By Mike Dolan
LONDON (Reuters) – What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets
After weeks of trade and debt anxiety, the spotlight has shifted back to the artificial intelligence theme on Wednesday, as investors wait with rare trepidation for Nvidia’s quarterly earnings.
I’ll dive into all of today’s other market news and then explain the significance of the timing of ECB President Christine Lagarde’s recent call for the euro to replace the dollar as the world’s reserve currency.
Today’s Market Minute
* Demand at an auction of 40-year Japanese government bonds on Wednesday fell to the lowest since July, during a selloff in super-long debt this month.
* Oil prices settled 1% lower on Tuesday as investors worried about a supply glut after Iranian and U.S. delegations made progress in their talks and on expectations that OPEC+ will decide to increase output at a meeting this week.
* President Vladimir Putin’s conditions for ending the war in Ukraine include a demand that Western leaders pledge in writing to stop enlarging NATO eastwards and lift a chunk of sanctions on Russia, according to three Russian sources with knowledge of the negotiations.
* If the United States is to significantly reduce or eliminate its trade deficit, the dollar will have to weaken a lot. How much is unclear, as history shows large dollar declines are rare and have unpredictable consequences for trade. Check out Reuters columnist Jamie McGeever’s latest piece.
* U.S. President Donald Trump’s sweeping tax and spending bill calls for drastic cuts to clean energy tax credits that have been major drivers of the recent boom seen in utility-scale renewable power and battery capacity. In Reuters columnist Gavin Maguire’s latest piece, he outlines the potential implications of this in six charts.
Spotlight back on Nvidia
The inevitable levelling off of Nvidia’s explosive growth is already underway, but the chip designer also faces investor worries about AI overspend and questions about how much U.S. chip curbs on China will cost the company going forward.
Nvidia’s stock price – which is basically unchanged in 2025 to date – climbed anew on Tuesday along with the broad market rally. That was helped by reports that the company will launch a new chipset for China at significantly lower prices than the currently restricted H20 model.
Meanwhile, the overall market mood improved considerably, with the S&P 500 jumping 2% on relief over temporarily defused U.S.-European trade tensions, a retreat in long-term government debt yields, and positive U.S. consumer confidence readings for May.
However, there were mixed takes on the May household survey, capital goods orders data for last month was soft, and edginess in long bond markets is already coming back.
So the main driver of the rally was likely the U.S.-EU trade news after Trump backed down from Friday’s 50% tariff threat against the European Union, delaying its implementation until July 9.
EU officials have asked leading European companies and CEOs for details of their U.S. investment plans, according to two sources familiar with the matter, as Brussels prepares to advance trade talks with Washington.
Tensions on long-dated government debt resurfaced today, meantime, with another tepid sale of Japan’s ultra long bonds, reinforcing speculation that Tokyo may be forced to trim sales of debt of such long maturities as fiscal worries grow.
The Ministry of Finance sold about 500 billion yen ($3.46 billion) of 40-year bonds with a bid-to-cover ratio of 2.21, the lowest since a sale in July last year and well below the historical average of 3.
That saw 30-year JGB borrowing rates jump back about 5 basis points from Tuesday close, drawing long-dated yields higher around the world. The yen strengthened slightly on the day.
With its own home-grown fiscal concerns, the U.S. saw 30-year yields also back up about 5 bps to just under 5%. Some $70 billion of 5-year Treasury notes come under the hammer later.
Meanwhile, investor attention has also turned to a Financial Times report that European Central Bank President Christine Lagarde considered stepping down before her term ends in 2027.
The ECB responded by saying Lagarde was determined to complete her eight-year term.
Elsewhere, the New Zealand dollar held firm even after the country’s central bank cut its benchmark rate by 25 bps to 3.25% and flagged a slightly deeper easing cycle than it forecast three months ago.
And Shein is working towards a listing in Hong Kong after the online fast-fashion retailer’s proposed initial public offering in London failed to secure the green light from Chinese regulators.
Now to today’s column, where I look into this week’s combative speech from ECB boss Lagarde on the status of the euro.
Lagarde’s euro ‘battle cry’ emphasizes EU cash need
If the euro supplants the dollar as the world’s main reserve currency, Europe might lose some currency competitiveness – but the related capital flows it’s seeking more than compensate.
European Central Bank President Christine Lagarde weighed in on the debate about the euro’s global reserve status on Tuesday by reiterating the ECB’s long-standing aim to boost the currency’s wider use and position it as the logical alternative to the dollar.
The euro has long been the clear second choice in reserve usage, both in the positive and negative sense. While its share of overall reserve coffers is still far behind the dollar’s, the euro is way ahead of any other serious rivals to the greenback bar gold.
