Stocks surged on the progress of US-China formal trade talks

·       Also better than expected US NFP job data for April boosted risk trade sentiment on fading concern of an all-out Trumpcession; Gold slips; USD gained

·       After hotter-than-expected NFP data and progress of US-China trade talks, the market is now discounting a lower probability of a Fed rate cut in June’25

·       China may first start trade negotiations with Trump’s alleged Fentanyl issue to test the US endurance

On Wednesday, April 30, 2025, Wall Street Futures recovered from the GDP contraction panic low as fine print indicated robust core GDP, and Trump also pointed out that later, as per his economic advisory team feedback. Also, reports of back-channel trade talks between UIS and China and gradual exemptions of tariffs on critical products with each other boosted the risk trade sentiment, undercutting Gold.

Overall, US general/superstore shelves are now getting empty due to the growing supply crunch. Also, all major US retailers need to get certainty about Trump’s tariff policy rather than a daily dose of dramatic bytes, Truths, and chaos. All major US retailers need to place festival season orders in huge volumes well in advance by May to various Chinese and other producers/exporters so that those goods can arrive in early October.

But due to Trump tariff uncertainty and the 145% current tariff on China, acting as an embargo on cheaper Chinese goods, US importers are not in a position to place orders with China or even other exporters and also it’s not easy to find another reliable supplier, which can match China’s scale, efficiency and price. Thus, major US retailers are now lobbying and urging the Trump administration for tariff & trade policy certainty rather than the present chaotic situation. President Trump’s tariff policies have continued to evolve rapidly in recent days, with significant developments affecting global trade, particularly with China, India, Japan, and other nations.

Trump's tariff policy on China

Tariff Escalation: Tariffs on Chinese imports remain at 145%, significantly higher than the 90-day pause applied to other countries. Trump has signaled flexibility but has not lowered these tariffs, emphasizing pressure on China. On April 24, he stated that tariff levels for China would be set within "two to three weeks," indicating ongoing deliberations.

Negotiations and Rhetoric: Trump has claimed direct contact with Chinese leadership, including President Xi Jinping, suggesting potential trade talks. However, China’s commerce ministry has insisted that the U.S. must show "sincerity" by reducing planned tariffs. Trump’s comments have oscillated between praising Xi and maintaining a hardline stance, with no clear resolution.

Chinese Response: China has retaliated with 125% tariffs on U.S. goods and implemented non-tariff barriers, such as blacklisting U.S. companies and restricting rare earth exports. State media have called U.S. tariffs "self-defeating bullying," and China filed a WTO complaint, labeling U.S. policies as "unilateralism" and "economic bullying."

Trump’s Japan tariff strategy

Tariff Concerns: Japan faces a 24% tariff on its goods, which Prime Minister Shigeru Ishiba has called "extremely regrettable," citing significant economic impacts. The 90-day pause keeps Japan at a 10% baseline tariff, but negotiations are ongoing, and Japan is not very happy with Trump’s automobile tariffs.

Trade Talks: Japan held face-to-face tariff talks with the U.S. last week, aiming for a deal by June 2025. However, U.S. negotiators have been unwilling to lower tariffs on key Japanese exports like cars, steel, and aluminum. Japan’s negotiator, Ryosei Akazawa, described discussions as "frank" but stressed the need for a balanced deal.

Japan’s Leverage and Strategy: Japan’s Finance Minister Katsunobu Kato hinted at using Japan’s large U.S. Treasury holdings as leverage, though this remains speculative. Trump claimed on April 24 that Japan is sending delegations to negotiate, emphasizing that Japan "treats the U.S. very poorly on trade" due to restrictions on U.S. car imports. Japan was reportedly instrumental in forcing Trump to postpone his reciprocal tariffs narratives by 90 days on April 9.2025, when Japan tried to sell a large quantity of USTs in the market twice but failed due to a lack of any buyers on the opposite side. This made the US money/treasury market unstable and forced Trump to blink on his bellicose tariff policies.

Other Countries

General Tariff Policy: Trump’s "reciprocal" tariffs, announced on April 2, imposed a 10% baseline tariff on all imports, with higher rates for specific countries (e.g., 20% for the EU, 46% for Vietnam, 32% for Taiwan, 26% for India). On April 9, Trump also paused these higher tariffs for 90 days (except for China), citing trade negotiations with over 75 countries.

South Korea and Canada: South Korea, facing a 25% tariff, is pressing for lower rates, with acting President Han Duck-soo engaging Trump directly. Canada, under a 25% tariff for non-USMCA-compliant goods, is also negotiating adjustments. Both are part of the 90-day pause.

