Breakfast | The White House states: Trump is open to reaching an agreement between China and the United States

Market Overview

The risk of a tariff war remains, U.S. stocks fell, and the three major U.S. stock indices halted their two-day winning streak; Boeing dropped over 2%, leading the decline in the Dow; strong performers Bank of America and Citigroup rose over 3% and nearly 2%, respectively. The China concept index fell 0.5%, with JD.com down nearly 2% and Alibaba down over 1%. The European automotive sector rose over 2%, while the underperforming LVMH fell nearly 8%. NVIDIA fell over 6% in after-hours trading.

Media reports indicate that after U.S.-European trade negotiations hit a deadlock, U.S. Treasury yields refreshed their daily lows, U.S. Treasury prices rose for consecutive days, and the U.S. dollar index accelerated its rebound, ending a five-day decline.

The offshore yuan fell over 200 points at one point, approaching 7.33. Bitcoin surged past the 86,000 mark during trading before retreating over 2,000 USD.

Crude oil ended a two-day rise, dropping 1% at one point. Gold rebounded, nearing its intraday record high. Copper halted its four-day rise, dropping nearly 2% at one point.

During the Asian session, A-shares consolidated with reduced volume throughout the day, the Shanghai Composite Index turned positive at the end, with consumer stocks active, while the Hang Seng Tech Index closed down 0.7%, semiconductor stocks were sluggish, and government bond futures mostly fell.

NVIDIA Plummets 6% After Hours, U.S. Government Requires License to Export H20 Chips to China

According to an SEC announcement, Nvidia received notification from the U.S. government stating that it needs to obtain special permission to ship its H20 chips or related hardware to China, and such permission will be required indefinitely.

According to the 8-K form submitted by Nvidia to the U.S. Securities and Exchange Commission, due to this reason, Nvidia expects to incur a charge of 5.5 billion USD in its upcoming quarterly financial results.

Nvidia declined to comment on the matter.

Although Nvidia's more advanced AI GPUs have been banned from export to China, the H20 chip was specifically designed to comply with export restrictions.

The H20 is currently the most advanced chip that Nvidia is still permitted to export to China. However, industry observers and Chinese tech companies had previously anticipated that the H20 would be included in other banned hardware lists. Last week, there were reports stating that the Trump administration had suspended the ban on exporting Nvidia H20 GPUs to China According to reports, before the potential ban on the sale of artificial intelligence chips in China by the United States, Alibaba (BABA), Tencent (TCEHY), and ByteDance placed orders for at least USD 16 billion worth of Nvidia's H20 server chips in the first three months of 2025.

As tariffs loom, Apple airlifts USD 2 billion worth of iPhones from India in March

Customs data shows that in March, Apple's major Indian suppliers Foxconn and Tata shipped nearly USD 2 billion worth of iPhones to the United States, setting a record high. Apple airlifted these phones to avoid the tariffs that President Trump is set to impose. Concerned that Trump's tariffs would raise costs, the smartphone manufacturer ramped up production in India and chartered cargo flights to transport 600 tons of iPhones to the U.S. to ensure sufficient inventory in one of its largest markets.

White House says the ball is in China's court for trade talks, Trump open to reaching an agreement

White House spokesperson Levitt stated on Tuesday that President Trump is open to reaching a trade agreement with China. "The ball is in China's court," Levitt said at a press conference, "China wants what we have... American consumers."

The White House announced that President Trump signed an executive order to conduct a risk-related investigation into the U.S. reliance on imported processed critical minerals.

China's Q1 GDP expected to grow 5.1% year-on-year for a "good start," but tariff challenges loom

China will release its Q1 2025 GDP and March industrial value-added, investment, and consumption data on Wednesday. A median estimate from 42 institutions compiled by Reuters indicates that, thanks to policy implementation driving improvements on both supply and demand sides, China's economy is expected to achieve a "good start" in Q1, with a year-on-year GDP growth of 5.1% and a quarter-on-quarter growth of 1.4%. However, the second quarter will face challenges due to the impact of the tariff war. Additionally, China's industrial production in March is expected to remain stable overall, with a year-on-year growth of 5.8% in industrial value-added above designated size; the acceleration of trade-in programs is expected to boost the year-on-year growth rate of total retail sales of consumer goods to 4.2%; and the year-on-year growth rate of fixed asset investment in Q1 is expected to remain flat at 4.1%, the same as in January-February.

Shinzo Abe states: Japan is not prepared to make significant concessions to the U.S. and is not in a hurry to reach an agreement

This strong statement is a direct rebuttal to Trump's claim that countries "are eager to reach an agreement." However, under the threat of U.S. tariffs, Japan's economy is facing gloom, with the automotive-focused Japanese export market facing challenges. Additionally, the yen exchange rate has risen, and some analysts suggest that the Bank of Japan may consider pausing interest rate hikes. This Thursday, the U.S. and Japan will hold trade negotiations in Washington.

Focusing on next week's U.S.-Japan finance ministers' meeting, will Japan exchange interest rate hikes for tariff concessions, or even a "mini Mar-a-Lago agreement"? The discussions between the finance ministers of the U.S. and Japan next week could become a turning point for the yen exchange rate. Citigroup believes that if the USD/JPY exchange rate remains above 140, the Bank of Japan may accelerate tightening monetary policy under U.S. pressure. Considering the current inflation and interest rate levels in the U.S., the timing for a "mini Mar-a-Lago agreement" is not yet mature; a more realistic solution would be for the Japanese government to extend the holding period of its U.S. Treasury bonds to contribute to a decline in U.S. interest rates.

