US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer are scheduled to meet China Vice Premier He Lifeng in Switzerland on May 8. The meeting signals a diplomatic opening and should not be overread as the start of formal trade negotiations. First, US President Donald Trump, and Chinese President Xi Jinping have framed their high tariffs as necessary for national interest – Trump for economic leverage and reshoring and Xi for sovereignty and resilience. Second, the US and Chinese delegations are likely to use the meeting to gauge intent, assess the red lines, and explore whether there is scope for compromise before committing political capital to negotiations. Third, the choice of a neutral setting like Switzerland offers hope that both countries are managing trade tensions, exhibiting openness to dialogue, and an intention to avoid uncontrolled escalation. While a breakthrough is unlikely at this stage, there is reassurance in both countries signalling no complete breakdown in communication channels.
Overnight, the DXY Index depreciated a third day by 0.6% to 99.2 ahead of today’s FOMC announcement. The S&P 500 Index fell for a second session by 0.8% to 5607 on the expectation that the Fed would leave rates unchanged at 4.50% and maintain its extended rate pause stance. However, the futures market is pointing to a positive open amid hopes of further thawing in US-China trade tensions. Regardless, the EUR – the DXY’s most significant component – was still hemmed between 1.1280 and 1.1380 this month. Although GBP/USD broke above 1.3350 yesterday, it remained in the 1.3250-1.3450 range, which was set since April 18. USD/JPY’s three-day fall from 146 is coming up against 142, a major support level held since April 11, except for the two-day dip to 140 on April 21-22. Over the past three weeks, the DXY and most components appeared to have settled into ranges, from Trump and his administration showing restraint in policy commentary to avoid unsettling markets.
The Swiss National Bank’s complaint about the CHF’s strength did not push USD/CHF out of the 0.82-0.83 range established since April 23. SNB President Martin Schlegel said that the CHF has appreciated “really a lot,” renewing the threat to lower rates to zero percent and currency intervention to achieve the price stability mandate. CPI and core inflation declined respectively to 0% YoY and 0.6% in April, in the lower half of the official 0-2% target range. Not surprisingly, the OIS market is fully expecting a rate cut at the next meeting on June 19. Past experiences suggested that SNB needs an appreciating USD backdrop for its CHF-weakening strategy to work. For now, SNB will probably contend with curbing further CHF strength.
Quote of the Day
“If plan A fails, remember there are 25 more letters.”
Chris Guillebeau
May 7 in history
Tokyo Telecommunications Engineering, later renamed to Sony, was founded with approximately 20 employees in 1946
Topic
GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.