The Morning Edge: Fed Stays Patient as Inflation Lingers; China Pushes Back on Trade Accusations

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Global Sentiment: Risk-off
Factors: US-China trade negotiations

TODAY’S WATCHLIST
- China May Caixin manufacturing PMI
- Bank of Japan Governor Kazuo Ueda speech

THE BIG STORY
With inflation still running just above target and the economic outlook clouded by uncertainty, the Federal Reserve is in no rush to change course. Dallas Fed President Lorie Logan signalled Monday that monetary policy is "well positioned" to wait and watch as the central bank sifts through a mixed bag of data. While the labour market remains stable, inflation at 2.1% by the Fed’s preferred gauge—keeps policymakers on alert. “Our job is to ensure a one-time price increase doesn’t turn into a persistent inflation problem,” Logan said, reaffirming that inflation remains the Fed’s top concern.

Meanwhile, tensions flared again on the US-China trade front. Beijing dismissed President Trump’s accusation that it violated a tariff rollback agreement reached in Geneva as “groundless,” accusing Washington of undermining the deal through a series of restrictive measures from AI chip controls to visa cancellations. As the Fed monitors economic crosscurrents at home, global trade friction remains a persistent wildcard.

DATA
US manufacturing activity contracted for the third consecutive month in May, with signs of strain emerging in supply chains due to ongoing tariffs. The ISM Manufacturing PMI dipped to a six-month low of 48.5, down slightly from 48.7 in April, indicating continued contraction in the sector. A reading below 50 signals contraction, while readings above 42.3 historically align with broader economic expansion. Notably, suppliers reported the longest delivery times in nearly three years, pointing to potential input shortages. The ISM survey highlighted that tariffs are being passed on to customers, undermining the administration’s assertion that foreign exporters bear the cost.

WHAT HAPPENED OVERNIGHT
US stocks ended mixed with S&P 500 closed higher on Monday as optimism over trade negotiations outweighed concerns from President Trump’s latest tariff escalation. Trump announced plans to double tariffs on imported steel and aluminium to 50%, accusing China of violating a prior agreement. Steel stocks rallied in response, with Cleveland-Cliffs surging 23%, while Nucor and Steel Dynamics also posted solid gains. In contrast, automakers tumbled Ford fell 3.9% and General Motors dropped by a similar margin. In tech, Nvidia rose 1.7% and Meta advanced 3.6%.

Longer-dated US Treasury yields edged higher on Monday, supported by President Trump’s latest tariff announcement, but gains were capped after manufacturing data showed signs of cooling. The yield on the benchmark 10-year note rose 3.2 basis points to 4.45%, while the 30-year yield climbed 4.6 basis points to 4.978%. The 2-year yield, sensitive to Fed rate expectations, rose 2.5 basis points to 3.939%.

The US dollar fell across the board on Monday, erasing last week’s gains, as markets reassessed the outlook for President Donald Trump's tariff policy and its potential impact on growth and inflation. The greenback weakened after Trump announced plans to double tariffs on imported steel and aluminium to 50% from Wednesday, while Beijing pushed back against accusations of violating a critical minerals agreement. The dollar index slipped 0.69% to 98.67, with the euro rising 0.85% to $1.1444. Against the Japanese yen, the dollar fell 0.93% to 142.7.

Brent crude oil prices jumped nearly 3% on Monday, driven by supply concerns as OPEC+ decided against accelerating its output hike plans and wildfires in Canada’s oil-producing province curtailed production. Brent crude settled up $1.85, or 2.95%, at $64.63 a barrel, while US West Texas Intermediate crude rose $1.73, or 2.85%, to $62.52 a barrel.

Day’s Ledger

Economic Data:

• China May Caixin manufacturing PMI
• Eurozone May core CPI
• US May factory orders data
• US April JOLTS job openings data
• Eurozone unemployment rate for April
• US Johnson retail sales index for week 
• OECD Economic Outlook

Corporate Actions:

• Ethos to consider raising of fund
• Paisalo Digital to consider raising of fund
• Supra Pacific to consider allotment of debentures
• YES Bank to consider raising of fund

Policy Events

• BoE MPC Member Mann speaks
• Bank of Japan Governor Kazuo Ueda speech

TICKERS

• BIOCON gets DCGI nod for Liraglutide drug substance, product
• BRITANNIA restores operations at Jhagadia plant as workers call off strike
• ENGINEERS INDIA invests in Numaligarh Refinery to expand downstream presence
• Hcltech partners with UiPath to drive AI-led automation
• JINDAL STAINLESS to invest ₹1.32 billion in renewable energy project
• MARUTI SUZUKI's May production up slightly; car output dips on weak small car demand
• TORRENT POWER signs long-term LNG supply deal with BP Singapore
• UPL’s Advanta Seeds acquires corn assets from K-Adriatica

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