London Midday: Stocks Flat After Data Slew; Defence Firms Rally

Stocks

Summary:

London stocks steadied as weak UK data and escalating US-China trade tensions hit sentiment. Gold and defence stocks gained amid safe-haven demand.

London stocks had pared earlier small losses to trade flat by midday on Monday as investors digested a raft of UK data releases amid renewed trade tensions between the US and China.

The FTSE 100 was steady at 8,770.75.

Sentiment took a hit after Trump said on Friday that he was planning to double tariffs on steel and aluminium imports to 50% from this week. He also said that China had violated the Geneva trade agreement.

China hit back, accusing the Trump administration of "seriously violating" its trade deal with the US, saying that it had introduced multiple "discriminatory restrictive" measures.

These include issuing guidance on AI chip export controls, stopping sales of chip design software to China and revoking visas for its students.

China’s Commerce Ministry said: "The US government has unilaterally and repeatedly provoked new economic and trade frictions, exacerbating uncertainty and instability in bilateral economic and trade relations.

"If the US insists on its own way and continues to damage China’s interests, China will continue to take resolute and forceful measures to safeguard its legitimate rights and interests."

Russ Mould, investment director at AJ Bell, said: "Donald Trump has upset markets once again.

"Doubling import taxes on steel and aluminium, and aggravating China once again, mean we face a situation where uncertainty prevails. Trump’s continuous moving of the goal posts is frustrating for businesses, governments, consumers and investors.

"Equity markets were down across Europe and Asia, with futures prices implying a similar pattern when Wall Street opens for trading on Monday. Unsurprisingly, gold got a boost as investors returned to safe-haven assets."

On home shores, a survey showed the manufacturing sector continued to struggle in May, weighed down by faltering client confidence, higher costs and ongoing trade uncertainties.

The S&P Global UK manufacturing PMI rose to a three-month high of 46.4 last month, from 45.4 in April and above the flash estimate of 45.1.

However, the sector remains in contraction. A reading above the neutral 50.0 benchmark indicates growth but one below it suggests contraction.

Elsewhere, figures from the Bank of England showed that mortgage approvals fell sharply in April after changes to stamp duty thresholds came into effect.

According to the latest money and credit report, net mortgage approvals for house purchases - an indicator of future borrowing - fell for the third consecutive month, by 3,100 to 60,500 in April.

Analysts had been expecting a more modest decline to 63,000.

Net borrowing of mortgage debt also tumbled, sliding £13.7bn to -£0.8bn and reversing March’s £9.6bn net increase.

Changes to stamp duty thresholds came into effect on 1 April, leading to a spike in deals as home buyers rushed to complete ahead of the deadline.

Earlier, data from Nationwide showed that house priced edged higher in May despite wider economic uncertainties.

In equity markets, defence firms were among the top performers, with Babcock, BAE Systems, Rolls-Royce and Qinetiq all up sharply after the UK government pledged to build up to 12 attack submarines as part of AUKUS programme.

Russ Mould said investors were targeting "an industry with a clear earnings tailwind".

Silver and gold miner Fresnillo and gold miner Endeavour Mining both shone as the price of the yellow metal rose.

Aberdeen rallied after an upgrade to ‘buy’ from 'neutral’ at Goldman Sachs, which said the recent investor focus has centred disproportionately on the underperforming asset management unit.

Vodafone edged lower after it and CK Hutchison Holdings said the merger of telecoms firms Vodafone UK and Three UK successfully completed on 31 May.

Source: Sharecast

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Michelle

Commodity

Oil ministers from OPEC+ members agreed on another big increase in production targets for July. But is there room for those barrels without crashing prices?

A third straight boost of 411,000 barrels a day will see the group adding a combined 1.37 million barrels to supply between March and July — at least in theory.

Not everyone agrees there’s enough room for this extra oil, even within the group itself. Russia wanted to pause the increases to assess the impact of the hikes already made.

