US stocks finished in the red amid an escalation in the Trump-Musk public spat - Newsquawk Asia-Pac Market Open

• US stocks were choppy and ended the session lower with risk sentiment pressured following a stunning escalation in the public feud between US President Trump and Elon Musk in which they exchanged a war of words over social media after President Trump threatened to terminate Musk's government contracts, while Musk even claimed that President Trump "is in the Epstein files" and that this was the reason why they have not been made public. The public spat overshadowed an earlier Trump-Xi phone call and hit Tesla shares which suffered a near-15% drop and resulted in the underperformance of the Consumer Discretionary sector.
• USD was ultimately little changed on Thursday with initial upside seen after reports that US President Trump held a call with Chinese President Xi, although the greenback was then pressured by US data, including a surprise increase in Initial Jobless Claims, and following the ECB press conference, while there were several Fed speakers but had little sway on the dollar as attention centred on the Trump-Musk war of words and with the key NFP report on the horizon.
• Looking ahead, highlights include Japanese Household Spending & Leading Index, Australian Building Approvals, RBI Rate Decision, Supply from Australia, Holiday Closures in South Korea, Indonesia, Singapore, Sweden and across the Middle East on Friday.

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LOOKING AHEAD

• Highlights include Japanese Household Spending & Leading Index, Australian Building Approvals, RBI Rate Decision, Supply from Australia, Holiday Closures in South Korea, Indonesia, Singapore, Sweden and across the Middle East on Friday.
• Click for the Newsquawk Week Ahead.

US TRADE

• US stocks were choppy and ended the session lower with risk sentiment pressured following a stunning escalation in the public feud between US President Trump and Elon Musk in which they exchanged a war of words over social media after President Trump threatened to terminate Musk's government contracts, while Musk even claimed that President Trump "is in the Epstein files" and that this was the reason why they have not been made public. The public spat overshadowed an earlier Trump-Xi phone call and hit Tesla shares which suffered a near-15% drop and resulted in the underperformance of the Consumer Discretionary sector.
• SPX -0.53% at 5,939, NDX -0.80% at 21,547, DJI -0.25% at 42,320, RUT -0.05% at 2,097.
• Click here for a detailed summary.

TARIFFS/TRADE

• US President Trump posted that he concluded a very good phone call with Chinese President Xi and the conversation was focused almost entirely on trade, while their respective teams will be meeting shortly at a location to be determined. Furthermore, he said the call lasted approximately one and a half hours and resulted in a very positive conclusion.
• US President Trump said regarding talks with Chinese President Xi that trade talks have never been off track and straightened out complexity, while he added they'll meet with their top people and are in good shape regarding a China trade deal and are straightening out rare earths. Furthermore, he said they have a deal with China and want to make sure all understand it, as well as stated he will be going to China at some point and that Xi will be going to the US.
• Chinese President Xi said the US should remove negative measures on China and stated that both sides should increase cooperation on economy and trade. Xi also commented that they should reduce misunderstandings and he told US President Trump that China had implemented the Geneva agreement and that Trump is welcome to visit China. Furthermore, Chinese President Xi said the US should handle the Taiwan issue "carefully", while they have agreed to start a new round of talks "ASAP" in which the two sides should strive for a win-win outcome, according to CCTV.
• Chinese Vice President Han Zheng met with a US delegation for high-level Track Two dialogue and it was stated that relations are at a critical juncture, according to state media.
• US President Trump said they will have a great relationship with Germany and that Chancellor Merz is a good man to deal with, but difficult. Trump said they will have a good German trade deal and it will be determined by the EU, while German Chancellor Merz said they have a good basis for cooperation.
• US President Trump and Canadian PM Carney were reportedly holding secret talks on trade and security, according to the Globe and Mail citing the US Special Envoy.
• US President Trump said he wants to make oil and gas part of trade deals.
• US Commerce Secretary Lutnick reiterated the July 9th deadline for a trade deal and said need market access for farmers in exchange, while he added expect no tariffs on things we can't make in the US. Lutnick also commented that they are trying to get to 5mln wafers during the Trump admin and that Trump wants a full chip supply chain in the US, as well as noted the US will train 5mln US workers for chip factories.
• EU made changes to its team negotiating trade terms with the US and includes a member of European Commission President von der Leyen's team to respond more swiftly to political questions that arise in trade talks.
• EU Agriculture Commissioner said the EU could finalise the Mercosur deal before Summer, but there is no fixed date yet, and it would not be helpful to reopen the Mercosur agreement to add extra conditions, according to Reuters.
• Mexican President Sheinbaum is set to talk steel tariffs with US Deputy Secretary of State Landau on June 11th, according to Bloomberg.

NOTABLE HEADLINES

• Fed's Kugler (voter) said she continues to support maintaining the policy rate at the current setting if upside risks to inflation remain and noted monetary policy is well-positioned for any changes in the macroeconomic environment. Furthermore, Kugler said she views inflation as a bigger risk right now than weaker employment and has not seen the full extent of the impact of tariffs on prices, while she added inflation will be the first-order effect with other effects down the road, as well as noted it is not clear that inflation effects from tariffs will be one-time.
• Fed's Schmid (2025 voter) said he is uncomfortable with the look-through policy approach to tariff-driven price increases and policy needs to be 'nimble' to balance two sides of the mandate, while he is focused on maintaining the Fed's credibility on inflation.
• Fed's Harker (2026 voter) said the Fed must wait and see on next policy steps amid uncertainty, while it is entirely possible the Fed may face climbing inflation and unemployment at the same time. Furthermore, he said slow disinflation by itself justified the Fed holding steady on interest rates.
• US President Trump said regarding Elon Musk that the bill is incredible and Musk is upset because they took away the EV mandate, while Trump added he does not know if they will have a great relationship anymore and said Musk hasn't said a bad about him but that'll be next.
• US President Trump commented "Elon was “wearing thin,” I asked him to leave, I took away his EV Mandate that forced everyone to buy Electric Cars that nobody else wanted (that he knew for months I was going to do!), and he just went CRAZY!"
• Elon Musk posted on X “Without me, Trump would have lost the election, Dems would control the House and the Republicans would be 51-49 in the Senate”. Musk later posted that President Trump "is in the Epstein files" which is the reason why they have not been made public, while he also commented "Yes" to a post saying President Trump should be impeached.

