May 26 Financial Breakfast: Trump threatens to impose tariffs on Europe, gold surges, USD/JPY falls over 1%

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The U.S. trade dispute has sounded the alarm again, with Trump suggesting a 50% tariff on the EU starting June 1 and threatening Apple that if it does not move iPhone production to the U.S., it will face at least a 25% tariff. Market risk sentiment has significantly cooled, with the VIX fear index soaring over 26%, reaching a two-week high. All three major U.S. stock indices fell, with the Dow down 0.61%; the S&P down 0.67%; and the Nasdaq down 1%; the China Golden Dragon Index slightly rebounded by 0.05%.

In terms of popular stocks, Apple’s share price plummeted by 3%, while Nvidia, Amazon, and Meta all fell by over 1%; cryptocurrency-related stocks were under pressure, with Coinbase and Strategy shares dropping by 3.2% and 7.5%, respectively. According to data from Bank of America citing EPFR Global, for the week ending May 21, global equity funds saw an outflow of $4.1 billion, with U.S. stocks recording an outflow of $1.8 billion; gold funds experienced redemptions of $2.9 billion, marking the third-largest outflow ever, while cryptocurrency funds attracted $2.3 billion.

The U.S. dollar index fell by 0.79%, testing support at 99.0; USD/JPY dropped by 1.01%, marking the largest single-day decline in nearly a month; EUR/USD rose by 0.75%; gold increased by 1.91%, reaching a two-week high, with a cumulative rise of 4.86% over the past week; WTI crude oil rose by 1.56%; Bitcoin fell by 3.95% to the 110,000 level.

Macro News

Trump threatens to impose a 50% tariff on EU goods

Last Friday (May 23), Trump announced on social media that due to no progress in trade negotiations with the EU, he suggested imposing a 50% tariff on EU goods starting June 1, 2025, which is significantly higher than the previously announced 20% so-called reciprocal tariff that the U.S. had postponed. U.S. Treasury Secretary Scott Bessent immediately explained that the 50% tariff threat was a response to the pace of EU negotiations, hoping it would prompt the EU to take action more quickly.

Additionally, Trump again criticized the EU, claiming that the main purpose of the group’s establishment was to take advantage of the U.S. in trade, and accused the EU of setting up strong trade barriers, value-added taxes, absurd corporate penalties, non-monetary trade barriers, currency manipulation, and unfair lawsuits against U.S. companies.

Recent research from the German Economic Institute shows that if a 50% tariff is imposed, Germany's GDP will decline by 0.1% this year, leading to a cumulative loss of €200 billion for the German economy between 2025 and 2028; if the EU implements reciprocal countermeasures, the economic loss could expand to €250 billion by 2028.

Philip Lane, Chief Economist of the European Central Bank, stated that the inflation acceleration in the U.S. caused by tariffs may not necessarily affect the Eurozone. Due to exchange rate fluctuations, there is no connection between Eurozone inflation and U.S. inflation. It is important that inflation remains within control, thus the concept of global inflation is not entirely valid Lian En expects that stubborn high service industry inflation will ease this year, helping to restore overall price growth to the 2% target.

Trump threatens to impose a 25% tariff on mobile phones like Apple.

Trump stated that he had previously told Apple CEO Tim Cook that he expects iPhones sold in the U.S. to be made and produced in the U.S., rather than in India or elsewhere. Trump also indicated that a 25% tariff would be imposed on mobile phone manufacturers that do not produce in the U.S. If Samsung products are not made in the U.S., a 25% tariff will be imposed. If Apple and Samsung build factories in the U.S., they will be exempt from tariffs. The relevant policy is expected to be implemented starting at the end of June.

According to a report by Reuters last month, as Trump’s tariffs on China raised supply chain concerns and worries about rising iPhone prices, Apple is positioning India as another production base.

U.S. Treasury Secretary Becerra expects to relax capital regulations for banks trading U.S. Treasury bonds this summer.