India

Trade Negotiations: India is reportedly close to a trade deal with the U.S., with U.S. Treasury Secretary Scott Bessent stating on April 29 that India could be among the first to sign a trade agreement. This follows Indian Prime Minister Narendra Modi’s February 2025 visit to negotiate tariffs and aim for $500 billion in bilateral trade by 2030.

Tariff Status: India faces a 26% tariff on exports to the U.S., part of Trump’s "reciprocal" tariff plan, though the 90-day pause (excluding China) applies, maintaining a 10% baseline tariff. India has offered concessions, such as increased U.S. imports, to avoid escalation. Analysts suggest India could gain market share if it ramps up manufacturing, leveraging the pause in tariffs to strengthen trade ties. However, Trump may not agree to India’s request for concessions on metal tariffs.

EU and Others: The EU, with a 20% tariff before the pause, is offering to increase U.S. imports by $56 billion but seeks the removal of the 10% baseline tariff. Countries like Bangladesh and the Ivory Coast have expressed concerns, with the latter threatening higher cocoa prices.

Recent Comments by Trump

Trump’s Statements: On April 24, Trump confirmed ongoing talks with China, Canada, and India, signaling that tariffs could be adjusted soon. He has mocked foreign leaders for "kissing my ass" to negotiate deals, claiming tariffs are "legendary" and predicting a "thundering landslide" for Republicans in 2026 due to his trade policies.

Economic Concerns: Economists warn that tariffs could lead to a global recession, estimating a 60% chance by year-end, and project a $1,300-$4,300 increase in the cost of living per U.S. household, depending upon the scope and scale of Trump’s implemented tariffs on China and other exporters.  Retailers have warned of price hikes and shortages within weeks.

As highly expected, both the US and China may now engage in formal Trade negotiations.

Trump’s tariff strategy appears to prioritize short-term leverage to force trade concessions, but the rapid policy shifts—escalating tariffs and then postponing them—have created uncertainty, undermining business confidence and global trade stability. The focus on isolating China risks alienating allies like Japan and the EU, while India’s proactive negotiations suggest it may navigate the turmoil more effectively. The lack of transparency in tariff calculations (based on trade deficits rather than actual foreign tariffs) and the reliance on emergency powers under the IEEPA raise legal and economic questions about sustainability.

Eventually, the US needs China and vice versa, and thus, despite domestic political compulsion,  the two largest economies in the world, controlling almost 50% of the global nominal GDP, were already engaged in informal trade talks, and will now engage in formal talks also.

On May 1, 2025, Yuyuan Tantian, a social media account affiliated with Chinese state broadcaster CCTV, posted on Weibo that the United States had proactively reached out to China through multiple channels to discuss President Trump’s 145% tariffs on Chinese imports. The post, citing anonymous sources, suggested Beijing might be open to negotiations but emphasized that China would not engage until the U.S. takes “concrete actions” to de-escalate. This aligns with comments from U.S. officials like Treasury Secretary Scott Bessent, who indicated a need to reduce high tariffs (145% U.S., 125% Chinese) for talks to progress.

Although on May 1, 2025, China’s Foreign Ministry denied active negotiations, insisting on “equality and mutual respect” as preconditions, on Friday, May 2, 2025, China’s Commerce Ministry issued a statement indicating that Beijing is "evaluating" a U.S. offer to hold trade talks regarding President Donald Trump’s 145% tariffs on Chinese imports.

The Chinese Commerce Ministry statement noted that senior U.S. officials had "repeatedly expressed willingness to negotiate" through multiple channels, signaling a potential de-escalation in the ongoing trade war. However, the ministry reiterated Beijing’s stance that the U.S. must show “sincerity” by correcting “erroneous practices” and canceling unilateral tariffs, warning that failure to do so would undermine mutual trust. Despite this, China maintains a firm public position, denying active negotiations and emphasizing equality in any dialogue.

China's Commerce Ministry said in a statement on Friday: Beijing is evaluating the possibility of starting trade talks with the United States after Washington officials repeatedly expressed willingness to negotiate with China on the tariff issue. The US side has recently taken the initiative to convey information to the Chinese side through relevant parties on several occasions, hoping to talk with the Chinese side. In this regard, the Chinese side is assessing. China's position has always been the same...talk; the door is open--- the US should be prepared to correct its wrong practices and cancel its unilateral tariffs.

Shortly after China's Friday statement by MOFCOM, the US Secretary of State Marco Rubio said, "The Chinese want to meet and talk. Treasury Secretary Scott Bessent is involved in those efforts, and their talks will come up soon.”

