The Morning Edge: Trump Hails China Trade Deal Amid Rising Middle East Tensions

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Global Sentiment: Risk-off
Factors: Middle East tensions

TODAY’S WATCHLIST
• India May CPI data
• US weekly jobless claims data

THE BIG STORY
President Donald Trump on Wednesday celebrated what he called a “great deal” with China that reinstates a fragile trade truce and addresses key sticking points, including tariffs, rare earth exports, and access for Chinese students to US universities. The agreement marks a significant, if tentative, breakthrough in US-China relations, with the White House describing a recalibrated tariff structure that consolidates multiple layers of levies into a 55% effective rate on Chinese imports.

Yet even as trade tensions cooled, geopolitical risks flared elsewhere. On the same day, Trump confirmed a partial drawdown of US personnel in the Middle East, citing growing instability and warning that Iran would not be allowed to develop nuclear weapons. The decision, which includes authorising voluntary evacuations from Bahrain and Kuwait, follows reports of a planned US embassy pullback in Iraq—moves that rattled energy markets and sent oil prices surging over 4%. Together, these twin developments reflect a White House juggling economic diplomacy with escalating regional security challenges.

DATA
US consumer prices rose just 0.1% in May, below expectations, as falling gasoline costs offset rising rents. According to the Labor Department, core inflation remained muted, with food prices rebounding modestly and shelter costs rising 0.3%. Grocery prices saw notable increases in cereals, bakery items, and produce, while prices for eggs and meats declined. Gasoline prices dropped 2.6%, providing temporary relief. On a year-on-year basis, CPI rose 2.4%, up slightly from April’s 2.3%, though inflation is expected to pick up in coming months due to tariffs on imported goods.

WHAT HAPPENED OVERNIGHT
US stocks closed lower on Wednesday as escalating Middle East tensions overshadowed a softer US inflation report and cautious optimism around US-China trade talks. Markets turned risk-averse after news broke that the US is preparing a partial evacuation of its embassy in Iraq, fuelling fears of regional instability. Earlier, Iran had warned of possible strikes on US bases if nuclear talks break down. Amazon slid 2% and Nvidia dipped 0.8%, dragging the index lower, while Tesla edged up 0.1% as CEO Elon Musk attempted to soften his rhetoric amid his public spat with Trump. 

US Treasury yields declined on Wednesday as subdued inflation data, geopolitical tensions, and uncertainty around the US-China trade deal drove demand for safe-haven assets. The yield on the 10-year note fell 5.8 basis points to 4.416%, helped by solid demand in the Treasury's $39 billion auction of new 10-year debt. Despite lingering concerns over the fiscal outlook and foreign investor appetite, the auction's strength suggests buyers still see value in US bonds. A soft US consumer price report further eased inflation fears, while a lack of concrete details from the trade front left investors cautious. 

The US dollar weakened on Wednesday after inflation data came in below expectations, raising hopes that the Federal Reserve may resume rate cuts sooner than previously anticipated. The dollar index slipped 0.3% to 98.6, with broad-based declines across major currencies. The euro climbed 0.5% to $1.148, while the dollar eased to 144.6 yen. 

Brent crude oil prices surged over 4% on Wednesday, with Brent settling at $69.77 and WTI at $68.15, both hitting their highest levels since early April. The spike followed reports that the US is preparing to evacuate its embassy in Iraq due to rising regional security threats, reigniting concerns of potential supply disruptions. The data marked the strongest daily gain in over a month for both benchmarks. 
Day’s Ledger

Economic Data:

• India May CPI Inflation data 
• India M3 Money Supply for May 30 week 
• US May PPI data
• US weekly initial jobless claims data 
• US May Core PPI 
• EIA Natural Gas Stocks Change for June 6 week

Corporate Actions:

• Jan-Mar earnings: Indrayani Biotech 
• Canara Bank to consider raising of fund
• Capital Trust to consider raising of fund
• Kriti Industries to consider raising of fund
• VTM to consider allotment of bonus share

Policy Events

• ECB Schnabel Speech
• ECB Guindos Speech  
• ECB Schnabel Speech

TICKERS

• CITY UNION BANK to raise ₹5 billion via QIP; AGM on Aug. 13. Approved ₹2 dividend for FY25. Q4 net profit rose 13% YoY to ₹2.88 billion.
• HINDUSTAN UNILEVER informed that NCLT allowed shareholder meeting on Aug. 12 for Kwality Wall’s demerger. Shareholders to get one share each. Move aims to unlock value in fast-growing ice-cream segment.
• INDIAN OIL CORPORATION withdrew its five-year bond issuance on Wednesday due to higher-than-expected yield, said market participants.
• ICICI BANK sold entire 18.8% stake in NIIT-IFBI to NIIT Ltd. for ₹61.1 million. NIIT-IFBI is no longer an associate. Q4 net profit rose 18% YoY to ₹126.30 billion.
• KEC INTERNATIONAL informed that CHRO Milind Apte resigned effective end of day Wednesday due to personal reasons.
• MARUTI SUZUKI INDIA informed that NCLT cleared first motion for merger with Suzuki Motor Gujarat. Shareholder meetings waived. Post-merger, Suzuki’s entire paid-up capital will be cancelled.
• RAILTEL CORP secured ₹119.49 million order from South Eastern Coalfields to manage bandwidth services at its mines in Madhya Pradesh and Chhattisgarh.
• WIPRO informed that NCLT approved merger of five wholly owned units with parent. Units include HR Services, Overseas IT, Product Services, Trademarks Holding, and VLSI Design. Board cleared deal in October.
• ZYDUS LIFESCIENCES informed that USFDA issued inspection report for Ankleshwar API unit; no action required. Inspection held from Mar. 10–14. Facility now cleared.

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