Last Friday (May 23), U.S. Treasury Secretary Becerra stated that the Trump administration has suspended plans to create a sovereign wealth fund, as the president prioritizes repaying national debt. Regarding the Republican tax reform bill that would raise the debt ceiling issue, this bill is expected to promote growth and thus reduce the debt ratio. Becerra expressed no concerns about the U.S. debt dynamics, as changes in the growth trajectory would largely address these issues.

Additionally, Becerra mentioned that U.S. regulators may relax a restriction on banks trading in the $29 trillion U.S. Treasury bond market this summer. Becerra stated that the so-called supplementary leverage ratio will soon be implemented, and the three major banking regulatory agencies, including the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, are addressing this issue, with progress expected in the summer.

Becerra indicated that adjusting the capital requirements (SLR) that banks hold when conducting U.S. Treasury investment deficit trades could lower U.S. Treasury yields by several basis points.

Federal Reserve's Goolsbee: Rate cuts possible in the next 10 to 16 months.

Chicago Federal Reserve Bank President Austan Goolsbee stated that although the threshold for rate cuts is "a bit higher" in the short term, lowering borrowing costs remains possible in the next 10 to 16 months. Regarding Trump’s threat to impose a 50% tariff on EU goods, Goolsbee remarked that such high tariffs would be "very frightening for the supply chain."

For businesses trying to make decisions, Goolsbee said, "If there are new significant announcements every week, month, or even every day, businesses cannot take action until these issues are resolved," noting that business leaders in his jurisdiction are generally anxious about tariffs and emphasize the need for policy continuity for investment.

Shinzo Abe and Trump have a phone call, agreeing to continue tariff negotiations.

Japanese Prime Minister Shinzo Abe stated that he had a phone call with Trump, and they agreed to continue constructive dialogue on tariff issues. Abe reiterated that Japan's position on tariffs has not changed, urging the U.S. government to completely eliminate tariffs on Japanese goods in exchange for Japanese companies investing in the U.S. to create new jobs. Abe stated that the two agreed to hold another bilateral meeting during the G7 leaders' summit next week Japan's chief trade negotiator Ryosei Akazawa recently stated that he hopes to reach a tariff agreement between the two countries before the meeting between Trump and Japanese Prime Minister Shigeru Ishiba in June.

The industries in Japan most affected by U.S. tariffs are the 25% auto tariff and the 10% baseline tariff on all Japanese goods. Trump has relaxed the steel and aluminum tariff measures on U.S. imports from Japan.

Additionally, the Japanese Senate election is scheduled for July 10. Reaching a trade agreement with the United States would help boost Shigeru Ishiba's approval ratings.

Last Friday (May 23), the Japanese government announced that the national overall Consumer Price Index (CPI) in April rose by 3.6% year-on-year; the core Consumer Price Index (CPI) in Japan, excluding fresh food prices, increased by 3.5% year-on-year in April, higher than the market expectation of 3.4%. This is the highest level since January 2023, increasing the rationale for the Bank of Japan to focus on exiting its decade-long ultra-loose policy.

Market Trends

U.S. Stocks: The three major U.S. stock indices generally fell. The Dow Jones dropped 0.67%, the S&P 500 index fell 0.61%, and the Nasdaq dropped 1%.

European Stocks: European stock markets generally declined, with the German DAX 30 index down 1.54%. The French CAC 40 index fell 1.65%. The UK FTSE 100 index dropped 0.24%.

Bond Market: The yield on the U.S. 10-year benchmark treasury bond is about 4.50%, down 3 basis points from the previous trading session.

Commodities: Gold rose 1.91%, priced at $3,357.5 per ounce. WTI crude oil increased by 1.56%, priced at $61.76 per barrel.

Foreign Exchange: The U.S. dollar index fell 0.79%, priced at 99.10. The USD/JPY fell 1.01%, and the EUR/USD rose 0.75%.

