China cuts rates, Disney jumps, tensions rise in Asia
Wall Street rebounds on U.S.-China trade hopes; S&P 500 up 0.5%, Disney jumps 10%, Fed holds rates steady, China eases with rate cuts.
United States: Trade Recovery
Wall Street rebounded on Wednesday, with the S&P 500 rising 0.5%, the Dow Jones Industrial Average up 0.5%, and the Nasdaq 100 gaining 0.4%. The gains were largely driven by optimism surrounding upcoming U.S.-China trade talks and easing expectations around Federal Reserve rate moves. Options markets priced in a 1.1% implied move for the S&P 500 on “Fed day,” above the 0.9% average of the last 10 meetings.
Corporate performance was mixed. The Walt Disney Co. surged 10% after raising its profit outlook and adding over a million new streaming subscribers. Meanwhile, Super Micro Computer fell 4.4% following a reduced revenue forecast, citing trade-related uncertainty. Uber missed estimates on gross bookings. CrowdStrike announced 500 job cuts (~5% of its workforce), and Rivian cut its full-year delivery outlook due to trade concerns. Marvell Technology slashed guidance and canceled an investor event.
In bonds, the 10-year Treasury yield held steady at 4.29%, while the Bloomberg Dollar Spot Index rose 0.2%. Analysts expect the Fed to hold rates at 4.25%-4.50%, with Chairman Powell’s comments on trade and inflation closely watched.
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China: Stimulus Measures and Trade War Impact
The People’s Bank of China introduced several stimulus measures, including a 10 basis point cut in the seven-day reverse repo rate to 1.40% and expanded liquidity for banks and insurers. These actions aim to cushion the economy against escalating U.S. tariffs, currently at 145%, compared to China’s retaliatory 125% tariffs.
Recent economic data shows factory activity in China contracted in April at the fastest pace in 16 months, highlighting deepening deflationary pressures. The labor market and export sectors are showing signs of strain, prompting further easing.
Chinese officials will meet U.S. counterparts, including Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer, in Switzerland this weekend. The talks are the first confirmed high-level engagement since the latest round of tariffs and are viewed as a potential turning point in the trade war.
Europe: Market Reaction and Political Stability
European markets lagged, with the Stoxx Europe 600 falling 0.5%. The euro edged down 0.1% to $1.1357, while Germany’s 10-year yield dropped six basis points to 2.48%. UK’s 10-year yield fell five basis points to 4.46%.
German political uncertainty receded after Friedrich Merz was elected chancellor in a second round of voting. Meanwhile, the EU is preparing retaliatory tariffs on Boeing aircraft and U.S.-made cars if trade talks with the U.S. fail to ease tensions. On the corporate front, Steven Madden Ltd. withdrew its full-year forecast due to trade war uncertainty.
Asia: Rising Tensions and Market Response
Geopolitical instability escalated in Asia as India launched airstrikes in Pakistani Kashmir. Pakistan responded by claiming it downed five Indian jets. These events marked the most intense military clash in over two decades between the nuclear-armed neighbors. Indian shares fell early Wednesday but later recovered. The Indian rupee declined slightly, while Pakistani markets experienced steeper losses.
Asian currencies remain under pressure as regional economies reassess how much appreciation they can tolerate amid the ongoing U.S. trade war. Market participants are closely watching both geopolitical developments and upcoming U.S.-China trade talks.
Global Markets: Broad Trends and Commodities
The MSCI World Index rose 0.3%, supported by positive sentiment from U.S.-China trade developments. The Bloomberg Magnificent 7 Total Return Index rose 0.6%, and the Russell 2000 gained 0.3%. Bitcoin and Ether jumped 2.7% and 3% respectively, with Bitcoin reaching $97,232.89 and Ether hitting $1,829.12.
In commodities, West Texas Intermediate crude slipped 0.3% to $58.89 per barrel. Gold prices fell sharply by 1.4% to $3,382.37 per ounce as investors shifted toward riskier assets. Barrick Mining reported strong earnings, with production hitting the upper end of guidance amid record gold prices.
Corporate and Trade Highlights
WeightWatchers filed for bankruptcy, struggling to compete with popular obesity drugs like Ozempic. Novo Nordisk surged as rival threats to its obesity drug Wegovy waned. Bunge Global SA exceeded expectations, with limited profit declines despite crop trading challenges. Analysts expect tariff de-escalation and potential interest rate cuts to drive U.S. equities higher into 2025, with many forecasting up to 75 basis points in rate reductions starting in July.
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