Morning Wrap (07.05.2025)

Asian markets rise on U.S.-China trade talk announcement with Hong Kong's Hang Seng leading regional gains with a 1.5% jump after U.S. and Chinese officials confirmed weekend talks in Switzerland. China's Shanghai Shenzhen CSI 300 and Shanghai Composite both added 0.5%, while Japan's Nikkei 225 rose 0.3%. U.S. stock futures also turned positive on the news, with S&P 500 Futures adding 0.75%.

U.S.-China officials to meet for trade talks in Switzerland as Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer will meet with Chinese Vice Premier He Lifeng this weekend, marking the first clear signal on negotiations after weeks of mixed messages. Bessent expressed optimism, stating he looks forward to "productive talks as we work towards rebalancing the international economic system," though Chinese officials maintained a cautious tone, referencing a proverb: "Listen to what is said, and watch what is done."

New Zealand maintains high unemployment rate with first quarter data showing the jobless rate unchanged at 5.1% and employment growing just 0.1%. Wage growth slowed to 0.4% for the quarter, below the forecast 0.5% increase, reinforcing expectations for further rate cuts from the Reserve Bank of New Zealand. The RBNZ has already cut rates by 200 basis points since August 2024 to 3.5%, with markets expecting the rate to fall below 3.0% by year-end.

India-Pakistan military tensions escalate after India carried out strikes against alleged terrorist encampments in Pakistan, with Islamabad claiming to have retaliated with artillery strikes and shooting down five Indian planes. Despite representing the worst fighting between the nuclear-armed neighbors in over two decades, Indian stock futures pointed to a positive open, with the Gift Nifty 50 Futures rising 0.5%.

China announces stimulus package to counter trade war effects with the People's Bank of China cutting its seven-day reverse repo rate by 10 basis points to 1.40% and reducing bank reserve requirements by 50 basis points to 6.2%, releasing an estimated 1 trillion yuan ($138 billion) in liquidity. China's Securities Regulatory Commission also promised support for listed companies affected by tariffs, while authorities will expand a pilot program allowing insurance companies to invest an additional 60 billion yuan in stock markets.

Fed decision awaited amid complex economic backdrop as the central bank concludes its meeting today with rates widely expected to remain unchanged. Markets are closely watching for signals on future policy direction, with Powell's comments likely to address how the Fed will navigate both tariff-related inflation risks and signs of economic slowdown. Traders are currently betting on rate cuts resuming in July.

Oil rebounds from four-year lows with Brent crude rising 0.7% to $62.59 a barrel and WTI climbing 0.9% to $59.59. Prices found support from the U.S.-China trade talk announcement and signs of potential U.S. production cuts, as major shale producers including Diamondback Energy and Coterra Energy warned they would reduce drilling activity due to low prices. API data showing a 4.5 million barrel drop in U.S. crude inventories also supported the market.

Gold retreats from near-record levels as spot gold fell 1.3% to $3,384.71 an ounce while futures dropped 0.9% to $3,392.74. The precious metal lost ground as risk appetite improved following the U.S.-China trade talk announcement, despite heightened geopolitical tensions between India and Pakistan. Other metals also weakened, with platinum, silver, and copper all declining as the dollar firmed ahead of the Fed decision.