It is indeed rare for Japan to issue a "strongest warning" to the U.S. On April 14, Shigeru Ishiba criticized Trump's tariff policy in parliament, stating that it "could disrupt the global economic order," and clearly expressed that "there is no intention to make significant concessions, nor will there be a rush to reach an agreement."

U.S.-EU Trade Negotiations Stalemated

Reports indicate that U.S.-EU trade negotiations have reached a stalemate, with the euro, U.S. stocks, and crude oil prices declining, while U.S. and EU sovereign bonds have risen. According to media reports, the EU expects that the U.S. will not withdraw most tariffs against the EU, and both sides have made little progress in negotiations.

Canada to Conditionally Exempt Some Countermeasures Against U.S. Imported Cars

The Canadian federal finance department's official website announced that it will exempt some countermeasures against U.S. imported cars to help develop Canadian domestic automobile manufacturers.

China and Vietnam Release Statement on Deepening Comprehensive Strategic Cooperative Partnership

The People's Republic of China and the Socialist Republic of Vietnam released a joint statement on continuously deepening their comprehensive strategic cooperative partnership and accelerating the construction of a strategically significant China-Vietnam community of shared destiny. According to Xinhua News Agency, in the face of changes in the world, era, and history, China emphasizes adhering to a friendly policy towards Vietnam, always viewing Vietnam as a priority direction in its neighboring diplomacy. Vietnam reiterated that it always regards its relationship with China as a consistent proposition, objective requirement, and top priority of its independent, autonomous, and diversified foreign policy. This is a strategic choice for both sides.

U.S. Import Prices Unexpectedly Decline in March, but Tariffs May Soon Stimulate Inflation

Driven by a decline in energy product prices, U.S. import prices unexpectedly fell in March, indicating the latest signs that inflation is easing before the full implementation of President Trump's comprehensive tariff policy. The Bureau of Labor Statistics stated that import prices fell by 0.1% month-on-month in March, the first decline since September, and rose by 0.9% year-on-year. Prices of imports from China fell by 0.2% in March after a 0.1% decline in February, down 0.9% year-on-year. The import price data reinforces economists' expectations that the Personal Consumption Expenditures (PCE) price index, excluding food and energy, will rise slightly by 0.1% in March after a 0.4% increase in February

Institutional Views

Goldman Sachs' latest forecast: The U.S. is approaching 0% growth this year, with inflation rising sharply, leading to a very pessimistic outlook for the dollar. Goldman Sachs predicts that even without additional tariffs, the effective tariff rate in the U.S. will increase by about 15 percentage points, resulting in a sharp decline in U.S. GDP growth to 0.5% by 2025, with a 45% probability of the economy entering a full recession in the next 12 months. Under the tariff baseline scenario, core PCE is expected to accelerate to around 3.5% in the next six months. If growth is slightly better than expected and inflation concerns persist, the Federal Reserve may not cut interest rates this year.

In the face of Trump's "antics," safe assets are too few. Morgan Stanley warns that the "overall plan" of the U.S. to offset the negative impacts of trade through interest rate cuts and tax reductions may not work. Given the backdrop of global safe asset supply being at a decades-low, the lagging effects of monetary and fiscal policies may not be able to timely offset the immediate shocks of the trade war.

Germany's economic research institute ZEW states that due to the uncertainty caused by U.S. tariffs, the economic sentiment index dropped sharply from 51.6 in March to -14.0 in April, marking the largest decline since the Russian invasion of Ukraine in 2022. Analysts surveyed by Reuters had previously expected the index to be 9.5.

U.S. Earnings Season

Bank of America reported an 11% year-on-year increase in net profit for Q1, with both net interest and stock trading income exceeding expectations. Bank of America's net interest income for the first quarter rose 3% year-on-year to $14.56 billion, while stock trading income surged 17% year-on-year to $2.2 billion, both surpassing expectations. However, due to a general slowdown in the industry, investment banking fee income fell 3% year-on-year to $1.5 billion, below expectations. Bank of America's loan loss reserves were $1.5 billion, lower than the market expectation of $1.58 billion, helping to alleviate investor concerns about an economic recession.

Citigroup reported a 3% year-on-year increase in revenue for Q1, with net profit rising 21%, and all five major business lines showing growth. Citigroup's Q1 revenue reached $21.6 billion. Market business revenue grew 12% to $6 billion, with fixed income markets growing 8% and equity market revenue soaring 23%. Citigroup's stock price rose over 4% during the day, closing up 1.8%.

Johnson & Johnson's Q1 performance exceeded expectations, raising its full-year revenue forecast, driven by cancer drugs. Despite the pharmaceutical industry facing potential tariffs, Johnson & Johnson maintained its profit expectations, and its overall performance in Q1 exceeded expectations. The CFO of Johnson & Johnson stated that the tariff investigation might actually be beneficial for the company, as the results may indicate that most drugs imported into the U.S. are cheap generics, while Johnson & Johnson sells high-end innovative drugs, such as cancer medications