Moscow saw the price of its key Urals export grade tumble below $50 a barrel in early May, recovering to slightly above that level in the second half of the month. And, unlike Saudi Arabia, it doesn’t benefit from big increases in its production target.

While the kingdom’s allowance will rise by 556,000 barrels a day during the period, Russia’s increases by just 150,000 barrels after taking into account the deeper compensation cuts it promised to offset past overproduction.

But the real cumulative increase in group production is likely to be much smaller than the headline figure, with perhaps as little as half actually reaching global markets.

Some of the nations permitted to produce more are already pumping as hard as they can and, in the case of Kazakhstan, are already well above their July allocation.

Much of the extra expected from Saudi Arabia will be used locally to generate electricity for the summer surge in air conditioning, which could soak up more than 80% of its new allocation.

South Sudan, where production is recovering after a key export pipeline was repaired, and Libya, which is under threat from rising internal unrest, create other supply uncertainties.

Analysts at the Organization of the Petroleum Exporting Countries see the market short of about 1 million barrels a day of supply in the third quarter — even with Kazakhstan’s cheating — and say their counterparts at the International Energy Agency underestimate demand.

That view was given some credence last month when the Paris-based agency increased historical demand estimates, wiping out all the stockbuilds it had previously seen for the past three years.

Analysts outside OPEC, including Goldman Sachs Group Inc. and Morgan Stanley, see the group continuing to raise output targets aggressively, keeping Brent crude at, or below, $60 a barrel in the second half of this year.

--Julian Lee, Bloomberg News

Gold surged on revived demand for safer assets as the US and China accused each other of reneging on a recent trade deal, while a dramatic series of attacks clouded the prospects for peace between Russia and Ukraine. Meanwhile, US President Donald Trump vows to double import tariffs on foreign steel and aluminum. Goldman Sachs predicts gold will remain a hedge against inflation.

Oil advanced after a weekend that saw OPEC+ increase production by less than some expected, Ukraine attack Russian air bases and Iran criticize a report it’s adding enriched uranium.

The Trump administration is moving to repeal Biden-era curbs blocking drilling across most of the mammoth petroleum reserve in Alaska that’s home to an estimated 8.7 billion barrels of recoverable oil.

Source: Bloomberg Europe

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Adam

Forex

Economic

The U.S. dollar plunged anew (.DXY), opens new tab to its lowest level in six weeks on Monday as June got underway, with U.S. tariff concerns back on the boil after last week's legal confusion and military tensions rising across the globe.

The euro led the charge, undaunted by the prospect of another interest rate cut from the European Central Bank on Thursday. Germany's new chancellor, Friedrich Merz, will travel to Washington to meet U.S. President Donald Trump on Thursday as trade talks between Europe and America are watched closely.

With markets still on edge about elements of the U.S. fiscal bill going through the Senate that give the administration the option of taxing companies and investors from countries deemed to have 'unfair foreign taxes', the dollar is vulnerable to worries about foreign capital flight.

But the attention on Monday seemed back on the tariff push, with an assumption President Donald Trump will push through levies one way or another despite the legal pushback last week.

The greenback was hit after the weekend by Trump's plan to double duties on imported steel and aluminum to 50% from Wednesday and as Beijing hit back against accusations it violated an agreement on critical minerals shipments.

It was also a weekend of significant geopolitical tensions and bellicose warnings. Gold crept higher.

U.S. Defense Secretary Pete Hegseth warned on Saturday that the threat from China was real and potentially imminent as he pushed allies in the Indo-Pacific to spend more on their own defence needs. The Ukraine-Russia war continued to rage, with Ukrainian drones hitting dozens of Russian bombers deep inside Russian territory. The Gaza conflict shows no sign of ending.

Major countries are building armaments at pace. Britain will expand its nuclear-powered attack submarine fleet as part of a defence review, one designed to prepare the country for modern war and counter the Russian threat.

Oil prices jumped by about 3% on Monday after producer group OPEC+ kept output increases in July at the same level as the previous two months.

