US stocks declined as geopolitical fears overshadowed the softer-than-expected CPI data - Newsquawk Asia-Pac Market Open

• US stocks were choppy with initial gains seen following the conclusion of the US-China trade talks and with risk appetite supported early in the session due to softer-than-expected US CPI data which spurred Fed rate cut bets. However, the major indices then gave back their gains amid geopolitical concerns after reports that the US State Department was authorising the departure of nonessential personnel and family members from Bahrain and Kuwait, while the US embassy in Iraq was also preparing for an ordered evacuation due to heightened security risks in the region.
• USD was pressured with the DXY retreating beneath the 99.00 level following the softer-than-expected US CPI data which resulted in an increase of Fed rate cut bets.
• Looking ahead, highlights include New Zealand Electronic Card Sales, Japanese BSI Large Manufacturing, Australian MI Inflation Expectations, Supply from Japan.

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LOOKING AHEAD

• Highlights include New Zealand Electronic Card Sales, Japanese BSI Large Manufacturing, Australian MI Inflation Expectations, Supply from Japan.
• Click for the Newsquawk Week Ahead.

US TRADE

• US stocks were choppy with initial gains seen following the conclusion of the US-China trade talks and with risk appetite supported early in the session following softer-than-expected US CPI data which spurred Fed rate cut bets. However, the major indices then gave back their gains amid geopolitical concerns after reports that the US State Department was authorising the departure of nonessential personnel and family members from Bahrain and Kuwait, while the US embassy in Iraq was also preparing for an ordered evacuation due to heightened security risks in the region.
• SPX -0.27% at 6,022, NDX -0.37% at 21,861, DJI unch at 42,866 , RUT -0.38% at 2,148.
• Click here for a detailed summary.

TARIFFS/TRADE

• US President Trump posted "OUR DEAL WITH CHINA IS DONE, SUBJECT TO FINAL APPROVAL WITH PRESIDENT XI AND ME." adds "WE ARE GETTING A TOTAL OF 55% TARIFFS, CHINA IS GETTING 10%. RELATIONSHIP IS EXCELLENT! THANK YOU FOR YOUR ATTENTION TO THIS MATTER!". Furthermore, Trump separately commented that he and Chinese President Xi will work closely on trade.
• White House said US President Trump was talking to the trade team about the China trade deal and liked what he heard. It was also reported that a US official said the total US effective tariff rate on China will be 55%, with the US to keep the baseline 10% tariff and 20% on Fentanyl. Furthermore, a White House official clarified regarding the 55% tariff level on China, that this is not a new escalation in tariffs and noted that additional tariffs under the current Trump term remain at 30% (agreed post Geneva), in addition to the 25% in place before this term.
• US Commerce Secretary Lutnick said when China slow-rolled the rare earth magnets, the US put on countermeasures but the Trump/Xi phone call changed the trajectory, while he stated China is going to approve all applications for magnets for US companies and they are in a great place with China with the Chinese side always wanting the US to remove export controls. It was also noted that China said it is hard to solve the fentanyl issue and that a fentanyl halt is not on the table although Lutnick said they could do it if they wanted to and said they are not going to give China their best chips. Furthermore, he said there is no text on the deal, just an agreement after Chinese President Xi approves, as well as stated that US President Trump will not rush deals and the tariff model is not going away. Lutnick also commented that Europe was more than thorny in trade talks and that Europe wasn't engaging, then Trump threatened them with 50% tariffs, while he added Europe are tough to deal with and will probably be at the very end.
• US Treasury Secretary Bessent said China needs to be a "reliable partner" in negotiations and if China upholds its end of the initial Geneva agreement, a "big beautiful rebalancing" of the US and Chinese economies is possible, according to his testimony to the House Ways and Means Committee. Bessent also said that trade negotiations with China will be a much longer process and said "We will see" when asked if China is a reliable trade partner. Furthermore, Bessent later commented that they are prepared to roll the date forward for trading partners negotiating in good faith.
• China’s Vice Premier said on China-US talks in London that China's stance on trade issues with the US is clear and consistent whereby China is not willing to fight but is not afraid to fight and vows to reduce misunderstanding with the US. China’s Vice Premier also said that both sides should enhance consensus and jointly safeguard the hard-won outcome from the dialogues, as well as maintain communication.
• China is putting a six-month limit on rare-earth export licenses for US automakers and manufacturers, according to WSJ citing sources who noted the "Tentative deal reached in London gives Beijing continued leverage in trade negotiations".
• Japanese PM Ishiba said Japan is making steady progress with the US on tariffs and should be cautious about any plans that would deteriorate an already tattered state.
• Canada and the US are reportedly exchanging potential terms on an economic and security deal, according to The Globe and Mail.

NOTABLE HEADLINES

• US President Trump posted "CPI JUST OUT. GREAT NUMBERS! FED SHOULD LOWER ONE FULL POINT. WOULD PAY MUCH LESS INTEREST ON DEBT COMING DUE. SO IMPORTANT!!!"
• US Treasury Secretary Bessent said if prices go up due to tariffs, it will be one-time and said it remains to be seen when asked about the bill, and whether it would increase the deficit.
• US Senate Republican Leader Thune said he will keep the Senate in session into the July 4th recess, if needed, to finish the reconciliation bill, according to a Politico reporter.
• US President Trump said he thought it was "very nice" that Tesla (TSLA) CEO Musk apologised.
• Hong Kong pensions intend to cut USTs if the US loses its AAA grade, according to Bloomberg.

