump will touch down in the Persian Gulf region – or as he may soon be calling it, the Arabian Gulf – on May 13, for an official trip with stops in Saudi Arabia, Qatar and the United Arab Emirates.

The stakes are high, as the visits take place amid turbulent geopolitical tensions. On the agenda will be Israel-Gaza war ceasefire talks, oil, trade, investment deals, and the potential for new policy developments in the areas of advanced semiconductor exports and nuclear programs.

“We expect to see a lot of announcements. And I think in a broad spectrum of areas as well,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, told CNBC’s Dan Murphy on Friday. She noted the potential removal of Trump’s 10% tariffs on aluminum and steel, which would be a positive for the Gulf states as some of them export those metals to the U.S., though they make up only a small percentage of the countries’ GDPs.

Trump has long enjoyed a warm relationship with Gulf Arab states, in particular the UAE and Saudi Arabia, where his children have several business ventures and planned real estate projects. Those relationships could strengthen the countries’ hands when it comes to negotiating new trade deals – while also raising concerns among critics over potential conflicts of interest, accusations the Trump family rejects.

During the president’s initial term in office, his first overseas trip was to Saudi Arabia – a country now hosting the negotiations that Trump hopes will end the Russia-Ukraine war, making the kingdom ever more important to Washington. Qatar, meanwhile, has played a central role in negotiations between Israel and Hamas over ceasefires and hostage releases.

Wall Street and AI in the Gulf

The presidential visit is drawing several Wall Street and Silicon Valley titans to the Saudi kingdom. A Saudi-U.S. investment forum announced just this week and set to take place on May 13 in Riyadh will feature guests including BlackRock CEO Larry Fink, Palantir CEO Alex Karp, and CEOs of major firms like Citigroup, IBM, Qualcomm, Alphabet , and Franklin Templeton, among others. White House AI and crypto czar David Sacks will also be in attendance.

“We also expect to see a lot of investment deals being announced,” Malik said. “And both ways, we’ve already seen the UAE announce a number of investments in the U.S. in areas such as AI, energy, aluminum, but we also think that there will be opportunities for U.S. companies to increase investment.”

Both Saudi Arabia and the UAE have invested heavily in AI infrastructure with the goal of becoming global hubs for the technology. Therefore, likely top of mind for those leaders is the future of U.S. semiconductor exports, the most advanced of which they so far have not gained access to due to national security concerns. But that may soon be changing.

The Trump administration on Wednesday announced its plan to rescind a Biden era “AI diffusion rule,” which imposed strict export controls on advanced AI chips, even to U.S.-friendly nations. The rule will be replaced with “a much simpler rule that unleashes American innovation and ensures American AI dominance,” a U.S. Commerce Department spokesperson said Wednesday, though the details of the new rule have not yet been shared.

UAE-based AI firm G42 has made efforts to align with U.S. regulations, including divesting from Chinese companies and partnering with Microsoft, which last year invested $1.5 billion in G42.

Nuclear ambitions

The Trump administration has been actively engaged in talks with Iran over its nuclear program – talks that the UAE and Saudi Arabia have expressed support for. That enthusiasm marks a stark contrast to those countries’ attitudes toward any U.S. deals with Tehran during the Obama years.

At the same time, Saudi Arabia wants its own civilian nuclear program and has asked the U.S. for approvals and assistance in this direction. Any U.S. support for a Saudi nuclear program was previously contingent on Saudi Arabia normalizing diplomatic relations with U.S. ally Israel – but that could change during this visit, according to media reports citing sources with knowledge of the matter.

U.S. Energy Secretary Chris Wright, during a visit to the kingdom in April, said that Saudi Arabia and the U.S. were on a “pathway” to a civil nuclear agreement – but that any further announcements would come from Trump himself.

Israel-Gaza negotiations

Another major topic will be the future of Gaza. Trump has vowed to bring about an end to the war, while also controversially suggesting that the U.S. could take control of the war-ravaged Strip which he described as “important real estate,” comments that drew strong rebukes from Arab leaders.

The U.S. has continued to push for ceasefire deals, most recently floating a 21-day cessation of hostilities and release of some hostages, while Israel this week approved expanding fighting and territorial control in Gaza.

“We have yet to hear a comprehensive plan from the Arab world,” Greg Branch, founder of UAE-based Branch Global Capital Advisors, told CNBC on Friday while discussing Trump’s upcoming visit.

“If we’re going to see a response that’s going to be Arab-led, it’s probably now or never,” Branch said. “I think that will be handled very delicately behind the scenes … probably more of a long-term geopolitical risk than any immediate macro risk.”

Oil and financing

Branch suggested that lifting U.S. sanctions on Syria under its new government could also potentially be discussed. Meanwhile, reports that the Trump administration will announce a U.S. renaming of the Persian Gulf to the Arabian Gulf would be enthusiastically welcomed by Arab states, but could draw severe anger from Iran at a time of delicate nuclear negotiations with Tehran.

Oil prices will also be in focus; Trump has long pushed OPEC states, led by Saudi Arabia, to pump more oil to lower prices for American consumers. For a combination of reasons, Saudi Arabia is doing precisely that – but it may have to change course in the coming months if prices stay subdued, hurting the kingdom’s revenues.

In that vein, financing will be an important agenda item for the kingdom during Trump’s visit, according to ADCB’s Malik.

Saudi Arabia in November pledged to invest $600 billion in the U.S. over the course of Trump’s term — but it also has sky-high costs for its own Vision 2030 investment ambitions. Lower global oil prices and big-ticket public spending projects have brought about widening budget deficits for Riyadh.

“With oil prices where they are, Saudi will look at more financing support from America as well as they look to progress with their investment program,” Malik said.