In a big week for U.S. labor market data, there was some encouragement on the interest rate front.

Federal Reserve Governor Christopher Waller said on Monday that rate cuts remain possible in the second half of the year. Given that a rise in inflation pressures tied to Trump's import tax increases is unlikely to be persistent, "I support looking through any tariff effects on near term-inflation when setting the policy rate," Waller told a gathering in South Korea.

Elsewhere, China's manufacturing activity shrank for a second month in May, as expected.

Stocks in Poland .WIG20 fell 1.4%, after nationalist opposition candidate Karol Nawrocki won the second round of the country's presidential election.

Ahead of Monday's bell, U.S. stock futures were down about half a percent, with stocks in Europe and Japan down too. U.S. Treasury yields nudged back higher.

Today's column looks at the week's big monetary decision in Europe, with the European Central Bank widely expected to lower rates for the eighth time in the cycle and the euro rising regardless.

ECB FACES SURGING EURO CONUNDRUM

While the European Central Bank keeps cutting interest rates, the euro keeps rising, as a transatlantic capital reversal upends relative rate shifts and threatens to force the ECB into further easing.

The ECB is widely expected to lower its main borrowing rate on Thursday to 2%, half what it was at its peak a year ago and less than half the Federal Reserve equivalent. It's also back to what the central bank broadly considers a 'neutral' level, meaning it neither spurs nor reins in the economy.

Real, or inflation-adjusted, ECB rates will be back to zero for the first time in almost two years.

What's remarkable is that after eight consecutive ECB cuts and with the prospect of zero or even negative real rates ahead, the euro has surged more than 10% against the dollar in just four months and 5% against a trade-weighted currency basket of the euro zone's major trading partners.

That nominal effective euro index is now at record highs, with the 'real' version at its strongest level in more than 10 years.

The currency has surged even though there has been no net change in the gap between two-year government bond yields on either side of the Atlantic - usually a reliable indicator of shifts in the euro/dollar exchange rate.

The culprits behind this trend are pretty clear: Donald Trump's tariff wars, fears of capital flight from dollar assets due to a host of concerns about U.S. policies and institutions, and Germany's historic fiscal boost that has transformed the continent's outlook.

indeed coming back home as many suspect, the ECB has a curious conundrum ahead. How does it handle both the disinflationary effects of such a rapid currency rise alongside the domestic demand it could catalyse?

Lower rates with the prospect of further easing ahead are clearly having little impact on the euro. Most ECB watchers expect one or two more cuts after Thursday while money markets have a 'terminal rate' around 1.75%, the low end of the ECB's estimated range of 'neutral'.

Morning Bid: Dollar slides on trade and tax fears_1

The horizontal bar charts show European Central Bank inflation and real GDP forecasts for the next three years made in Dec. 2024 and March 2025 in blue and red respectively.

ndeed, if much of the capital repatriation from overweight U.S. holdings is in equity investments, then lower ECB rates may even accelerate the outflows from the U.S. by lifting growth prospects for cheaper stocks in Europe.

Morning Bid: Dollar slides on trade and tax fears_2

A line chart comparing inflation metrics over the past five years.

The prospect of higher German and pan-European borrowing should sustain longer-term fixed income returns as well, expanding the pool of 'safe' investments.

'GLOBAL EURO MOMENT'

The ECB could revert to protesting about 'excessive' euro gains, although the impact might be limited unless it is prepared to back its words with action, and there is a risk it could backfire for the reasons just mentioned.

If anything, the ECB appears to be encouraging the investment shift and the euro's role as a reserve currency - in part to help with the bloc's massive capital needs in retooling its military, digital and energy sectors.

In a pointed speech in Berlin last week, ECB chief Christine Lagarde insisted there was an opening for a "global euro moment", where the single currency becomes a viable alternative to the dollar, earning the region immense benefits if governments can strengthen the bloc's financial and security architecture.