DATA RECAP

• US CPI YY NSA (May) 2.4% vs. Exp. 2.5% (Prev. 2.3%)
• US Core CPI YY NSA (May) 2.8% vs. Exp. 2.9% (Prev. 2.8%)
• US Real Weekly Earnings MM (May) 0.3% (Prev. -0.1%)
• US Federal Budget (USD)(May) -316.0B vs. Exp. -318.0B (Prev. 258.0B)

FX

• USD was pressured with the DXY retreating beneath the 99.00 level following the softer-than-expected US CPI data which resulted in an increase of Fed rate cut bets.
• EUR took advantage of the dollar weakness but with upside capped by resistance around the 1.1500 level, while there were a slew of ECB comments but had little impact.
• GBP reclaimed the 1.3500 handle albeit with further upside limited and with a lack of fireworks from the spending review which was broadly in line with expectations.
• JPY saw two-way price action in which USD/JPY whipsawed through the 145.00 level but ultimately retreated amid the softer dollar and as risk sentiment soured.

FIXED INCOME

• T-notes gained amid bull steepening in the aftermath of the softer-than-expected US CPI data.

COMMODITIES

• Oil prices rallied following the latest inventory and amid geopolitical concerns with the US State Department authorising the departure of nonessential personnel and family members from several Middle Eastern countries due to heightened security risks in the region.
• US EIA Weekly Crude Stocks -3.64M vs. Exp. -1.96M (Prev. -4.30M)
• Alberta Premier Smith said they are working to present a route to PM Carney for a potential new crude pipeline from Alberta to the Port of Prince Rupert, while the proposal is for a 1mln BPD pipeline.

GEOPOLITICAL

MIDDLE EAST

• Israeli PM Netanyahu reportedly requested that the US mediate negotiations between Israel and Syria, according to Axios citing officials.
• US sent a diplomatic cable strongly discouraging countries from participating in a UN conference on a two-state solution between Israel and Palestinians, according to Reuters citing sources. Furthermore, it was stated that the US opposes any steps that would unilaterally recognise a conjectural Palestinian state and opposes implied support of conference for potential actions, including sanctions against Israel.
• US President Trump is less confident about the Iran deal, while he stated that if they don’t make a deal, they’re not going to have a nuclear weapon and that it would be nicer to do it without warfare and without people dying, according to a New York Post podcast interview.
• Iran's President Pezeshkian said they are holding talks with the US and Europe, but they will not surrender to force.
• Iranian Foreign Minister said "As we resume talks on Sunday, it is clear that an agreement that can ensure the continued peaceful nature of Iran's nuclear program is within reach—and could be achieved rapidly".
• US Defense Secretary Hegseth authorised of voluntary departure of military dependants from locations across the Middle East, according to Reuters citing a US official. It was also reported that Naval Support Activity Bahrain have been placed on “High Alert”, with the dependents of servicemembers being told to prepare for evacuation, possibly due to concerns of military action related to Iran, according to OSINTdefender on X.
• US State Department is authorising the departure of nonessential personnel and family members from Bahrain and Kuwait, according to AP. It was also reported that the US embassy in Iraq was reportedly preparing for an ordered evacuation due to heightened security risks in the region, while an Iraqi government source said steps related to the evacuation of US diplomatic presence are not only for Iraq but several states in the Middle East.

RUSSIA-UKRAINE

• Ukraine’s military said it hit Russia's Tambov gunpowder plant.
• German Chancellor Merz said the EU sanctions package against Russia should be agreed on by next week at the latest.
• EU proposed sanctioning two small China banks for Russia trade, according to Bloomberg.
• Russian Defence Ministry said Russian TU-22M3 long-range bombers carried out a flight over neutral waters of the Baltic Sea, according to RIA.

OTHER

• Pentagon reportedly launched a review to decide if the US should scrap AUKUS, according to FT.
• NK News, citing a diplomatic source, reported that North Korea rejected on multiple occasions a letter sent by US President Trump, aimed at reopening channels of communication with North Korea’s leader.

ASIA-PAC

NOTABLE HEADLINES

• Japanese PM Ishiba said the government takes the issue of increasing prices seriously and is making the utmost efforts to overcome rising prices, while he said he cannot agree on a call to reduce the consumption tax rate and it is not true the government is considering providing cash handouts.
• BoJ Governor Ueda said markets' risk-averse moves are subsidising somewhat but uncertainty is very high and said the BoJ will continue to scrutinise market moves, and their impact on the economy.
• RBI is said to use cash reserve ratio "more often" to manage durable liquidity and may announce variable reverse repo operations to anchor the call rate closer to the repo rate, according to Reuters sources who noted a revised liquidity framework is "unlikely" to be released soon.

EU/UK

NOTABLE HEADLINES

• UK Chancellor Reeves said she will allocate the spending envelope which was outlined in the Spring Statement, while she added that fiscal rules are non-negotiable and total departmental budgets are to grow by 2.3% a year in real terms.
• ECB's Kazaks said it is "quite likely" that 2% inflation will require some further cuts for fine-tuning and market pricing of one or more cuts is not out of the realm of the baseline. Kazaks added that fine-tuning cuts will very much depend on how the economy develops and they may at some point go into accommodative territory, according to Econostream on X.
• ECB's Lane said last week's rate cut will guard against any uncertainty about the Bank's reaction function by showing they are committed to returning inflation to the target, while conditions today are far more favourable for blue EU bond issuances on a prudent scale.
• ECB's Makhlouf said rates are now in territory where they are likely to remain for the foreseeable future and the decision on moving at the next meeting will depend on the facts, while he added they are not on a pre-determined path and need to be prudent and cautious.
• ECB's Villeroy said the ECB's situation is favourable and it doesn't mean that policy is static.