China may discuss the Fentanyl issue to start trade talks with the US-WSJ report.

As per the WSJ report, the Chinese government is considering addressing the Fentanyl issue (a synthetic opioid) that US President Trump alleged over China’s apparent role in the illegal Fentanyl production & trade indirectly into the US through Mexican and Canadian drug cartels. Chinese President Xi Jinping and Public Security Minister Wang Xiaohong have been reviewing what kind of solution to the issue the Trump administration demands. One of the options includes having Wang travel to the US to meet with Trump's officials to discuss the situation.

Fentanyl as a Trade Negotiation Lever

Proposed Concessions: China is considering measures to curb exports of fentanyl precursor chemicals to address U.S. claims that it fuels the opioid crisis, which causes over 100,000 deaths annually in the U.S. According to posts on X from May 2, 2025, citing a Wall Street Journal report, Beijing is weighing this as a potential “off-ramp” to de-escalate trade tensions and restart stalled talks. These measures could include scheduling additional precursors, cracking down on chemical manufacturers, or enhancing enforcement against illicit exporters.

Historical Context: China has previously offered limited fentanyl-related concessions to gain diplomatic leverage. In 2019, it placed fentanyl and its analogs under national control, reducing direct exports of finished fentanyl. In 2024, it scheduled two precursors (4-piperidone and 1-boc-4-piperidone) after U.N. mandates, but U.S. officials criticized these as “bad faith” moves, noting that Chinese firms quickly shifted to supplying Mexican drug cartels with unregulated chemicals. The US thinks Beijing’s potential offer may similarly aim to appease the U.S. without disrupting its chemical industry, which remains a significant economic sector.

U.S. Skepticism: American negotiators are wary, citing China’s track record of minimal enforcement and evasion through new precursors. A U.S. official noted that Beijing’s offers often align with pre-existing international obligations, undermining their impact. For talks to progress, China would need to demonstrate tangible actions, such as prosecuting major chemical exporters or shutting down online marketplaces openly selling precursors.

Summary of Trump’s comments in the last few days:

·       Working very hard on a great big beautiful tax bill

·       I had a great meeting with US House Speaker Johnson and others

·       Income Taxes will go up 68% if the big bill doesn’t pass

·       No tax on tips, no tax on overtime

·       Things are moving along very well, and we're right on schedule with a tax bill

·       Final details on the tax bill are coming together

·       Things are moving right on schedule on the tax bill

·       US Treasury Secretary Bessent is negotiating with 200 nations

·       US Commerce Secretary Lutnick has no life. He's negotiating all the time

·       So much money will be taken in that we'll cut taxes. We'll be paying off debt

·       We put sanctions on Iranian oil yesterday

·       Whoever takes oil from Iran cannot do business with the US

·       We're working to free hostages. Things are heating up

·       Anyone who takes oil from Iran cannot do business with the US

·       We're engaging with numerous nations currently (on trade/tariffs)

·       We plan to support businesses in the upcoming weeks

·       The tax bill will include retroactive expensing to January 20th (2025)

·       Contact your local representative to get the tax bill approved (Trump urged corporate America)

·       There's an individual at the Federal Reserve that I am not a big fan of

·       I comprehend interest much better than Powell

·       Interest rates should decrease

·       Reduce interest rates, I understand better than him

·       After a certain amount of time, there will be a tariff wall for pharmaceutical companies

·       People want to purchase homes and items

·       We made a deal today on Ukraine

·       There's a very good probability we'll reach a deal with China

·       A China agreement must align with our conditions

·       India seeks to make a deal so bad (India scrambling for a deal)

On Friday, April 2, 2025, Trump again defended his trade policy on Friday, claiming that billions of dollars pour in from tariffs. Trump also bashed Fed Chair Powell and urged his fans to buy his Truth media company shares:

“Gasoline just broke $1.98 a Gallon, lowest in years, groceries (and eggs!) down, energy down, mortgage rates down, employment strong, and much more good news, as Billions of Dollars pour in from Tariffs. Just like I said, and we’re only in a TRANSITION STAGE, just getting started!!! Consumers have been waiting for years to see pricing come down. NO INFLATION, THE FED SHOULD LOWER ITS RATE!!! DJT”

On late April 1, Trump imposed a secondary sanction on Iranian oil through his Truth post:

“ALERT: All purchases of Iranian Oil, or Petrochemical products, must stop, NOW! Any Country or person who buys ANY AMOUNT of OIL or PETROCHEMICALS from Iran will be subject to, immediately, Secondary Sanctions. They will not be allowed to do business with the United States of America in any way, shape, or form. Thank you for your attention to this matter, PRESIDENT DONALD J. TRUMP.”

