The Morning Edge: Trump Pushes Tax Cuts Amid Republican Resistance; Fed Flags Tariff-Driven Price Pressures

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Global Sentiment: Risk-off
Factors:  US Tax Bill, Geopolitics

TODAY’S WATCHLIST
 - UK April CPI Data
 - IndusInd Bank Earnings 

THE BIG STORY
US President Donald Trump urged congressional Republicans on Tuesday to unite behind a sweeping tax-cut bill that lies at the heart of his domestic agenda. Speaking in a closed-door meeting on Capitol Hill, Trump warned against any further changes to the package, which aims to extend the 2017 tax cuts and introduce new breaks on tips and overtime pay. However, key holdouts remain, with some Republicans demanding deeper Medicaid cuts. Analysts warn the bill could add between $3 trillion and $5 trillion to the federal debt.

Meanwhile, Federal Reserve officials signalled that inflation pressures from rising tariffs are likely to build in the coming months. Atlanta Fed President Raphael Bostic noted that businesses’ efforts to front-run the impact by stockpiling inventory are wearing thin. With uncertainty over whether the inflation shock will persist, policymakers are urging caution before adjusting interest rates.

DATA
Japan's exports rose 2% year-on-year in April, but a drop in shipments to the US underscored the growing impact of President Donald Trump's tariffs on the nation's fragile recovery. Exports to the US, Japan's largest trading partner, fell 1.8%, with automobile shipments down 4.8% due to a stronger yen and reduced demand for high-end models. However, total car export volumes rose 11.8%, driven by sales of lower-priced vehicles. Imports dropped 2.2% in April, less than the forecasted 4.5%, leading to a trade deficit of 115.8 billion yen (approximately $802 million) instead of the expected 227.1 billion yen surplus.

WHAT HAPPENED OVERNIGHT 
US stocks closed lower on Tuesday, snapping multi-session winning streaks across major indexes as investor focus returned to the US sovereign debt outlook following Moody’s recent downgrade. Home Depot reversed early gains to closed down 0.6% despite beating Q1 sales estimates. Tesla edged up 0.5% after CEO Elon Musk reaffirmed his long-term leadership plans at an economic forum in Qatar. Meanwhile, heavyweight tech stocks slipped, with Nvidia under pressure ahead of its earnings report on May 28.

Longer-dated US Treasury yields edged higher on Tuesday as fiscal concerns remained in focus. The benchmark 10-year note yield rose 0.2 basis points to 4.477%, while the 30-year bond yield gained 2.3 basis points to 4.965%. On Monday, the 30-year yield briefly touched 5.037%, its highest level since November 2023 as investors weighed growing debt concerns and the potential impact of tax legislation.

The US dollar extended its decline on Tuesday, slipping to a near two-week low against the yen as cautious comments from Federal Reserve officials dampened rate hike expectations. Sentiment was further hit by political headwinds, with President Trump failing to secure full Republican backing for his sweeping tax bill during meetings with House lawmakers. The greenback also faced added pressure ahead of upcoming trade talks with Japan, where currency issues may be on the agenda. The dollar fell to 144.095 yen before settling at 144.495, down 0.2%, and has now declined in five of the last six sessions.

Brent crude oil prices ended little changed on Tuesday as markets weighed the uncertain outcomes of US-Iran nuclear negotiations and ongoing Russia-Ukraine peace talks. Brent crude slipped 16 cents, or 0.2%, to settle at $65.38 a barrel, while US West Texas Intermediate edged down 13 cents, or 0.2%, to $62.56. 

Day’s Ledger

Economic Data:

• UK CPI for April
• US MBA mortgage applications survey 
• US EIA petroleum status report 

Corporate Actions:

• Jan-Mar earnings: IndusInd Bank, Oil and Natural Gas Corporation, Oil India,Astral Limited, Colgate Palmolive (India), Interglobe Aviation, Ircon International, Mankind Pharma, National Aluminium Company, NTPC Green Energy, Power Finance Corporation, Rail Vikas Nigam, Trident, UNO Minda
• Aplab to consider rights issue
• Bio Green to consider rights issue
• Rama Steel to consider raising of fund
• Uno Minda to consider raising of fund

Policy Events

• ECB is set to publish its financial stability review
• US Fed Kugler Speech 
• US Fed Daly Speech 
• US Fed Hammack Speech

TICKERS

• CCI approves 360 ONE WAM’s acquisition of Batlivala & Karani entities
• Coal India confirms ongoing listing process for two subsidiaries
• Fortis Healthcare’s consolidated net profit rises 2.9% in March quarter
• Godawari Power March quarter net profit rises 1.4% on year; revenue slips 4%
• Max Healthcare March quarter profit rises 27%, misses estimates as expenses outpace revenue growth
• Torrent Pharmaceuticals posts modest profit growth; misses estimate in March quarter
• UGRO Capital approves preferential issue worth ₹9.15 billion and rights issue up to ₹4 billion
• United Spirits posts strong profit growth; beats estimate for March quarter
• Zydus Lifesciences posts slight profit dip despite strong sales growth

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