Markets boosted by US-China deal hopes

General market commentary

Markets closed last week on a cautious footing, with sentiment shaped by a mix of trade developments, central bank moves, and economic signals. Despite supportive actions from the Bank of England and the People’s Bank of China, which both cut interest rates, and the announcement of a new trade agreement between the U.S. and U.K., all three major U.S. indices posted modest weekly losses. Investors remained focused on the broader implications of ongoing tariff disputes, particularly ahead of high-level U.S.-China talks in Geneva over the weekend. The Federal Reserve’s decision to hold interest rates steady for a third consecutive meeting, alongside warnings of rising risks to both inflation and unemployment, added to the measured tone.

Friday’s session reflected this uncertainty, with equities largely flat as traders awaited clarity from the upcoming trade discussions. The Dow fell 0.3%, the S&P 500 edged 0.1% lower, and the Nasdaq held steady, while Treasury yields rose, signalling growing caution. Energy outperformed on the day, helped by a rise in oil prices as trade tensions appeared to ease, while health care lagged. Meanwhile, strong corporate results from Insulet, Lyft, and Pinterest offered some optimism, highlighting resilience in parts of the market despite macroeconomic headwinds. With trade negotiations resuming and monetary policy on hold, investors are eyeing the coming weeks for signs of improved clarity and direction.

Latest market and economic update

Asian equity markets rose on Monday, led by strong gains in China and India following news of a US-China trade deal and a ceasefire between India and Pakistan. However, gains were partially offset by a sharp decline in pharmaceutical shares after US President Trump announced plans to slash drug prices.

U.S. equity futures surged overnight following news of a U.S.-China trade deal reached in Geneva, although specific details remain pending, with markets buoyed by optimism over tariff reductions and progress in bilateral relations. Additional market drivers included President Trump’s announcement of an upcoming executive order to slash pharmaceutical prices and a U.S.-mediated ceasefire agreement between India and Pakistan.

European equities closed higher on Friday, with the STOXX 50 and STOXX 600 both up 0.4%, buoyed by hopes of easing U.S.-China trade tensions. Consumer discretionary names like LVMH and BMW led gains alongside utilities such as Enel, while strong earnings and M&A prospects lifted Italian banks, with Mediobanca and Banca MPS both advancing.

The US dollar strengthened in early Asian trading on Monday, buoyed by easing trade tensions with China and improved market sentiment. Against the euro, the greenback gained 0.2%, with the euro slipping to $1.1224 as investors awaited further details on the U.S.-China trade deal and key U.S. economic data.

Oil prices inched this morning, supported by optimism over a U.S.-China trade deal that signalled easing tensions and potential tariff reductions, though details remain pending. Gains were tempered by OPEC+ plans to increase output, ongoing U.S.-Iran nuclear talks, and renewed geopolitical tensions between India and Pakistan despite a recent ceasefire agreement.

U.S. Treasury Secretary Scott Bessent announced on Sunday that significant progress was made in trade talks with China during discussions in Geneva with Chinese Vice Premier He Lifeng. U.S. Trade Representative Jamieson Greer noted the differences between the two countries were less substantial than previously believed, with further details expected today.

Ukrainian President Volodymyr Zelenskiy has agreed to meet Russian President Vladimir Putin in Turkey on Thursday, following U.S. President Donald Trump's call to accept Putin’s offer of direct talks without preconditions. While Zelenskiy had initially insisted on a ceasefire before negotiations, Trump urged immediate engagement, and Putin’s proposal has sparked renewed diplomatic tension amid continued fighting and Western pressure for a 30-day truce.

President Donald Trump announced he will sign an executive order to reduce US prescription drug prices by 30% to 80% by adopting a “Most Favoured Nation” policy, which aligns US drug prices with the lowest prices paid globally. This initiative, a revival of a similar plan blocked during his first term, aims to cut healthcare costs and save the country trillions of dollars, although details on its implementation remain unclear.

China’s consumer price index inflation fell by 0.1% year-on-year in April for the third consecutive month, highlighting ongoing weakness in domestic spending, while producer prices saw their sharpest drop in six months due to weak overseas and local demand. Hopes now rest on further fiscal measures and a potential trade deal with the United States to revive economic momentum.