Trump’s latest Iran rhetoric coincided with a report: The fourth round of U.S.-Iran talks, which was set to take place in Rome this Saturday, is likely to be postponed for next week, three sources tell me. As a result, the E3 meeting with Iran planned for Friday in Rome might also be postponed.

An Iranian Official said:

·       The US sanctions on Iran are not helping diplomacy to resolve the nuclear dispute

·       Iran-US talks will take place on a different date depending on US behavior

·       Tehran will continue to engage seriously and resolutely in result-oriented negotiations with the US

·       The US never confirmed its participation in the fourth round of Iran discussions on Saturday in Rome

·       The timing of the next round has yet to be confirmed

Summary of US Treasury Secretary Bessent's comments in the last few days:

·       We're going to bring down European digital services taxes

·       Will lessen uncertainty on tariffs every day and every week

·       On markets: Everyone should take a deep breath

·       Strategic uncertainty is a Trump negotiating tactic

·       Trump-Zelensky meeting at the Vatican went a long way to sealing the minerals deal

·       Need to see de-escalation with China on tariffs

·       We expect to see GDP revised

·       GDP decline may have been due to inventory stocking of imports

·       US household consumption is strong

·       Two-year yields below the Federal funds rate signal that the Fed should cut rates

·       We have had offers from more than 20 countries 

·       The US-Ukraine economic partnership agreement allows the United States to invest alongside Ukraine to unlock Ukraine's growth assets

·       The US-Ukraine agreement is a sign to the Russian leadership

·       We're collaborating with the top 17 trading partners for agreements

The White House National Economic Council's Hassett said

·       I'm hopeful for progress with China on trade

·       We are very close to making progress with China

·       Trump doesn't support a tax increase on the wealthy

·       Hopeful for progress with China on trade

·       Tariffs are news expected by the end of the day

·       Hassett on tariffs: I’m sure there will be news by the end of the day

·       We have had offers from more than 20 countries

·       I wouldn't be surprised if the GDP data is revised

The White House Deputy Chief of Staff Miller said:

·       Companies that violate federal statutes will face penalties

·       Americans won't pay more for cars

·       Relief for small businesses will come in the form of tax cuts

On May 1, 2025, the USTR Greer said:

·       A matter of weeks, not months, to have initial trade deals announced

·       I am meeting with Japan, Saudi Arabia, and Guyana tomorrow.

·       I want to achieve reciprocal trade and reduce the trade deficit

·       India is close to a trade deal

·       South Korea is going in the right direction, but it may take some time

·       I wouldn't say we're 'finish-line' close on an India trade deal

·       Deploying tariffs can go alongside growth

·       The new Canadian Prime Minister is a serious person

·       Has not had official discussions with China yet

·       Delays in improving US trade could result in higher costs

·       Initial trade deals are still weeks away

Market Impact

On Friday, May 2, 2025, Wall Street surged on the progress of US-China formal trade talks and then better-than-expected NFP/JOB report for April, which may ensure no Trumpcession; USD surged, and UST and Gold slipped. Wall Street was boosted by all the major sectors led by communication services, banks & financials, industrials, materials, healthcare, energy, real estate, consumer discretionary, techs, utilities, and consumer staples. Dow-30 was boosted by Nike, Caterpillar, American Express, 3M, NVIDIA, IBM, Microsoft, Travelers, JPM, Goldman Sachs, and Salesforce, while dragged by Apple, Amgen, McDonald’s, United Health, Amazon, and Merck. Apple and Amazon slumped on guidance warnings amid Trump tariffs.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 41400) now has to sustain over 41800 for a further rally towards 42000/42500-43000/43500, and even 44600-45200 in the coming days; otherwise sustaining below 41700, DJ-30 may again fall to 41000/40600-4010039900 and 39700/38600-38000/37700-37300/37000 in the coming days.

Similarly, NQ-100 Future (20200) has to sustain over 20800 for a further rally to 21100/21400-21700/22000 and 22400-22600 in the coming days; otherwise, sustaining below 20750/20600-20500/20400, NQ-100 may again fall to 20000/19600-19400/19200 and 19100/18800-18600/18000-17600/16400 and 16200-15800 in the coming days.

Also, technically Gold (CMP: 3240) has to sustain over 3300 for any recovery to 3325/3375* and 3400/3425-3450/3505*, and even 3525/3555 in the coming days; otherwise sustaining below 3290-3275, Gold may again fall to 3255/3225-3200/3165* and further to 3130/3115*-3075/3015-2990/2975-2960*/2900* and 2800/2750 in the coming days.