China signals openness to trade talks

General market commentary

Equity markets ended higher on Thursday, buoyed by robust earnings from tech heavyweights Microsoft and Meta, whose strong results lifted investor sentiment around artificial intelligence spending. Microsoft surged over 7% to its highest close since January, following upbeat guidance for its Azure cloud business, while Meta rose more than 4% on stronger-than-expected advertising revenue. Technology and communication shares led the rally, whereas health care and consumer staples underperformed. Apple and Amazon reported after the bell—Apple narrowly beat forecasts but faced tariff concerns, while Amazon disappointed with its cloud revenue and guidance, sending shares lower in after-hours trading. Bond yields rose, with the U.S. 10-year Treasury yield at 4.21%, and the U.S. dollar strengthened across major currencies.

Elsewhere, Asia mostly advanced following the Bank of Japan’s decision to maintain its interest rate at 0.5%, while European markets were mostly closed yesterday in observance of Labour Day. Oil prices climbed after the U.S. imposed new sanctions on Iranian crude. On the macroeconomic front, U.S. manufacturing data was mixed: the S&P PMI stayed in expansion at 50.2, while ISM’s index remained in contraction at 48.7, albeit better than expected. Jobless claims edged higher to 241,000 but remain well below long-term averages, with continued claims at 1.9 million. Despite a rise in claims, the labour market appears resilient, supported by solid job openings, modest wage growth, and reduced layoffs compared to March.

Latest market and economic update

Asian equity markets saw gains, driven by China’s announcement of potential trade talks with the U.S. and optimism over artificial intelligence developments, with Hong Kong leading the way. Japan, India, South Korea, and Australia also posted positive movements, while China’s markets were closed for the Labour Day holiday.

U.S. equity futures turned higher overnight after China signalled potential trade talks with Washington, easing concerns over tariff tensions. Despite strong earnings from Microsoft and Meta boosting Wall Street, investor sentiment was weighed down by disappointing forecasts from Apple and Amazon, both citing tariff-related challenges.

The US dollar index remained above 100 on Friday, set for a second consecutive weekly gain, bolstered by easing trade tensions and optimism over potential trade deals. Against the euro, the dollar traded at 1.1315, with investors now focusing on the upcoming April jobs report to gauge the impact of shifting trade policies on the US economy.

Oil prices rose this morning after China signalled openness to trade talks with the U.S., raising hopes for easing tensions between the world’s two largest oil consumers. However, crude remained on track for weekly losses due to weak economic data from both countries and expectations that OPEC+ will announce production increases at its upcoming meeting.

China signalled openness to trade talks with the U.S. but insists dialogue must be based on sincerity and the removal of unilateral tariffs, criticising Washington's past approach as coercive. The comments follow a fresh escalation in the trade war, with both countries imposing steep tariffs, raising concerns over higher costs for U.S. firms like Apple and Amazon, which rely heavily on Chinese supply chains.

President Donald Trump is set to unveil his 2026 budget proposal on Friday, which will include significant tax cuts aimed at boosting the economy, financed in part by over $160 billion in cuts to environmental, education, and foreign-aid programs. The proposal also outlines a military budget exceeding $1 trillion, with tariffs on global trade expected to help offset the cost of these cuts.

U.S. Treasury Secretary Scott Bessent said the bond market is signalling that the Federal Reserve should cut interest rates, as 2-year Treasury yields have fallen below the Fed’s policy rate, reflecting investor expectations of economic weakness. This comes amid recession fears triggered by President Trump’s aggressive tariffs, which have also caused volatility in longer-term yields that influence household and business borrowing costs.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Apple expects President Trump’s China tariffs to add around $900 million in costs this quarter, prompting a major supply chain shift, including moving most U.S.-bound iPhone production to India. While the company posted strong iPhone sales for the March quarter, shares fell 3.8% in afterhours as investors reacted to weaker services revenue and ongoing tariff uncertainty.

Amazon shares fell 3.2% after disappointing first-quarter revenue from its cloud unit, Amazon Web Services (AWS), which grew at its slowest pace in five quarters, raising concerns over competition in the AI sector. Despite strong earnings in advertising and e-commerce, the company's underwhelming second-quarter guidance and trade tariff uncertainties added to investor concerns.

Reddit forecast second-quarter revenue above Wall Street estimates, expecting between $410 million and $430 million, driven by growing digital ad spend despite marketing budget uncertainties. The company reported a 61% revenue increase in the first quarter, with its ad tech investments attracting more advertisers, though it acknowledged potential disruptions from changes to Google’s search algorithm.

Airbnb forecast second-quarter revenue below Wall Street estimates, citing softening demand in the U.S. and growing consumer caution amid erratic trade policies. Despite a 6% rise in first-quarter revenue, the company’s net income fell 41.7%, and it expects slower growth in bookings and flat average daily rates in the upcoming quarter.

Block lowered its 2025 profit growth forecast to 12% from 15% and missed earnings estimates for Q1, with a 60% drop in profit largely due to a remeasurement loss on its bitcoin investments. The company cited muted consumer spending and concerns over macroeconomic conditions, with its Cash App seeing slower growth and transaction-based revenue falling short of expectations.

CVS Health raised its 2025 profit forecast and announced plans to exit the Obamacare insurance market in 2026, following underperformance in that segment and a broader company turnaround led by new CEO David Joyner. The company reported stronger-than-expected Q1 earnings driven by lower medical costs, while its pharmacy benefit unit dropped Eli Lilly’s Zepbound in favour of Novo Nordisk’s Wegovy after securing better pricing.