Equities on the move

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

OpenAI and Microsoft are renegotiating the terms of their multibillion-dollar partnership to enable a potential IPO for OpenAI, while ensuring Microsoft retains access to advanced AI models, according to the Financial Times. A key point under discussion is the size of Microsoft’s equity stake in OpenAI’s for-profit arm, with Microsoft reportedly willing to reduce its holding in exchange for extended technology access beyond 2030.

Google has agreed to pay $1.375 billion to settle two lawsuits brought by Texas Attorney General Ken Paxton over allegations it violated state consumer protection laws by misusing users’ data, including location tracking, Incognito mode, and biometric information. While Google did not admit wrongdoing, it said the claims were based on outdated policies and that no product changes were required under the settlement.

Nvidia plans to release a downgraded version of its H20 AI chip in China to comply with stricter U.S. export restrictions, affecting its cloud computing customers. The move aims to bypass new controls but may make the chip less competitive, potentially increasing competition from Chinese developers like Huawei.

TSMC's sales surged to a record high of T$349.57 billion in April, a 48.1% year-on-year increase, as customers rushed to place orders ahead of expected U.S. trade tariffs. The company’s strong performance was driven by increased demand, particularly from the AI sector, and it continues to expand production capacity in the U.S., including a $165 billion investment.

Commerzbank's net profit rose nearly 12% in Q1, aided by strong income and lower provisions, as it prepares for a shareholder meeting to support its standalone strategy. The bank faces pressure from UniCredit's takeover push amid economic challenges and concerns over foreign influence in Germany’s financial sector.

Several major energy companies, including Shell, Chevron, and ExxonMobil, have assessed the potential takeover of BP, with its assets valued at over £120 billion. Despite BP's market value of £57 billion and significant debt, its gas and LNG operations are seen as particularly attractive, especially to Shell, which seeks to lead the integrated gas and LNG market.

The U.S. government is reportedly considering executive orders to fast-track nuclear power plant construction, with plans to overhaul safety regulations, deploy reactors on military bases, and expand capacity from 100 to 400 gigawatts by 2050. The potential policy shift has heightened focus on nuclear energy firms such as Oklo, NANO Nuclear Energy, NuScale Power Corporation, and Cameco.

Eli Lilly's Zepbound led to significantly greater weight loss than Novo Nordisk’s Wegovy in a 72-week clinical trial, with participants losing an average of 20.2% of body weight compared to 13.7% on Wegovy. Zepbound also outperformed on key secondary measures, including waist reduction and the proportion of patients losing at least 15% of their body weight, with a safety profile consistent with earlier studies.

CrowdStrike is under investigation by US prosecutors and regulators over a $32 million transaction involving Carahsoft Technology, which supplied cybersecurity software to the IRS despite no actual purchase. The inquiry is focused on the deal's legitimacy, the knowledge of CrowdStrike's executives, and potential internal concerns regarding the transaction.

Engine Capital ended its activist campaign against Lyft and withdrew its board nominations after the company raised its share buyback program to $750 million, meeting the investor's proposal. While Lyft has not signed a formal cooperation agreement, Engine Capital retains the option to push for further changes if necessary.

Banco Santander rejected a takeover bid from NatWest Group for its UK retail bank earlier this year, valuing the business between £10 billion and £12 billion, deeming the offer too low. Santander reaffirmed that its UK operations are not for sale, describing them as a core component of its long-term, diversified strategy.

UBS raised its 12-month price target for Boeing to $226, citing stronger free cash flow prospects and improved clarity on tariffs, with minimal impact on Boeing's recovery despite ongoing trade tensions. The analysts believe Boeing can absorb the tariff impact and maintain strong cash flow, driven by higher MAX production and support for smaller suppliers if necessary.

Piper Sandler downgraded Expedia to Underweight and reduced its price target after the company reported mixed Q1 results, including weaker bookings growth and concerns over declining U.S. inbound travel. Despite stronger EBITDA, the firm expressed concerns about weaker consumer demand and a challenging outlook for Expedia's U.S.-focused business.

UBS downgraded Société Générale to "neutral," citing limited upside potential after a strong rally, despite better-than-expected Q1 results. While the bank's long-term outlook remains positive, UBS believes much of the near-term optimism is already reflected in the equity's valuation, with further gains dependent on consistent execution and favourable macro conditions.

Upcoming data and events

This week, investors will focus on earnings from major companies including Cisco, Walmart, and Alibaba. Key economic data releases include U.S. inflation on Tuesday, UK GDP and U.S. retail sales on Thursday, followed by Japan’s GDP and U.S. consumer confidence on Friday.

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