Stocks Pressured by Escalation of US-China Trade Tensions

The S&P 500 Index ($SPX) (SPY) today is down -0.30%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.48%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.11%.  June E-mini S&P futures (ESM25) are down -0.45%, and June E-mini Nasdaq futures (NQM25) are down -0.28%. 

Stock indexes today are falling as escalating trade tensions between the US and China have sapped confidence in asset markets.  China’s Ministry of Commerce today accused the US of unilaterally introducing new discriminatory restrictions, including new guidelines on AI chip export controls, curbs on chip design software sales to China, and the revocation of Chinese student visas, and vowed to take measures to defend its interests.  The latest flare-up threatens to worsen trade relations even after President Trump expressed hope he will speak with Chinese President Xi Jinping this week to accelerate a trade truce.

Higher bond yields today are also weighing on stocks.  The 10-year T-note yield today is up +3 bp to 4.43% as escalating trade tensions between the US and China have led to a broad selloff of dollar assets, including Treasuries.  Also, today’s 4% jump in the price of WTI crude to a 1-1/2 week high has boosted inflation expectations, a hawkish factor for Fed policy. 

Comments from Fed Governor Waller were supportive of stocks and bonds when he said, “Assuming that the effective tariff rate settles close to my lower tariff scenario, that underlying inflation continues to make progress to our 2% goal, and that the labor market remains solid, I would be supporting good news rate cuts later this year.”

The markets are discounting the chances at 0% for a -25 bp rate cut at the next FOMC meeting on June 17-18.

The markets this week will focus on any new trade or tariff news. Later today, the May ISM manufacturing index is expected to climb +0.8 to 49.5.  Also, Fed Chair Powell delivers opening remarks today at the Board of Governors IF 75^th Anniversary Conference.  On Tuesday, Apr factory orders are expected to fall -3.2% m/m and the Apr JOLTS job openings report is expected to fall -92,000 to 7.100 million.  On Wednesday, the May ADP employment change is expected to climb by +110,000, and the May ISM services index is expected to rise +0.5 to 52.1.  On Thursday, weekly initial unemployment claims are expected to fall by -5,000 to 235,000.  On Friday, May nonfarm payrolls are expected to climb +125,000, and the May unemployment rate is expected to remain unchanged at 4.2%.  Finally, May average hourly earnings are expected to rise +0.3% m/m and +3.7% y/y. 

Overseas stock markets today are lower.  The Euro Stoxx 50 fell to a 1-week low and is down -0.58%.  China’s Shanghai Composite was closed today for the Dragon Boat Day holiday.  Japan’s Nikkei Stock 225 closed down -1.30%.

Interest Rates

June 10-year T-notes (ZNM25) today are down -5 ticks.  The 10-year T-note yield is up +3.2 bp to 4.432%.  June T-notes today are under pressure as escalating trade tensions between the US and China have led to a broad selloff of dollar assets, including Treasuries.  Also, a negative carryover from weakness in European government bonds is weighing on T-notes.  In addition, today’s 4% jump in the price of WTI crude to a 1-1/2 week high has boosted inflation expectations, a bearish factor for T-notes.  Losses in T-notes are limited due to dovish comments from Fed Governor Waller, who laid out a scenario for the Fed to cut interest rates later this year.   

European government bond yields today are moving higher.  The 10-year German bund yield is up +3.1 bp at 2.531%. The 10-year UK gilt yield is up +1.6 bp to 4.662%.

The German May S&P manufacturing PMI was revised downward by -0.5 to 48.3 from the previously reported 48.8.

The UK May S&P manufacturing PMI was revised upward by 1.3 to 46.4 from the previously reported 45.1.

Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at Thursday’s policy meeting.

US Stock Movers

CDW Corp (CDW) is down more than -4% to lead losers in the S&P 500 and Nasdaq 100 after the Wall Street Journal reported that Trump administration funding cuts have spread to technology contractors.

Science Applications International (SAIC) is down more than -6% after reporting Q1 EPS of $1.92, weaker than the consensus of $2.13. 

Centene (CNC) is down more than -3% after Barclays downgraded the stock to equal weight from overweight, citing concern about Medicare Part D and individual Affordable Care Act businesses.

Global e-Online Ltd (GLBE) is down more than -3 after Truist Securities initiated coverage of the stock with a sell recommendation and a price target of $31. 

JB Hunt Transport Services (JBHT) is down more than -2% after Goldman Sach downgraded the stock to neutral from buy. 

US steel and aluminum producers are climbing today after President Trump said he would be increasing tariffs on US steel and aluminum imports to 50% from 25%.  Cleveland-Cliffs (CLF) and Century Aluminum (CENX) are up more than +20%.  Also, Nucor (NUE) is up more than +13% to lead gainers in the S&P 500.  In addition, Steel Dynamics (STLD) is up more than +13%, and Commercial Metals (CMC) is up more than +8%.

Energy producers and energy service providers are moving higher today, with the price of WTI crude up more than +4% at a 1-1/2 week high.  APA Corp (APA) and Devon Energy (DVN) are up more than +2%.  Also, Diamondback Energy (FANG), ConocoPhillips (COP), Exxon Mobil (XOM), and Occidental Petroleum (OXY) are up more than +1%. 

Chip stocks are moving higher today to lend support to the overall market.  Advanced Micro Devices (AMD), Nvidia (NVDA), Broadcom (AVGO), and Microchip Technology (MCHP) are up more than +1%.

Moderna (MRNA) is up more than +1% after the FDA approved the company’s new Covid vaccine for adults over 65 and anyone over 12 with at least one risk factor for severe disease. 

Vera Therapeutics (VERA) is up more than +58% after reporting the primary endpoint was met in a Phase 3 trial of its atacicept for the treatment of immunoglobulin A nephropathy. 

Boeing (BA) is up nearly +1% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $260. 

Earnings Reports (6/2/2025)

Credo Technology Group Holding (CRDO), Science Applications International Corp (SAIC), The Campbell’s Company (CPB).