Trump hints at major trade deal

General market commentary

Equity markets closed higher on Wednesday, lifted by renewed hopes for an improvement in US-China trade relations as talks are set to resume this weekend in Geneva. The Dow Jones Industrial Average rose by 0.7%, the S&P 500 gained around 0.4%, and the Nasdaq added approximately 0.25%. While the outlook for a comprehensive trade deal remains uncertain, even a temporary reduction in tariffs could help ease recent disruptions to global commerce. Meanwhile, the Federal Reserve kept interest rates unchanged, with Chair Jerome Powell signalling a wait-and-see approach amid elevated risks to both inflation and employment. Bond yields fell, with the 10-year US Treasury yield settling at 4.28%, while the US dollar strengthened against major currencies. Asian markets broadly gained as China eased policy to offset tariff impacts, although European equities edged lower despite better-than-expected eurozone retail sales.

On the corporate front, strong earnings added further momentum to US equities. Disney shares soared over 10.5% after posting better-than-expected revenue and profits. So far, 84% of S&P 500 companies have reported results, with 77% beating analyst estimates, pushing the average earnings surprise to 8.7%. This has led to an upward revision in first-quarter earnings growth to 12.8%, from 6.7% at the quarter’s start. Gains have been broad-based across eight of eleven sectors, supporting a more balanced market outlook and reinforcing the importance of portfolio diversification. Tech shares also contributed to late-session gains, with chipmakers Nvidia and Micron rising 3% and over 2.5% respectively, after reports suggested the Trump administration may roll back AI chip curbs introduced under the Biden era. Looking ahead, while tariff-related uncertainties may pressure profit margins, the forecasted 9.2% earnings growth for 2025 should continue to underpin equity markets.

Latest market and economic update

Asian equity markets mostly edged higher on Thursday, supported by optimism over easing U.S. trade restrictions and upcoming Washington-Beijing talks, though gains were modest amid tensions between India and Pakistan. Tech-heavy indices led the advance, with strong performances from chip suppliers and internet firms on reports the U.S. may ease AI chip export curbs.

U.S. equity futures reversed early losses and traded higher overnight, following President Trump’s announcement of a major trade deal. The gains were also supported by positive movement in chipmaker shares after reports that the Trump administration may ease export curbs on artificial intelligence chips.

European equity indices declined yesterday, with the DAX falling 0.5%, the CAC 40 dropping 0.9%, and the FTSE 100 slipping 0.4%, as investors digested corporate earnings reports ahead of the Federal Reserve's policy announcement. Market-moving names included Novo Nordisk, which lowered its full-year sales growth forecast, BMW, which confirmed its 2025 outlook, and Siemens Healthineers, which raised its earnings forecast despite tariff pressures.

The US dollar index declined to around 99.6 on Thursday, reversing earlier gains, as investors assessed the Federal Reserve's cautious stance and upcoming US-China trade talks. The dollar weakened broadly, including against the euro, which traded at 1.1328, with notable losses seen versus the British pound, Australian dollar, and New Zealand dollar.

Oil prices rose slightly this morning, driven by hopes of a trade deal between the U.S. and a major economy, though concerns over slowing demand and increased OPEC+ production kept prices under pressure. Despite the gains, oil remains near four-year lows due to ongoing fears of weak demand and supply uncertainty, exacerbated by the U.S.-China trade war and rising global production.

The Federal Reserve kept the funds rate unchanged at 4.25%–4.50% for a third consecutive meeting in May 2025, maintaining a cautious, wait-and-see approach amid rising concerns about the impact of President Trump’s tariffs. Fed Chair Powell highlighted increased uncertainty over the economic outlook, emphasising the need to monitor data before making further adjustments to interest rates.

U.S. President Trump announced he will unveil a major trade deal on Thursday, widely reported to be with the UK, though details remain unclear and it’s not confirmed whether the agreement is final or a framework. The deal marks the first since Trump introduced “reciprocal” tariffs in April, though the UK, not subject to those tariffs, still faces significant duties likely to remain.

Equities on the move

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

MercadoLibre reported a 44% rise in net profit for Q1, driven by strong performance in Argentina, where sales grew 126% on a foreign-exchange neutral basis. The e-commerce giant’s revenues reached $5.9 billion, surpassing analysts' expectations, while its fintech arm saw a 75% increase in its credit portfolio year-on-year. Shares rallied by over 8% in afterhours.

Shares in Arm Holdings dropped 11.6% after the company issued a fiscal first-quarter forecast below Wall Street estimates, citing global trade and economic uncertainty. The chipmaker refrained from providing full-year guidance, with CEO Rene Haas attributing the cautious outlook to potential delays in large licensing deals and shifting market conditions.

Uber's first-quarter revenue rose 14% to $11.53 billion, missing estimates, as its core ride-hailing business experienced slower growth due to weaker U.S. travel demand, but the company maintained confidence with an upbeat second-quarter forecast. Despite a slow start to the year, Uber's expanding international presence, delivery unit, and partnerships, including with Trendyol Go and Pony AI, helped boost investor confidence, with shares up 38.7% year-to-date.

Walt Disney exceeded earnings expectations, driven by strong results from Disney+ and theme parks, with revenue rising 7% to $23.6 billion and adjusted earnings per share of $1.45. Despite economic challenges, the company is optimistic about streaming growth and theme park expansion, forecasting a 16% earnings increase for the full year.

Carvana reported a strong Q1, with revenue of $4.23 billion, up 38% YoY, and net income of $373 million, driven partly by a $158 million gain from changes in the fair value of warrants. Despite impressive growth, excluding these one-off gains, profitability metrics were less remarkable, although the company remains optimistic about future growth and its long-term goals.

Applovin Corp exceeded Wall Street estimates in Q1, reporting earnings of $1.67 per diluted share on revenue of $1.48 billion, above expectations of $1.43 per share and $1.38 billion in revenue. The company also announced a deal to sell its mobile gaming business to Tripledot Studios for $400 million in cash, plus a 20% stake, with the transaction expected to close in Q2 2025.

Alphabet fell over by 7% on Wednesday, losing around $150 billion in market value, after reports that Apple plans to introduce AI search in Safari. This move could threaten Google's dominant position as the default search engine on Safari, potentially eroding its search advertising revenue, though Google has heavily invested in AI to maintain its edge.

Netflix announced a major overhaul of its TV app interface, including a redesign of the homepage and the introduction of generative AI on iOS mobile, allowing users to search for content using natural language. These changes aim to enhance user experience with more personalised recommendations and improved accessibility, as Netflix adapts to rising uncertainties in the market.

Bank of America upgraded Advanced Micro Devices to Buy from Neutral, raising its price target to $120 from $105, citing strong growth potential over the next two years. The upgrade follows AMD's first-quarter beat and strong Q2 sales outlook, with BofA confident in the company's roadmap despite headwinds from China and competition from Nvidia and ARM.

Cantor Fitzgerald downgraded Marvell Technology to Neutral from Overweight, reducing its price target to $60 from $125 due to concerns over the company's custom silicon business and client losses, particularly with Amazon and Microsoft. The firm warned that Marvell's earnings growth could be undercut by potential revenue declines in 2027.

Upcoming data and events

Today's market attention will be on the release of Initial Jobless Claims in the U.S., alongside earnings reports from McKesson, Monster Beverage, and Expedia.

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