S&P 500 Pushes Higher as Trump Teases 80% China Tariff Ahead of Talks

Also, 10-year T-note, silver, crude oil, and euro futures

1. S&P 500 E-mini futures (/ES): +0.32% 
2. 10-year T-note futures (/ZN): +0.1% 
3. Silver futures (/SI): +0.7% 
4. Crude oil futures (/CL): +0.7% 
5. Euro futures (/6E): +0.32% 

President Donald Trump threw traders a piece of fresh meat Friday morning when he posted on Truth Social that an “80% tariff on China seems right!” American and Chinese negotiators are set to meet in Switzerland this weekend to try and find an offramp. At 145% tariffs with China, it’s effectively an embargo; at 80%, it might still be. To this end, the enthusiasm out of the gate today has been constrained, although it’s worth noting cryptocurrencies are continuing their impressive multi-day surge. 

US equity markets are trading modestly higher today, on pace to close out the week near their April 2 – Liberation Day – swing highs. Fears over the trajectory of the U.S. economy may be well-founded, but hard data is holding up and a quick off-ramp with either China or the European Union will significantly diminish the likelihood of a sharp US recession. And thus we may avoid a steep decline in corporate earnings. With the Nasdaq 100 (/NQM5) leading the S&P 500 (/ESM5), note that semiconductors, technology, and consumer discretionary are leading out of the gate. 

Bonds continue to stutter-step across the curve, making little progress one way or the other at the short-end or the long-end. Auctions provided a mixed picture this week, with the 10s on Tuesday showing a bid-to-cover ratio above the six-month average amid strong foreign demand, while the 30s yesterday produced a bid-to-cover ratio below the six-month average amid the weakest foreign demand since 2019. This juxtaposition may speak to the increased term premium that lingers as a result of continued uncertainty over longer-term US trade policy. 

After yesterday’s bloodletting, price action today has been modestly more constructive for the metals. Gold prices (/GCM5) have stabilized above 3300, while silver prices (/SIN5) have likewise tried to return to above 33. There may be a warning sign for precious metal bulls within the evolution of volatility: both gold and silver vol has been trending lower this week. Contracting IVRs have been both precursors and contemporaneous indicators for directional cues in precious metals over the past 18 months. 

Crude oil prices (/CLM5) were up about 1% this morning as the commodity tracked toward a weekly gain ahead of the start of trade negotiations between the United States and China that kick off tomorrow. Chinese data showed that exports for April were above estimates, bolstering Beijing's stance before the meeting in Switzerland. Oil prices are also getting a tailwind from fresh U.S. sanctions on Iran’s oil after the US sanctioned another Chinese refinery for buying crude oil from the Middle Eastern state.

Euro futures (/6EM5) found some upside today, rising about 0.32% in early trading. The US announced a trade deal with the United Kingdom this week, bringing some relief to recession fears. Rate traders are getting more aggressive on rate cut expectations for the European Central Bank (ECB) as worries about the economic outlook worsen. The trade talks between the US and China will likely give the foreign exchange markets something to digest next week, although trade talks are expected to drag on for some time.  

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
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