Morning Bid: White smoke or London fog?

By Mike Dolan

LONDON (Reuters) -What matters in U.S. and global markets today

I'm excited to announce that I'm now part of Reuters Open Interest (ROI), an essential new source for data-driven, expert commentary on market and economic trends. You can find ROI on the Reuters website, and you can follow us on LinkedIn and X. 

Markets have effectively flatlined awaiting the outcome of this week's U.S.-China trade talks in London, though as we near the halfway point of 2025, investors are taking an increasingly benign view of the disruptive and often chaotic last six months, as I discuss in today's column.

But now onto all of today's market news. 

Today's Market Minute

* Global stocks and the dollar edged higher on Tuesday as trade talks between the United States and China were set to extend to a second day, giving investors some reason to believe tensions between the world's two largest economies may be easing.

* The Trump administration on Monday ordered U.S. Marines into Los Angeles and intensified raids on suspected undocumented immigrants, fueling more outrage from street protesters and Democratic leaders who raised concerns over a national crisis.

* All three major U.S. asset classes – stocks, bonds and the currency – have had a turbulent 2025 thus far, but only one has failed to weather the storm: the dollar. Hedging may be a major reason why, claims ROI columnist Jamie McGeever.

* Asian countries aren't rushing to buy U.S. energy commodities, even though doing so would help them meet President Donald Trump's demand for lower trade surpluses. Read the latest from ROI columnist Clyde Russell.

* European defence stocks have been on a tear since the devastating conflict in Ukraine started in 2022, a trend that has only accelerated since announcements of European rearmament plans. But the beneficial economic impact of the European defence supercycle may be heavily dependent on how it’s financed, argues Panmure Liberum investment strategist Joachim Klement.

White smoke or London fog?

U.S. and Chinese officials resumed trade talks for a second day in London on Tuesday, hoping to secure a breakthrough over export controls on rare earths and other issues threatening to widen the rupture between the world's two biggest economies.

The two delegations, led on the U.S. side by Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer opposite a Chinese contingent helmed by Vice Premier He Lifeng, are meeting at the ornate Lancaster House in the British capital.

The talks ran for almost seven hours on Monday and are set to resume on Tuesday, with both sides expected to issue updates. Lutnick said the talks would continue all day.

U.S. President Donald Trump said the talks were difficult but going well: "We're doing well with China. China's not easy."

White House economic adviser Kevin Hassett on Monday said the U.S. was likely to agree to lift export controls on some semiconductors in return for China speeding up the delivery of rare earths.

Wall Street stocks were little changed on Monday, with a marginal outperformance for the tech sector.

Treasuries were in better form, with yields on long-term maturities ebbing in a week of heavy new debt sales. Those start with a $58 billion auction of 3-year notes later on Tuesday, followed by sales of 10- and 30-year tenors on Wednesday and Thursday.

The U.S. May consumer price report tomorrow will barrel into the middle of everything.

On that score, the New York Federal Reserve's monthly household survey for May showed Americans' anxiety about the future path of inflation easing last month.

That tallies with a broader investor take on the tariff crunch. Many seem to feel that the worst fears are being scaled back as bilateral deals get thrashed out and business sentiment appears to calm. 

However, the resilience likely hinges on further détente in the trade war. And that's why this week's London talks are so important, especially given that Trump's 90-day pause on wider 'reciprocal' tariffs ends early next month.

On the currency front, sterling weakened as Bank of England easing bets rose following the release of the latest UK labor data. Pay growth in Britain slowed sharply, and unemployment rose to its highest in nearly four years in the three months to April.

Elsewhere, European and Chinese stocks were more downbeat and lower on the day. Japan's Nikkei bucked that trend and pushed higher due to reduced fears about the domestic bond market.  

European indexes were weighed down partly by a reversal of recent gains for Swiss banking giant UBS. The stock retreated as much as 7% as Swiss markets reopened after a long weekend and investors reacted to government proposals that would require the bank to hold an additional $26 billion in capital.

Vaccine makers such as AstraZeneca and Sanofi pushed higher, brushing off news that U.S. Health Secretary Robert Kennedy fired all 17 members of a Centers for Disease Control and Prevention panel of vaccine experts.

Be sure to check out today's column, which looks at why a turbulent year so far for markets is being perceived more positively as half-time in 2025 approaches.

Chart of the day 

While sentiment survey readings should be taken with a grain of salt, it is still notable that the New York Federal Reserve's household survey for May showed Americans' anxiety about the future path of inflation easing, with the outlook for inflation ebbing across all time horizons. Five years from now, the public expects inflation to be running at 2.6%, a sliver below April's 2.7% outlook, although still well above the Fed's 2% inflation target. Market pricing shows five-year inflation 'breakevens' from the inflation-protected Treasury market slightly lower at about 2.35%, and the five-year inflation swaps market comes in around 2.45%.

Today's events to watch

* U.S. May NFIB small business survey (6:00 AM EDT)

* U.S. Treasury auctions $58 billion of 3-year notes

* U.S. corporate earnings: JM Smucker

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(By Mike Dolan; Editing by Anna Szymanski)