DATA RECAP

• US International Trade (USD)(Apr) -61.6B vs. Exp. -70.0B (Prev. -140.5B, Rev. -138.3B)
• US Productivity Revised (Q1) -1.5% vs. Exp. -0.8% (Prev. -0.8%)
• US Unit Labor Costs Revised (Q1) 6.6% vs. Exp. 5.7% (Prev. 5.7%)
• US Initial Jobless Claims w/e 247.0k vs. Exp. 235.0k (Prev. 240.0k, Rev. 239k)
• US Continued Jobless Claims w/e 1.904M vs. Exp. 1.91M (Prev. 1.919M, Rev. 1.907M)
• US Challenger Layoffs (May) 93.816k (Prev. 105.441k)

FX

• USD was ultimately little changed on Thursday with initial upside seen after reports that US President Trump held a call with Chinese President Xi, although the greenback was then pressured by US data, including a surprise increase in Initial Jobless Claims, and following the ECB press conference, while there were several Fed speakers but had little sway on the dollar as attention centred on the Trump-Musk war of words and with the key NFP report on the horizon.
• EUR eked mild gains but was well off today's post-ECB peak with an initial surge seen in the single currency to just shy of the the 1.1500 handle after ECB President Lagarde suggested that the ECB is “in a good position” and highlighted that there was one dissenter to the 25bps cut. Nonetheless, the single currency then faded most of its gains, while there was little information from the meeting between German Chancellor Merz and US President Trump which the former stated was a very good discussion and feels that he can talk with Trump very well.
• GBP pared most of its early gains after failing to sustain a brief return to the 1.3600 territory amid light UK-specific catalysts.
• JPY weakened but with further advances in USD/JPY capped by resistance near the 144.00 level and amid the choppy risk appetite.
• US Treasury Currency Report stated no major US trading partners manipulated currency to gain an unfair trade advantage in the four quarters through December 2024.

FIXED INCOME

• T-notes peaked in the wake of mixed data but then retreated following the Trump-Xi call readouts, hawkish Fed speak and after Musk criticised Trump's bill.

COMMODITIES

• Oil prices were firmer although settled way off the earlier Trump/Xi-induced peaks.

GEOPOLITICAL

MIDDLE EAST

• Israeli military issued warnings to residents in Beirut's southern suburbs, according to a post on X.
• Israeli military said it will soon attack several underground infrastructures for the production of UAVs that were established in Beirut's southern suburbs.
• Hamas chief said the group did not reject Witkoff’s Gaza ceasefire proposal but demanded some changes and improvement to secure the end to the war, while they are ready to engage in a new round of ceasefire talks and noted that ceasefire talks with the mediators are ongoing.

RUSSIA-UKRAINE

• US President Trump said Congress is waiting for him to decide on Russian sanctions and that the Russia sanctions bill is harsh.
• US President Trump told people he met with in recent days that the Ukraine drone attack would likely push Russian President Putin to retaliate very significantly, according to Axios sources.
• German Chancellor Merz said the US is in a strong position to help end the Ukraine war.

ASIA-PAC

NOTABLE HEADLINES

• Huawei reportedly struggles to win at home as big Chinese tech firms have not yet made big orders for Huawei chips and tests are showing that Huawei chips overheat, according to The Information.

EU/UK

NOTABLE HEADLINES

• UK Chancellor Reeves reaffirmed she will not have a UK budget like October's again but can't rule out any tax changes over the next four years.
• ECB lowered rates 25bps, as expected with the Refinancing Rate cut to 2.15%, Deposit Rate cut to 2.0% and Marginal Lending Facility cut to 2.40%, while it repeated it is not pre-committing to a particular rate path, as well as repeated it will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.
• ECB President Lagarde said after today's cut, that the ECB is in a good position to navigate uncertain conditions ahead, while she noted the decision was almost unanimous although there was one GC member who did not support the decision. Lagarde said she is determined to complete her term as ECB President, while she said they are getting towards the end of the monetary policy cycle but said she is not confirming that the ECB is 'pausing' policy.
• A visible majority in the ECB meeting expressed preference for holding rates unchanged in July and some argued for a longer pause, according to Reuters sources. A separate report also noted that ECB officials expect rate cuts to be paused at the July meeting, according to Bloomberg.

DATA RECAP

• UK S&P Global Construction PMI (May) 47.9 vs. Exp. 47.2 (Prev. 46.6)
• UK S&P GLOBAL Composite PMI Output (May) 50.0 (Prev. 48.4)
• German Industrial Orders MM (Apr) 0.6% vs. Exp. -1.0% (Prev. 3.6%)
• German HCOB Construction PMI (May) 44.4 (Prev. 45.1)
• French HCOB Construction PMI (May) 43.1 (Prev. 43.6)
• Italian HCOB Construction PMI (May) 50.5 (Prev. 50.1)
• EU HCOB Construction PMI (May) 45.6 (Prev. 46)
• EU Producer Prices MM (Apr) -2.2% vs. Exp. -1.8% (Prev. -1.6%, Rev. -1.7%)
• EU Producer Prices YY (Apr) 0.7% vs. Exp. 1.2% (Prev. 1.9%)