Global Market Shifts: China’s Rate Cuts, Tariff Tensions, and Economic Outlook

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3830-1.4070

Euro                 1.5570-1.5810

Sterling            1.8520-1.8740

WTI Oil (opening level) $61.85

The CAD/USD is opening at 1.3945 ( 0.7171 )

Headlines

• Chinese banks lowered their benchmark lending rates for the first time in seven months after the PBoC reduced its key one-year and five-year lending rates by 0.1% each to new lows, with the intension to strengthen the sluggish economy and mitigate the impact of U.S. tariffs.

·    Fed officials Jefferson, Williams, and Kashkari highlighted tariff-related uncertainty. Bostic mentioned that the number of rate cuts depends on tariff details, leaning towards only one cut this year due to the time needed to assess tariffs.

·    China accused the US of undermining the Geneva consensus on chip export controls, urging correction and warning of measures if the US persists, referring to the Trump administration’s warning that using Huawei Ascend chips violate export controls, according to Bloomberg.

·    The UK and EU have agreed to reset post-Brexit relations, including energy, defence, and fishing rights until 2038. Investors await Thursday's PMI figures, expecting less contraction in manufacturing and services. April inflation may rise to 3.3%, with core CPI at 3.6%.

·    China's industrial production increased by 6.1% year-on-year in April 2025, exceeding the expected 5.5% gain. This growth slowed from March's 7.7%, the highest since June 2021, when factories anticipated significant US tariffs.

·    JPMorgan CEO Jamie Dimon warned that tariffs' effects hadn't fully impacted the economy and equities might fall due to rising supply costs. Solar energy shares dropped after House Republicans planned to end some clean energy tax credits early.

·    The Euro Area's growth forecast is revised to 0.9% for 2025 and 1.4% for 2026, down from earlier predictions, due to tariffs and US trade policy changes. Inflation is expected to drop faster, reaching 2.1% by mid-2025 and 1.7% in 2026.

·    The Reserve Bank of Australia cut its cash rate target 25 basis points to 3.85% from 4.10% as expected. The bank lowered its core inflation forecast by 0.1% to 2.6% for Q2 2027 and its cash rate target forecast another 65 basis points of rate reduction this year. The market took this as a slightly dovish as it raised the likelihood of a further rate cut in July slightly to about 50/50.

Key Points

Equities: Moody’s downgrade recovery; US healthcare up; EU-UK deal boosts DAX; Asian stocks rise on China rate cut

Volatility: VIX spikes amid credit rating concerns; hedging signals rise; futures suggest mild stress

Digital assets: BTC holds above $105K; ETH gains; crypto bill advances; corporate treasury interest grows

Fixed Income: US yields reversed lower from local highs. Long JGB yields soar to multi-decade highs on weak auction demand

Currencies: JPY stays firm across the board, the USD mixed after yesterday’s strength, AUD weak post-dovish RBA.

Commodities: Gold’s US downgrade bid fade, platinum deficit lift prices to near key resistance

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