The scenario may be seen as a nice problem to have, but there will be more than a little disquiet among the region's big exporting nations about a soaring exchange rate in the middle of a trade war.

ECB hawks and doves will also have to thrash out whether continued easing to offset disinflationary currency risks only stokes domestic inflation over the longer term - not least with a fiscal lift coming down the road into next year.

What seems clear is that the ECB's new economic forecasts due for release on Thursday will have taken into account the 7% euro/dollar gain and near 10% drop in global oil prices since its last set of projections in early March.

Morgan Stanley economists reckon that even if the central bank tweaks its core inflation forecasts higher, the new outlook could well show headline inflation undershooting its 2% target from mid-2025 to early 2027 - even while nudging up 2025's GDP growth view.

Morning Bid: Dollar slides on trade and tax fears_3

Lin chart showing Investors see more upside potential for the euro than for the dollar, according to 25-delta EURUSD at-the-money risk reversals.

In truth, any forecasts at this point are fingers in the wind with few central banks or major investors having a clue where U.S. tariffs or retaliatory trade war actions will end up.

The chart shows the gap between 10-year and 2-year yields for German Bunds and US Treasuries

But while global trade and investment nerves abound, the ECB may be relatively powerless to cap the euro. Whether that argues for stasis or even more easing is the big headache it faces.

Chart of the day

U.S. gross domestic product readings have been bamboozled this year by tariff-related import skews. Again last week, models tracking GDP inputs were jarred by a sharp contraction in the goods trade deficit for April as front-running of imports to beat tariffs in the first quarter faded. With many tariffs in place, imports plunged and helping to compress the goods trade deficit by 46% to $88 billion, according to the Commerce Department's Census Bureau. Imports fell $68 billion to $276 billion while exports rose $6.3 billion to $188.5 billion. The shrinking goods deficit, if sustained, suggests the net trade component of GDP calculations will spur a significant rebound in growth this quarter, much like it sliced a record 4.9 percentage points from Q1 GDP - leading to a headline contraction in the overall economy. Flattered by the trade numbers, the Atlanta Federal Reserve's 'GDPNow' tracker now sees a whopping Q2 real GDP rebound of 3.8%. However, there is caution. Businesses do not appear to be restocking, with wholesale inventories unchanged last month and stocks at retailers down 0.1% and there is concern stockpiles may well drop sharply over the remainder of the quarter.

Source : reuters

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Glendon

Economic

Forex

Amid ongoing tariff uncertainty, the Eurozone’s credit growth continued its recovery in April, according to a report by UBS on Monday.

The report examined the newly released monetary and credit data for April, revealing that private sector credit growth is on the rise compared to the same period last year, up 0.1 percentage points to 2.7% year-on-year.

This includes loans to households and non-financial corporations (NFCs), which both increased by 0.2 percentage points to 1.9% and 2.6% year-on-year, respectively.

The growth rate of M3, a measure of money supply, also saw an increase of 0.2 percentage points to 3.9% year-on-year. Meanwhile, growth in total credit by Monetary and Financial Institutions (MFI) was up by 0.1 percentage points to 1.8% year-on-year in April.

Public sector credit remained unchanged at 0.5% year-on-year, while overall private sector lending, adjusted for loan sales and securitization, also saw a 0.1 percentage point increase to 2.7% year-on-year.

In terms of household sector lending, mortgages saw a 0.2 percentage point increase to 1.9% year-on-year, while consumer loans were up 0.1 percentage points to 4.3% year-on-year.

Sequential momentum in credit growth remained steady across the board, with the three-month moving average of month-on-month private credit growth, NFC credit and household credit all at 0.2%.

UBS also highlighted that Eurozone bank lending rates for new corporate loans fell by 19 basis points month-on-month to 3.93%, down 135 basis points from the peak in October 2023, but still up 257 basis points from the low in December 2021.

The highest corporate lending rates were found in Ireland and the Baltic nations, while the lowest were in Luxembourg and the Netherlands.

