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Japan economy minister, Ryosei Akazawa, will be meeting with Trump himself alongside Bessent and Lutnick later today. As a reminder, Japan was slapped with 24% tariffs initially prior to the pause last week and they are still subject to the 25% auto tariffs separate to that.

As much as Japan tried to talk a hard line coming into negotiations, they are at the end of the day still one of the US’ closest allies. And at this point, they are perhaps the closest one already given the breakdown in relations elsewhere. Ishiba has said they won’t be making “big concessions” but we all know that they’re not willing to go tit-for-tat against the US no matter what.

This makes this one of Trump’s easier battles to win in the tariffs war – if not the easiest.

Despite that, this will still act as a key litmus test on Trump’s willingness to compromise. The thing is the majority will expect some kind of positive news to come from the negotiations. But if it goes south, it will reflect poorly on the overall situation. If even Japan can’t reach a deal, what more the EU and China.

This is a market that is desperate for good news and it might get some from Japan’s visit this week. But best be warned, it will be tough not to look past the bias of Japan’s relationship with the US in all of this. Even with a positive outcome, I wouldn’t take it as a strong signal of how other negotiations will pan out – especially with China, if we ever get there.

This article was written by Justin Low at www.forexlive.com.

• Prior +20.0%
• Market index 267.5 vs 292.3 prior
• Purchase index 164.2 vs 172.7 prior
• Refinance index 841.9 vs 961.4 prior
• 30-year mortgage rate 6.81% vs 6.61% prior

The spike in the average rate of the most popular US home loan wasn’t as profound to be honest but still enough to put a drag on overall activity. Both purchases and refinancing activities declined, with the latter seeing a drop back after the surge higher in the week before. It will take some time to filter through the noise amid all the volatility in the rates market. So, we’ll see how that feeds through to housing in the months ahead.

This article was written by Justin Low at www.forexlive.com.

• Japan is coming in today to negotiate tariffs, the cost of military support and “trade fairness”.
• I will attend the meeting, along with Treasury and Commerce Secretaries.
• Hopefully something can be worked out which is good (GREAT!) for Japan and the USA.

Trump is up and running and providing updates on his schedule. Watch out for headlines on the talks as markets are eager for positive news as we saw earlier with the spike in risk assets triggered by the Bloomberg report on China willing to talk with the US. Maybe, we will also get some post on China from Trump today, who knows.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

From yesterday: China calls for its airlines to halt any further Boeing jet deliveries amid trade strife

Bloomberg with the latest update on the matter, reporting that Beijing is considering to ask Airbus to provide an extra set of engines to any new jets supplied to China. As the fallout with the US continues, the EU and China are continuing to be pressed into working together on multiple fronts. The saying of the enemy of my enemy is my friend continues to fit the current predicament.

This article was written by Justin Low at www.forexlive.com.

CNBC reported that China replaced its top international negotiator as talks with the US stalled. The new appointment makes Li Chenggang, a key member of China’s trade negotiation team.

This could be a move to try to de-escalate things. We just got a report from Bloomberg this morning saying that China is open for talks with the US if Trump shows respect and names a point person. The US Press Secretary Leavitt yesterday reiterated that the ball is in China’s court.

These moves could be something or could be nothing, but looking at the markets, it continues to feel like we are past the “peak escalation” point and everyone’s waiting for positive developments. Of course, we cannot discard the possibility of things breaking down followed by another wave of risk-off flows, but the upside seems to be more probable than the downside.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Rate cuts by year-end

• Fed: 88 bps (81% probability of no change at the upcoming meeting)
• ECB: 85 bps (99% probability of rate cut at the upcoming meeting)
• BoE: 83 bps (85% probability of rate cut at the upcoming meeting)
• BoC: 50 bps (57% probability of no change at today’s meeting)
• RBA: 120 bps (86% probability of 25 bps rate cut at the upcoming meeting)
• RBNZ: 78 bps (99% probability of rate cut at the upcoming meeting)
• SNB: 29 bps (86% probability of rate cut at the upcoming meeting)

* for the RBA, the rest of the probability is for a 50 bps cut.

Rate hikes by year-end

• BoJ: 10 bps (99% probability of no change at the upcoming meeting

We can see that compared to yesterday’s update, traders stepped up slightly their dovish bets. The most notable changes (although still relatively light) have been with the BoE, given the lower than expected UK CPI, and the BoJ, after dovish comments from BoJ Governor Ueda.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• Prior +2.3%
• Core CPI +2.4% vs +2.4% y/y prelim
• Prior +2.6%

No changes to the initial estimates and this won’t distract from the ECB cutting rates by 25 bps tomorrow.

This article was written by Justin Low at www.forexlive.com.

• Wants Trump to rein in Cabinet members, show consistency
• Wants US talks to address concerns on Taiwan, sanctions

This is causing a spike up in risk but I’m not really seeing why. China has made it clear that they are open to resolving things via dialogue as they have said many a time. And after their latest retaliation last week, they’ve pushed the ball back to Trump’s side of the court. And yet, there’s still no further progress until today.

I’m guessing the algos are just jumping on the fact that the headline includes “China is open to talks” while ignoring all the context. Or am I missing something here?

S&P 500 futures have moved up from 5,350 to 5,387 currently, paring some losses to be down 0.7% on the day. Meanwhile, gold has dropped back under $3,300 after having hit a record high of $3,317 earlier.

This article was written by Justin Low at www.forexlive.com.

• China open to talks if Trump shows respect, names point person.
• China wants Trump to rein in cabinet members, show consistency.
• China wants US talks to address concerns on Taiwan, sanctions.

This is a report from Bloomberg and it triggered some risk-on moves. The markets are eager for positive headlines and resolutions between US and China, so you can see why they move so fast on such headlines.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

The precious metal is up over 2% on the day to hit $3,306 currently. There’s really not much else to say that hasn’t already been said at this point. The stars continue to align for gold amid this whole tariffs war and with the gains here, gold is up 26% on the year and sitting just shy of topping its performance for the whole of 2024.

This article was written by Justin Low at www.forexlive.com.

The seasonally adjusted figure was €34.3 billion. There were surpluses recorded for goods (€34 billion) and services (€14 billion) on the month. These were partially offset by deficits for secondary income (€10 billion) and primary income (€3 billion).

This article was written by Justin Low at www.forexlive.com.

Just treat this with a pinch of salt (considering Hu is the one commenting) but it does provide some food for thought as to how China looks to be approaching this matter. He isn’t the first to speak these words as we’ve heard from many nationalists already that the strategy here is to not give in to Trump’s threats.

“Here’s the thing: China needs America’s money, but US needs Chinese goods more. China isn’t as desperate to reach a deal as you make it sound—seems like it’s you who’s more anxious. Otherwise, why do you keep going on about it? We’re curious to see who holds out longer: a country that prints money or a country that manufactures goods?

By the way, China is a nation of savers, while US is definitely not a nation of stockpiled goods. Your rare earth reserves might only last a few months.”

For some context, Hu is also still trying to make back his name after having received plenty of backlash last year for “violating the political discipline of the party” during one of his commentaries in analysing China’s economic strategy.

So, keep that in mind when reading the remarks above.

But again, it does speak to the idea that China appears more than happy to just hunker down and wait out the storm rather than allow Trump’s threats and tariffs to overpower their resolve.

This article was written by Justin Low at www.forexlive.com.