Cryptocurrency: Bitcoin fell 0.4% within 24 hours, currently priced at $107,293. Ethereum dropped 1.8% within 24 hours, currently priced at $2,485.4.

Hong Kong Stocks: The Hang Seng Index night market futures closed at 23,479 points, down 70 points, compared to the previous day's Hang Seng Index close of 23,601 points, a discount of 122 points, with a turnover of 18,763 contracts. The national index night market futures closed at 8,557 points, a discount of 27 points compared to the previous day's national index close.

Global Corporate News

U.S. Banking Giants Join Forces to Explore Stablecoin Issuance

According to reports, a banking alliance formed by Wall Street giants such as JP Morgan, Bank of America, Citigroup, and Wells Fargo is exploring the feasibility of jointly issuing stablecoins through institutions like Early Warning Services, the operator of Zelle, and the payment system Clearing House. This move is seen as a signal of deep integration between traditional finance and the cryptocurrency sector, but its final implementation still depends on U.S. legislative progress and market demand verification.

At the same time, the Senate is advancing the "2025 U.S. Stablecoin Guidance and National Innovation Act" (GENIUS Act) this week, which aims to regulate stablecoin issuance through strict reserve management, risk control, and privacy protection standards, establishing the first comprehensive regulatory framework in this field Stablecoins have attracted attention for their potential to enhance cross-border payment efficiency, but their security controversies and the challenges faced by small and medium-sized banks in forming similar alliances remain to be observed.

Nvidia is reportedly launching a downgraded version of its AI chip in China, priced significantly lower than the H20.

The United States has restricted the export of artificial intelligence (AI) chips to China. According to sources cited by Reuters, American AI chip manufacturer Nvidia will introduce a new downgraded version of its AI chip for the Chinese market to comply with the Trump administration's regulations, with a price significantly lower than the recently restricted H20 model, expected to begin mass production as early as June.

Sources indicate that the new chip will be part of Nvidia's latest generation Blackwell architecture AI processor. Due to lower specifications and simpler manufacturing requirements, it is expected to be priced between $6,500 and $8,000, compared to the current price of the H20 model, which ranges from $10,000 to $12,000. After the U.S. effectively banned the H20 from entering the Chinese market in April, Nvidia initially considered developing a downgraded version of the H20 for China, but this was unsuccessful.

Several executives at Palantir have sold shares, cashing out over $110 million in total.

Big data company Palantir disclosed that its CEO Alex Karp sold shares worth over $50 million. According to the announcement, the stock sale occurred on Tuesday and Wednesday, with prices per share ranging from $125.26 to $127.70, related to the management incentive plan. Karp currently holds 6.43 million shares, valued at $787 million. Additionally, one of the company's co-founders and Chief Technology Officer Shyam Sankar, along with President Stephen Cohen, sold shares worth $21 million and $43.5 million, respectively.

Making iPhones in the U.S.? American experts say it's fairy-tale unrealistic.

If Apple sells phones manufactured abroad in the United States, they would face at least a 25% tariff. U.S. Treasury Secretary Janet Yellen stated that the intention of President Trump was to leverage Apple to bring the supply chain back to the U.S. In response, some American experts argue that relocating Apple’s phone production back to the U.S. is fairy-tale unrealistic, as Apple would incur high costs, and the prices of its products would rise significantly. An iPhone produced in the U.S. would be sold for $3,500, approximately 25,100 yuan. Compared to the high costs of relocating production lines back to the U.S., Apple is more inclined to increase its investments in the field of artificial intelligence.

Today's Key News Preview

U.S. stock markets are closed.

Swiss non-farm employment figures year-on-year for the first quarter.

Federal Reserve Chairman Jerome Powell will deliver a commencement address at Princeton University.

European Central Bank President Christine Lagarde will speak at the Hertie School in Berlin.

European Central Bank Governing Council member Isabel Schnabel will also deliver a speech