Little market reaction to the alarming direction of US policy after Trump's move to invoke an export tax on some of Nvidia and AMD's chip sales, as a quid pro quo for access to China

The new week has begun with little change in US equities, a small fall in US Treasury yields and a modest broad-based lift in the USD.  President Trump has been at the centre of various news flow – his name appears a record-breaking ten times in this report – but none of which has been particularly market moving.

Yesterday morning the FT reported that Nvidia and AMD would give the US government 15% of the revenues from chips sales in China, as part of an unusual arrangement with the Trump administration to obtain export licences for semiconductors. For Nivida, this would apply to the H20 processor and, overnight, Trump said he will consider allowing Nvidia to sell a more advanced artificial intelligence chip in China under a similar sort of arrangement. 

The move is controversial, as chip sales to China were previously banned on national security grounds, something that is now being ignored, while so-called “export taxes” are also illegal under the US Constitution, so a legal battle could follow. A WSJ opinion piece noted that this was another step for the United States’ march toward state capitalism, following recent policies including the “golden share” the US government will get in US Steel as a condition of Nippon Steel’s takeover and the promised $1.5b of investment from US trading partners as part of trade deals that Trump plans to personally direct.

If this policy direction seems alarming to some, the market shows no sign of concern.  US equities are flat and so is Nvidia – investors taking a view that more chip sales are a good thing, even if the government ends up taking a cut. There is also seemingly no concern that the US government could also decide to take a share of other companies’ revenue as quid pro quo for market access.

It's also the sort of policy direction that should freak out holders of USD, but the currency shows broad gains.  Most major currencies are weaker against the USD, in the order of 0.2-0.5% compared to last week’s close.  CHF has underperformed, with the currency under pressure since the 39% tariff on Switzerland was imposed, while the NZD has also underperformed, currently 0.5940 and slightly lower on most crosses. EUR had a peek below 1.16 before funding support, while GBP recovered after falling to 1.34. The AUD’s fall took it close to 0.6500 before finding support.  USD/JPY has pushed up through 148.

Also not a good look, is Trump saying he would deploy National Guard troops to Washington DC and place the city’s policy department under federal control.  He called it “Liberation Day in D.C, and we’re going to take our capital back”.

US Treasuries have traded a tight range in the order of 3bps for the 2-year and 10-year rates, with traders presumably already well positioned ahead of key US CPI data tonight.  Both rates are currently down 1bp from last week’s close at 3.75% and 4.27% respectively.  The pool of candidates to replace Fed Chair Powell seems to be widening by the day.  Fed Vice Chairs Bowman and Jefferson and Dallas Fed President Logan are reportedly under consideration, a list which also includes Hassett, Warsh, and Waller and with Sumerlin and Bullard added at the end of last week.

Hopes for a decision to end the Russia-Ukraine war have been slipping since Trump announced he will be meeting Putin at the end of the week in Alaska. Trump said the purpose of the meeting was to “feel out” whether a peace deal was possible. Over the weekend, Zelensky said he would not cede any territory to Russia. The WSJ reports that European leaders plan to meet Trump before he talks with Putin, “to reiterate what Europe sees as red lines that could prevent Europe and Ukraine from accepting a cease-fire deal”. Oil prices are flat to start the week, with little change in Brent crude, trading with a USD66 handle.

After recent confusion in the market, in a social media post, Trump clarified “Gold will not be tariffed” Spot gold rose a little after that announcement but is still down over 1% for the day around USD3355 per ounce.

On tariffs, just before going to print, CNBC reported Trump had signed an executive order to extend the US-China trade truce for another 90-days.  The move was already well anticipated.

Yesterday, the domestic rates market was quiet and there was little change in rates across the NZGB and swap curves.  The 10-year NZGB was marked up 1bp at 4.41%.

In the day ahead, the RBA is universally expected to cut its policy rate by 25bps to 3.6% and this is fully priced, after having shocked the market by not moving last month.  UK labour market data are due tonight, but the focus will be on the US CPI report.  A 0.3% lift in the core measure would see the annual increase lift to a five-month high of 3.0%, as higher tariffs push goods inflation higher.