The loan-to-deposit ratio in the Eurozone rose by 0.1 percentage points to 93.3% in April, still well below the 104.5% mark seen in early 2020. Private sector deposit growth remained unchanged at 3.2% year-on-year in April.

UBS noted that private sector credit growth was particularly strong in Greece and Estonia, and weak in Finland and Luxembourg, as well as Austria, Germany, and Italy.

The growth rate of M3, a measure of money supply, increased by 0.2 percentage points to 3.9% year-on-year in April. The growth in M1, which includes the most liquid components of M3, such as currency in circulation and overnight deposits, was up by 0.8 percentage points to 4.7% year-on-year.

Source: Investing

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Glendon

Economic

Forex

According to April’s money and lending figures, UK consumers’ willingness to borrow and spend remains unhindered despite the ongoing US trade war and a weakening jobs market.

Capital Economics suggests that this resilience may lead to a healthy 0.4% quarter-on-quarter growth in consumer spending in Q2 of 2025.

In April, there was a £3.0bn increase in households’ bank deposits, a figure smaller than the average £8.0bn gain observed over the past six months.

However, a record £14.0bn rise in cash ISA deposits was noted, possibly due to speculation of the Chancellor contemplating a reduction in the cash ISA tax-free allowance.

Furthermore, consumer credit in April saw a £1.6bn rise, slightly more than the £1.1bn increase in March and the average £1.2bn growth over the past six months.

This rise in consumer credit indicates that the uncertainty surrounding US tariffs did not deter consumers from borrowing last month. It also suggests that the boost in retail sales in April did not negatively affect non-retail spending.

On the other hand, net mortgage lending, calculated as gross advances minus repayments, saw a significant drop from +£13.0bn in March to -£0.8bn in April.

This decline is likely a reversal of the surge in March when buyers advanced purchases before the stamp duty became more burdensome from April 1st.

The third consecutive monthly decrease in mortgage approvals, from 63,603 in March to 60,463 in April, implies that the recent slowdown in house price growth may not be entirely due to temporary timing effects related to the stamp duty increase.

This could potentially increase the downside risks to Capital Economics’ prediction of a 3.5% rise in house prices in the year to Q4 2025.

Despite a blow to consumer confidence, Capital Economics reports little evidence of global tariff uncertainty making households more cautious with their borrowing and spending.

This finding offers some optimism that the UK economy might steer clear of a contraction in Q2.

Source: Investing

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Blue River

Technical Analysis

The USD/JPY pair fell to 143.58, marking its third consecutive day of losses. The Japanese yen continues to gain ground as demand for safe-haven assets rises amid escalating global trade tensions.

Trade risks boost yen demand

Demand for safe-haven currencies surged after US President Donald Trump threatened to double tariffs on steel and aluminium imports to 50% from 4 June. This announcement weighed on Japanese steelmakers, with JFE Holdings and Kobe Steel potentially facing headwinds. Nippon Steel may fare better, thanks to Trump’s favourable comments regarding its planned merger with US Steel.

Meanwhile, tensions between the US and China escalated further as Beijing rejected Trump’s accusations of breaching the recently negotiated trade agreement in Geneva.

Domestic data supports the yen

Japan’s latest data revealed stronger-than-expected capital expenditure growth in Q1. Investment activity increased across both the manufacturing and non-manufacturing sectors, reinforcing domestic fundamentals amid global headwinds.

With uncertainty lingering and market preference shifting towards defensive assets, the yen continues to show resilience and may remain firm if current conditions persist.

Technical analysis of USD/JPY

On the H4 chart, USD/JPY formed a narrow consolidation range around 144.22, which the market broke below earlier today. This breakout opens the way for a continued move down towards 142.20. After reaching this level, a corrective rebound to 144.22 is possible. The MACD indicator confirms this scenario, with its signal line below zero and pointing steeply downwards, indicating strong bearish momentum.

