This Week

The big news over the weekend were the trade talks held between US and China representatives in Switzerland. No real news has been generated but Scott Bessent said he will provide updates on Monday. There’s some word that the fear of some empty store shelves in the coming weeks from paused supply chains has created a sense of urgency for the US administration. We’ll know more details tomorrow.

More on the week ahead shortly—but first, a few weekend headlines:

• US' Bessent hails 'substantial progress' in trade talks with China (Reuters)

  • U.S. Treasury Secretary Scott Bessent said on Sunday that there had been "substantial progress" in talks between his team and that of Chinese Vice Premier He Lifeng in Geneva on defusing a trade war between the world's two largest economies. Bessent said he would give more details on Monday, while U.S. Trade Representative Jamieson Greer, also at the talks, said the differences between the two sides were not as great as previously thought.

• Lutnick says 10% baseline tariff will stick around for “foreseeable future” (CNBC)

  • Commerce Secretary Howard Lutnick said Sunday that the 10% baseline tariff rate on imports from other countries is likely to “be in place for the foreseeable future,” echoing President Donald Trump’s comments from days prior. The commerce secretary rejected the idea that consumers would take on increased costs caused by the tariffs, insisting that business and countries will pay. But data suggests that businesses are already trying to pass costs onto consumers, and consumer confidence has plunged in the weeks since the president’s April 2 tariff announcement. The prices of some household items have also already ticked up.

• Tariff Shock Reverberates in the Bond Market (WSJ)

  • Longer-term Treasury yields have climbed, keeping borrowing costs elevated, even as short-term yields have dropped
    Stocks have rebounded since President Trump’s tariff announcement sparked market turmoil. But there is still some trouble in the bond market. Since April 2, declines in the prices of longer-term Treasurys have driven up the yield on the benchmark 10-year note to around 4.37%, according to Tradeweb. That climb happened even while shorter-term yields were falling, dragged down by bets that the Federal Reserve will respond to a slowing economy by cutting interest rates.

• The Spring Home Sales Season Is Shaping Up to Be a Dud (WSJ)

  • The troubled housing market can’t seem to get back on track.

    Inventory of homes for sale is steadily rising, but demand is still tepid. Home prices in parts of the country are falling. But with prices not much below record highs, many would-be buyers are still squeezed out. Mortgage rates are hovering around 6.75%, more than double the level of only a few years ago.

• How much inventory did companies actually build ahead of tariffs? (Sam Ro)

  • A big economic question right now: To what degree does today’s economic activity reflect a pull forward of purchases that would’ve occurred further down the road? One of the actions some companies have taken to mitigate the impact of future tariffs has been to pulling forward expected future purchases and stockpiling goods before costs go up. Various anecdotes from companies and a spike in imports at the beginning of this year suggest this pull-forward could be significant. Here are some notable quotes from Q1 earnings season:

• AI hallucinations are getting worse – and they're here to stay (New Scientist)

  • An AI leaderboard suggests the newest reasoning models used in chatbots are producing less accurate results because of higher hallucination rates. Experts say the problem is bigger than that

We enter this week with trader volatility expectations about the same as last week. Last week’s trading stayed within a 2% range (and closed less than a half a percent lower). Although the VIX is still above its historical mean it has not been pricing large swings near term for over a week and a half now, and that includes into this week that could see news on the China/US front (good or bad), a CPI on Tuesday, PPI, Retail Sales and a speech by Fed Chair Powell before the open on Thursday and Consumer Sentiment numbers on Friday. For this week:

This Week’s Expected Moves:

• SPX/SPY: 2.2% (5525-5800)

  • QQQ: 2.6%

  • IWM: 2.8%

  • TLT: 1.6%

  • USO: 4%

Economic Calendar: 

• Monday, May 12:

  • Bessent update on China talks

  • 10:25am - Fed Kugler Speech

• Tuesday, May 13:

  • 8:30am - CPI

• Wednesday, May 7:

  • 9am - Fed Jefferson Speech

  • After hours - Fed Daly Speech

• Thursday, May 8:

  • 8:30am - Initial Jobless Claims

  • 8:30am - PPI

  • 8:30am - Retail Sales

  • 8:40am - Fed Chair Powell Speech

• Friday, May 9:

  • 8:30am: - Housing starts

  • 10am - UoM Consumer Sentiment

This is a more crowded economic calendar this week than last week (FOMC meeting notwithstanding). When volatility collapses like it has the past two weeks it tends to be somewhat self fulfilling but at the same time, it can also begin underpricing potential market moves, particularly if some of the news early to mid week all resulted in a bearish sentiment shift.

If that’s not the case and we the news remains unclear, the backdrop from the volatility and options markets are providing resistance above, and some support in the immediate areas to the downside. Any selling would likely need to get SPX below 5500 to see any acceleration, and most rallies from here would resemble grinds (barring a really quick finalized deal with China, which markets are pricing as unlikely.)

On the earnings report front, we get to hear from a couple China based names like JD and Alibaba, as well as Cisco, Walmart, Applied Materials and Deere here:

Earnings (with expected moves):

• Monday

  • After-hours: HTZ 16%, BLNK 22%

• Tuesday

  • Pre-market: JD 8%, SE 9%

  • After-hours: NU 8%

• Wednesday

  • After Hours: CSCO 5%, CRWV 15%

• Thursday

  • Pre-Market: BABA 6.5%, WMT 5%, DE 5.5%

  • After Hours: AMAT 6%, TTWO 6%

We’ve got a great week of content including Peter Boockvar on MRKT Call to start the week as well as Dan Ives on the RR Pod. Stay tuned and get those questions in for the shows.

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