Mastercard beat first-quarter profit expectations, reporting strong consumer spending on its card network despite economic uncertainty from President Trump’s tariffs, with revenue rising 17% to $7.25 billion and earnings reaching $3.73 per share. Growth in cross-border volumes and value-added services like fraud prevention has further diversified its business, though some moderation was seen in markets such as the Middle East and Africa.

Estee Lauder has forecast a larger-than-expected drop in sales for fiscal 2025, citing weak demand in the U.S. and a sluggish recovery in China, both exacerbated by the impact of newly imposed tariffs. The company is implementing restructuring plans and shifting supply chains to mitigate tariff effects, while aiming to return to sales growth by 2026.

McDonald’s reported an unexpected 1% drop in global comparable sales in Q1, driven by falling visits from cash-strapped consumers in the US and Europe amid inflation and tariff-related uncertainty. While international franchised markets like the Middle East and Japan showed growth, US sales slumped 3.6% – the steepest decline since the pandemic.

Builders FirstSource lowered its 2025 revenue forecast after reporting a drop in first-quarter profit and sales, citing ongoing weakness in housing construction and affordability concerns driven by high mortgage rates and tariff-related uncertainty. Despite a better-than-expected quarterly profit of $1.51 per share, net sales fell 6% year-on-year to $3.66 billion.

General Motors has lowered its 2025 profit forecast due to the impact of new automotive tariffs, now expecting annual adjusted core profit between $10 billion and $12.5 billion, down from a previous range of $13.7 billion to $15.7 billion. The company is implementing cost-cutting measures, boosting U.S. production, and working with suppliers to increase domestic content to help offset up to 30% of the $4–5 billion tariff burden.

Carrier Global exceeded first-quarter profit expectations and raised its 2025 earnings forecast, driven by strong demand for HVAC products, energy-efficient heat pumps, and aftermarket services. The company, aided by climate change-related temperature rises and energy regulations, reported adjusted earnings of 65 cents per share and now expects full-year 2025 profits between $3.00 and $3.10 per share.

Tesla denied a Wall Street Journal report claiming its board launched a CEO search to replace Elon Musk, with Chair Robyn Denholm reaffirming the board's confidence in Musk's leadership. Despite the denial, the WSJ stands by its story amid concerns over Musk’s divided focus, political affiliations, and Tesla's struggles with falling sales, intensifying competition, and geopolitical headwinds.

Ryanair has threatened to cancel its $30 billion order for 330 Boeing aircraft if U.S. tariffs significantly raise prices, and may consider alternative suppliers like China’s COMAC, despite certification and capacity limitations. The move reflects growing tensions in the aerospace industry amid U.S. trade policies, though industry insiders suggest Ryanair’s warning may also be a negotiation tactic.

HSBC Chairman Mark Tucker will retire by the end of 2025 after nearly eight years in the role, during which he oversaw a major strategic pivot to Asia and steered the bank through geopolitical tensions and restructuring. While his departure was expected, it marks a significant leadership change, with a search now underway for a successor likely drawn from the existing board.

A majority of Rio Tinto shareholders voted against an activist proposal by Palliser Capital to review unifying its dual listings in London and Sydney, though nearly 20% support suggests the issue may resurface. Palliser argues a single Australian listing could unlock $28 billion in value, but Rio's board cited high costs and limited flexibility for mergers as reasons to reject the idea.

Oppenheimer initiated coverage of Microsoft with a Perform rating, highlighting strong third-quarter results driven by robust Azure growth and surging demand for AI services. Despite macroeconomic concerns, the firm sees Microsoft as well-positioned due to its dominant role in enterprise IT and its potential to lead in the generative AI space.

Morgan Stanley has reinstated Taiwan Semiconductor Manufacturing as a top pick, citing strong AI-driven capital spending from tech giants like Meta and Microsoft, alongside easing concerns over AI demand, Intel partnerships, and semiconductor tariffs. The brokerage views TSMC as more attractive than its peers, expecting a rebound in the share price as key overhangs lift and noting a reasonable 2025 estimated P/E ratio of 15.5x.

Truist upgraded ServiceNow shares to Buy from Hold, raising its price target to $1,200, citing the company’s strong positioning to consolidate the enterprise IT stack and capitalise on AI adoption amid macro uncertainty. Analysts praised ServiceNow’s platform architecture, go-to-market execution, and traction in both commercial and federal segments, forecasting durable high-teens growth despite its premium valuation.

Baird upgraded Caterpillar to Neutral from Underperform and raised its price target to $309, stating that previous bearish concerns such as dealer destocking and margin pressures are now reflected in expectations. The firm highlighted stronger-than-expected demand and leaner inventory levels, positioning Caterpillar more defensively amid ongoing macroeconomic risks.

HSBC downgraded UPS to Hold from Buy and cut its price target to $105, citing ongoing tariff uncertainties and weakening demand as key risks outweighing internal cost-saving efforts. The bank highlighted significant volume declines from Amazon and China-U.S. trade routes, warning that tariff pressures will likely overshadow UPS’ strategic restructuring and profit improvement plans.

Upcoming data and events

Today's market attention will be on key U.S. economic data, including the jobs report and factory orders, while earnings from companies such as Shell, Exxon, Chevron, ING, and Cigna take centre stage.

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