Highs And Lows

Bond yields rose globally, while the euro briefly strengthened after the ECB's press conference. Sentiment in financial markets briefly improved after President Trump's phone call with Chinese President Xi Jinping, leading to modest gains in equity markets. The two leaders agreed to further talks, with China offering to speed up" lifting its export restrictions on rare earth products. However, the Chinese readout of the call was more nuanced, urging Trump to remove negative" measures affecting trade. The market's positive assessment may be too high, given Commerce Secretary Lutnick's call for increased enforcement of US export controls on technology. Trade data showed a significant decline in the US trade deficit, driven by the largest-ever decline in imports, which will likely have a positive impact on US GDP growth in Q2. The ECB presented itself as an anchor of stability, with Lagarde's new mantra being "well positioned", suggesting that the central bank is done cutting rates unless circumstances change. The ECB also lowered its inflation forecast, unveiling a dovish reaction function to a potential escalation of trade tensions. The European Commission's trade diversion monitoring tool showed a surge in imports of certain goods, such as steel, from China, which could lead to action from the Commission.