Habemus a trade deal

Not only do we have a new pope this week, but we also have the first deal in Trump’s global trade war - between the UK and the US. Trump’s enthusiastic announcement, complete with a lot of CAPITAL LETTERS, helped inflate sentiment, making this US-UK deal feel bigger than it actually is. 

I mean, the fact that the two countries could agree on a few points is a good start, but the UK entered the negotiations with a tariff rate of 10% and left the table with... a tariff rate of 10%. Sure, the tariffs on cars were pulled lower from 27.5% to 10% — leading to an almost 14% jump in Aston Martin. Rolls Royce’s plane engines are exempt from tariffs in exchange for a pledge from British Airways to buy $10bn worth of Boeing planes — Rolls Royce jumped by more than 3.5%. The tariff on UK steel will be cut to zero, while British farmers will benefit from tariff-free quotas — just like their US counterparts. The two countries also agreed to keep working on a digital agreement.

But again, the 10% tariffs remain. So yes, it’s a deal — but is it a big deal? One person at Axios even said that the UK was the "low-hanging fruit of trade deals" and that negotiations won’t be as simple with others. We’ll see. Futures this morning are slightly in the green.

The news of the US-UK deal resonated positively across global financial markets. Major US indices extended gains despite a selloff in US Treasuries that pushed the 10-year yield back to the 4.40% level. Maybe part of the optimism was also fuelled by FOMO after Trump posted “go out and buy stocks now!”

But enthusiasm was dented by questions over the greatness of the deal and the challenges ahead — so sentiment remains fragile.

The dollar index rebounded strongly to an almost one-month high. The EURUSD tumbled to the 1.12 level — the minor 23.6% Fibonacci retracement on the year-to-date rally — and is consolidating near that level this morning. Meanwhile, Cable is preparing to test the 1.32 level and the USDCHF rallied past the month-high levels. The FX moves are a suggestion of how markets could react to further progress in tariff talks.

Note, however, that despite strong gains in some sectors, the FTSE 100 closed yesterday’s session in the red. That was partly due to a hawkish cut from the Bank of England (BoE) — where two members didn’t want to cut rates at all due to inflation uncertainty. It was also partly AstraZeneca’s fault — the stock alone shed 270 points from the index — and partly due to losses in miners, as copper prices extended losses for a third straight session on concerns over slowing demand from China. Gold also came under pressure from hopes of easing global trade tensions.

Bitcoin, on the other hand — another proxy for Trump trade — rallied more than 6% to surpass the $100K mark. We’re near $102K as of this morning.

In summary, yesterday’s price action suggests that investors are eager for good news and react positively — even if the news isn’t that great. It’s all in how it’s delivered — and apparently, that’s all that matters.

Now, all eyes are on the first in-person meeting between US and Chinese high-level officials in Geneva tomorrow to discuss tariffs. The goal isn’t to seal a trade deal — that will probably take months, if not years — but to de-escalate tensions between the two countries. And who knows — maybe they’ll agree to pause tariffs while discussions continue. Impossible to tell. In the best-case scenario, talks go well, both countries commit to finding a reasonable deal, markets rally on Monday, the US dollar continues rebounding, and gold and the franc retreat further. Or… the talks break down, Trump says something he shouldn’t, and we wake up to another hectic week — with a global selloff in equities and the dollar, and a rebound in gold and franc. I’d say it’s a 60-40 chance for good versus bad vibes.

In energy, the week ends on a better note than it started. US crude is back at the $60pb level after an early-week plunge to $55 on news that OPEC would accelerate plans to restore output — for reasons that remain unclear.

But whatever the reasons, the medium-term outlook remains comfortably bearish given higher supply and lower demand expectations. Price rallies remain interesting top-selling opportunities, with a target at $50pb. Minor resistance is at $61.75 — the 23.6% Fibonacci retracement on the YTD decline — while stronger offers may appear near the 50-DMA (currently around $64.70pb) and the $65 level, which matches the April peak and major 38.2% retracement. That level should help distinguish between a continuation of the current bearish trend and a potential medium-term reversal.

On a side note, falling oil prices are supporting consolidation in the energy sector as companies look to benefit from synergies. In that context, this week’s news that Shell is exploring a deal to acquire BP — in what would be a historic merger in Europe — has echoed across the energy space. A combined Shell-BP would rival ExxonMobil in scale.

Alas, BP saw limited gains this week… one to keep an eye on.