US House Republicans Seek To Kill EV Tax Credit, Loan Program

Economic

Political

Summary:

Republicans in the U.S. House of Representatives on Monday proposed killing the electric vehicle tax credit and repealing fuel efficiency rules designed to prod automakers into building more zero-emission vehicles as part of a broad-based tax reform bill.

The proposal, which is set for a House Ways and Means Committee hearing on Tuesday, would repeal a $7,500 new-vehicle tax credit and a $4,000 used-vehicle credit on Dec. 31, although it would maintain the new-vehicle credit for an additional year for automakers that have not yet sold 200,000 EVs.

The president of the Electric Drive Transportation Association, Genevieve Cullen, criticized the proposal, saying that plans "to abandon U.S. leadership in energy innovation by gutting federal investment in electrification are catastrophically short-sighted."

The proposal, she said, would deliver "an enormous market advantage" to competitors like China and threaten U.S. manufacturing and jobs.

The U.S. Treasury in 2024 awarded more than $2 billion in point-of-sale rebates for EVs.

The proposal leaves in place a key battery production tax credit for automakers and battery makers, but a new provision would bar the credit for vehicles produced with components made by some Chinese companies or under a license agreement with Chinese firms.

The provision, which would take effect in 2027, could bar credits for cars powered by Chinese battery technology licensed by American companies such as Ford Motor or Tesla.

House Republicans also propose to kill a loan program that supports the manufacture of certain advanced technology vehicles. It would rescind any unobligated funding and rescind corporate average fuel economy standards and greenhouse gas emission rules for 2027 and beyond. That portion will be taken up by the Energy and Commerce Committee.

Among outstanding loans finalized in President Joe Biden's last weeks in office are $9.63 billion to a joint venture of Ford Motor and South Korean battery maker SK On for construction of three battery manufacturing plants in Tennessee and Kentucky; $7.54 billion to a joint venture of Chrysler-parent Stellantis and Samsung SDI for two EV lithium-ion battery plants in Indiana; and $6.57 billion to Rivian for a plant in Georgia to begin building smaller, less expensive EVs in 2028.

Source: Yahoo Finance

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China–U.S. Trade War

Economic

Political

Stocks

Wall Street's buoyant rebound in risk appetite following the easing of US-China tariffs is poised to spill into Asia trading Tuesday.

Futures showed Tokyo's equity benchmark may rise more than 2% at the open, with hefty gains also earmarked for Shanghai and Sydney. A gauge of US-listed Chinese stocks surged 5.4% on Monday in its best session in over two months. The S&P 500 closed more than 3% higher, while the dollar climbed the most since its November post-election rally.

Diminished expectations of a recession drove the US stock benchmark above President Donald Trump's April 2 “Liberation Day” level. A surge in big techs put the Nasdaq 100 back into a bull market just about a month after it plunged 20% from a previous record. Amid a potential reset in inflation expectations, Treasury yields climbed as traders lowered their Federal Reserve wagers to just two rate cuts in 2025.

For big investors shocked into defensive measures at the height of April's chaos, the swift recovery in markets has been a mixed blessing. Shorting the dollar, going long stock volatility and piling on bets premised on multiple Fed rate cuts were among the most popular trades in mid-April. Now, their unwinding may be adding fuel to the bounce-back.

After two days of high-stakes talks in Switzerland, trade negotiators from the world's biggest economies announced Monday a massive de-escalation in tariffs. In a carefully coordinated joint statement, the US slashed duties on Chinese products to 30% from 145% for a 90-day period, while Beijing dropped its levy on most goods to 10%.

“No one had these low China tariff rates on their bingo cards. This is a big positive surprise,” said Jeff Buchbinder at LPL Financial. “Risk remains that tariffs go back up from current levels as the pauses end, though taking worst-case scenarios off the table is reassuring.”

The S&P 500 breached its 200-day moving average. The Nasdaq 100 rallied 4%. The Dow Jones Industrial Average added over 1,000 points. A gauge of megacaps soared 5.7%. Trump said he spoke with Apple Inc.'s Tim Cook, just as the iPhone maker was reported to be considering price hikes. Drugmakers bounced on bets they averted the worst-case scenario as the president targets price cuts.

The two-year yield climbed 11 basis points to around 4%. The Bloomberg Dollar Spot Index rose 1%.

“Things could easily turn out a bit bumpier in future trade negotiations — but clearly the US administration has altered its tone such that future episodes of weakness should be used as buying opportunities, in our view,” HSBC Bank Plc strategists including Max Kettner wrote in a note to clients.

The risk-on move suggests that investors had not expected such a positive outcome so quickly, according to Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. The deal is consistent with her firm's base-case that the effective US tariff on Chinese imports will settle around 30-40%.

“Investors will now be focused on signs that the temporary fix can be turned into a lasting agreement,” she said.

Regardless, the reverberations of Trump's trade war will continue to affect global markets in the months to come. In Japan, Prime Minister Shigeru Ishiba said Monday that his government won't accept any initial trade agreement with the US that excludes an accord on autos. Top trade negotiator Ryosei Akazawa said the nation will continue to seek a reprieve from all the tariff measures imposed by the US.

In China, there was a sense of relief on Monday that the trade negotiations between the two biggest economies had quickly borne fruit. The Hang Seng China Enterprises Index and Hong Kong's benchmark Hang Seng Index both closed the day 3% higher.

To Matt Maley at Miller Tabak, the news of a trade agreement between the US and China is certainly positive for the stock market. The question now is whether this change will be enough to help earnings growth reverse higher in a significant way or not.

“Think of this like a trade embargo being lifted, at least for now,” said Callie Cox at Ritholtz Wealth Management. “Tariffs are still high, Americans will likely feel the sting of higher prices, and companies probably won't make different strategic decisions in the wake of this deal. But trade between the US and China could open up more, which means more shipping and fewer empty shelves (for now).”

Investors who followed Trump's advice on social media in the past month have enjoyed one of the biggest rallies in the S&P 500 under his leadership.

Having slumped on Trump's “Liberation Day” tariff announcement, the benchmark soared in the month after he said it was “a great time to buy” on April 9 — hours before he paused some of the harshest levies in a century. He reiterated that on May 8, telling reporters the economic outlook warranted piling into stocks.

With good news on the trade front giving a boost to stocks at the start of the week, it will be up to inflation data, retail sales, and earnings to sustain the momentum, according to Chris Larkin at E*Trade from Morgan Stanley.

“There's still debate about how much tariffs have already disrupted supply chains and potentially slowed growth,” Larkin said. “While numbers that feed into the stagflation narrative could certainly derail the bullish mood, the economy still appears to be on solid ground, as Jerome Powell noted last week.”

Swaps that track upcoming central bank meetings showed just 56 basis points of easing by December, down from near 75 basis points last week. Traders still see the first quarter-point cut in September.

Fed Governor Adriana Kugler said the Trump administration's tariff policies are likely to boost inflation and weigh on economic growth, even with the recently announced reduction in levies on China.

“Trade policies are evolving and are likely to continue shifting, even as recently as this morning,” Kugler said Monday in remarks prepared for an event in Dublin. “Still, they appear likely to generate significant economic effects even if tariffs stay close to the currently announced levels.”

Source: Bloomberg Europe

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Central Bank

Forex

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 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.

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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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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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.