The first day of the Trump-Xi Summit in China belonged to the USD Bulls. President Donald Trump emphasized economic cooperation and trade rollbacks rather than focusing heavily on the Iran conflict. The most tangible "win" for the U.S. delegation was a significant opening of Chinese markets, particularly in agriculture. Accompanied by a trillion-dollar delegation of elite American business leaders, the Trump administration signalled a shift toward economic cooperation rather than escalation. Meetings were held at the Great Hall of the People, followed by a tour of the Temple of Heaven, emphasising on the US and China being partners, not rivals. While both sides agreed that the Strait of Hormuz must remain open to support global energy flows, President Xi Jinping issued a sharp warning on the need to handle the Taiwan question delicately to avoid confrontation or conflict.
US Treasury Secretary Scott Bessent made some interesting comments ahead of Day Two. Bessent remarked that the oil supply shock could be transient, framing the current price spike as an aberration that could be over in weeks or months. Pointing to the steep backwardation in the oil market, which shows spot prices much higher than future prices, Bessent likely expects non-OPEC supply, specifically from the UAE and the US, to flood the markets once the Iran conflict cools.
Bessent, known as the Trump administration’s macro anchor, to stabilize markets, was probably playing down the rise in the US Treasury 10Y yield, which has risen from 3.94% to 4.48% since the start of Operation Epic Fury. While markets are recalibrating their Fed expectations from cuts to hikes later in the year, the Trump administration is considering how to keep the Fed on a pause to an easing bias ahead of the November midterms. In this regard, President Trump and his team will likely be keen to move away from geopolitics towards addressing the high voter dissatisfaction over his handling of the US economy.
If so, we won’t be hasty to call this the start of a new USD uptrend, but more as a corrective adjustment of April’s sell-off on off-ramp hopes.
Quote of the Day
“Freedom is nothing but a chance to be better.”
Albert Camus
May 15 in history
In 1618, German astronomer Johannes Kepler discovered the third of his three planetary laws, the "harmonic law".
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