On the H1 chart, the pair is forming the fifth wave of the current downtrend, targeting 142.20. A temporary rebound to 143.88 is expected today, followed by a continuation of the decline to 142.70, with the potential for further movement down to 142.20. The Stochastic oscillator supports this outlook, with its signal line rising above 20 towards 50, suggesting a brief corrective move before further downside.

Conclusion

The USD/JPY pair remains under pressure due to heightened trade-related risk and growing demand for safe-haven assets such as the Japanese yen. Technically, the pair is poised for further decline, with 142.20 as the next key target. While a short-lived rebound may occur, broader sentiment continues to favour yen strength as long as global trade concerns persist.

Source: ACTIONFOREX

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Gerik

Economic

China–U.S. Trade War

Wall Street’s Volatile Playbook: From Pattern to Precariousness

Wall Street has increasingly relied on a tactical assumption dubbed the “TACO” trade—short for Trump Always Chickens Out. This phrase, widely circulated among traders, encapsulates the idea that while President Trump regularly makes aggressive tariff threats, he often retreats before enforcing them. It’s a logic that, until now, has helped sustain market confidence and even driven strong equity returns, with the S&P 500 posting its best May performance since 1990.

However, that trade logic is starting to fray. A surge in tough rhetoric from the Trump administration—accusing China of violating a trade agreement—and the announcement of expanded tech export restrictions rattled markets last week, triggering a selloff on Friday. China quickly responded, accusing the US of breaking the tariff truce and vowing to take “resolute and forceful” countermeasures.

Legal Disputes Add a Layer of Uncertainty

A recent ruling from a Manhattan-based trade court further complicated the tariff outlook by striking down a wide range of Trump-imposed duties on legal grounds. Although a federal appeals court granted a temporary pause, allowing the tariffs to remain in effect for now, the legal volatility has injected fresh doubt into an already unstable trade environment.

According to S&P Global’s chief economist Paul Gruenwald, this legal uncertainty discourages corporate investment and merger activity, especially in sub-investment grade credit markets. He characterized the policy environment as a “roller coaster,” warning that this pattern of unpredictable shifts undermines strategic planning and long-term investment confidence.

The 'Buy-the-Dip' Mentality and Its Limits

Retail investors, in particular, have thrived under the current paradigm. Many have capitalized on abrupt market dips triggered by trade threats, expecting swift recoveries when those threats recede. The TACO trade has rewarded this strategy repeatedly in the past, encouraging risk-on behavior.

But this assumption may now be nearing exhaustion. Chief strategist Julie Beale of Kayne Anderson Rudnick cautioned that calling attention to the “TACO” narrative might actually provoke Trump to adopt a firmer stance. Beale warned that the trade, once viewed as reliable, could now generate more volatility if Trump decides to prove detractors wrong by holding the tariff line.

Fed Constraints and the Coming Macro Reckoning

Callie Cox of Ritholtz Wealth Management emphasized that investors should begin looking beyond headline drama and refocus on macro fundamentals. She highlighted upcoming economic data—particularly the jobs report—as more meaningful signals of market trajectory. Cox also noted a significant blind spot: the Federal Reserve’s limited ability to intervene should the economy weaken due to trade disruptions. Markets, she argued, have not fully priced in the risk of a delayed or insufficient Fed response.

This is particularly critical given the confluence of monetary, fiscal, and legal uncertainty. Unlike past cycles where the Fed could provide a monetary cushion, today’s environment—defined by high policy ambiguity and narrow fiscal space—offers less room for institutional fallback.

The TACO trade—once a source of comfort and predictability for Wall Street—is increasingly fragile under the weight of legal friction, hardening rhetoric, and macroeconomic constraints. While it has historically rewarded short-term opportunism, the growing risk is that policy will not pivot as expected, leaving investors exposed. As the Trump-Xi dynamic evolves, and as legal and market forces collide, the strategy of betting against tariff implementation may soon lose its foundation—transforming a once-lucrative pattern into a source of heightened risk.