But what was eye-catching about the very vocal ECB support for wider euro usage was the timing and thrust.
Lagarde’s statements come amid fresh doubts about the dollar’s haven status, the U.S. economy’s role in the world at large and America’s fraying geopolitical alliances – as well as the Trump administration’s perceived desire for a weaker, more competitive exchange rate.
And Lagarde’s speech clearly framed U.S. difficulty as Europe’s opportunity.
After noting that the dollar and U.S. financial markets had been effective global anchors for decades, she added that “when doubts emerge about the stability of the legal and institutional framework, the impact on currency use is undeniable.”
“These doubts have materialized in the form of highly unusual cross-asset correlations since April 2 this year, with the U.S. dollar and U.S. Treasuries experiencing sell-offs even as equities fell,” the ECB chief explained, referring to market ructions after Trump’s ‘reciprocal tariff’ gambit last month.
“The EU has a legitimate reason to turn its commitment to predictable policymaking and the rule of law into a comparative advantage,” Lagarde added, underscoring the need for political and internal capital market reforms in the EU that would enable the bloc to seize this opportunity.
Clearest of all was her plea for joint debt issuance to boost the scale of ‘safe’ euro assets, a move that is still controversial within Europe due to persistent German pushback.
“Economic logic tells us that public goods need to be jointly financed,” she said, re-upping the ECB’s preference for expanding the pool of jointly issued euro assets.
And she also pointedly underlined the attraction of Europe’s military rearmament to official investors who “seek geopolitical assurance in another form: they invest in the assets of regions that are reliable security partners and can honour alliances with hard power.”
WHATEVER IT TAKES
The frank speaking caught everyone’s attention.
Rabobank strategist Jane Foley said the speech had a “battle cry” element to it.
It’s still anyone’s guess what the outcome will be of the bilateral U.S.-EU trade talks come July’s deadline and as a host of disagreements remain. Trump’s jarring stop/start EU tariff announcements this past weekend make it difficult to sketch out a possible resolution, and many experts suspect Washington is intent on talking to individual countries to split the group.
The tone of the ECB’s stance suggests it’s bracing for the risk of harsher standoffs ahead.
What’s more, Lagarde’s statement comes as the euro’s nominal broad exchange rate has soared to record highs, up almost 20% over the past decade.
While that won’t please many exporters in the bloc, it does suggest that the ECB – unlike the U.S. administration – is comfortable with its currency’s structural strength and thus may be willing to ease policy accordingly. And that will help with the additional debt financing needed of Europe’s ambitious new projects – most notably in defense, green energy and tech.
On that financing need, central and private sector bankers tend to agree with former ECB chief Mario Draghi about the scale of what is needed, as outlined in his recommendations last summer.
For example, BNP Paribas economist Laurent Quignon wrote on Tuesday about the total sums needed, as he made a pitch on what Europe can do this year to boost financing via changes to regulation, securitization and the banking union.
Adding Draghi’s call for annual energy and tech investments of up to 800 billion euros to an almost 200 billion euros of new defense spending and on top of ongoing commitments, he calculated an additional annual EU financing requirement of 1.5 trillion euros through 2028 and 1.4 trillion from then to 2030.
That would be more than double the flows observed in the decade through 2024 – and about the same as the total amount of European money that has flowed into the U.S. equity market since 2012.
Whatever the implications for exchange rate competitiveness, Europe now has a big bill to pay. Some ‘exorbitant privilege’ would help.
Chart of the day
‘Nvidia day’ has become a moment of great excitement for markets in recent years, as the AI darling’s stellar earnings and stock gains have typically impressed Wall Street. But investors are approaching today’s announcement with caution.
That’s because Trump’s administration, in a fresh effort to limit Beijing’s access to cutting-edge technology, last month put export limits on Nvidia’s H20 chip, a move the company said would result in $5.5 billion in charges. While the company is expected to report first-quarter revenue surged an annual 66.2% to $43.28 billion, analysts put the quarterly revenue hit ahead from the China chip curbs at anywhere from $3-$4.5 billion.
Today’s events to watch
* Richmond Federal Reserve’s May business surveys (10:00 AM EDT); Dallas Federal Reserve May service sector survey (10:30 AM EDT)
* Federal Reserve releases minutes of last policy meeting; New York Fed President John Williams and Minneapolis Fed chief Neel Kashkari speak
* U.S. Treasury sells $70 billion of 5-year notes, $28 billion of 2-year floating rate notes
* U.S. corporate earnings: Nvidia, Agilent, Salesforce, Synopsys, Nordson
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)
