Climbing the American wall of worry

US‑China trade talks’ breakthrough
“Big beautiful bill” makes the waves in multiple markets
US credit rating downgrade, debt worries
Resurfacing trade fears – EU and Apple in the spotlight

Having gone on a truly chaotic ride since the beginning of April, markets have quite successfully recovered from the recent drop, as the news’ flow during May has suggested still chaotic, yet somewhat less dramatic turn of events. For now, many of the new US presidential self‑imposed deadlines on the trade negotiations happen to fall in early July, which to many investors might seem like optimistically long term, with the pace of Donald Trump administration in mind.

In May the developed markets’ equities (measured by MSCI World index in EUR) have jumped 6.06%, while emerging markets’ equities (measured by MSCI Emerging Market index in EUR) have risen 4.40%. During the same period yields on bonds were rising, with 10‑year U.S. Treasury bond yields jumping to 4.42% from 4.18% a month ago, while German 10‑year Treasury bond yields have risen to 2.51% from 2.44% a month ago.

US and China talks

In May, the United States and China reached a significant breakthrough in their ongoing trade negotiations, agreeing to a temporary reduction in reciprocal tariffs from over 100% to just 10% for a 90‑day period. This truce, announced after closed‑door meetings in Geneva, was widely seen as a positive step toward de‑escalating trade tensions that had rattled global markets this year. Financial markets responded with enthusiasm: U.S. stock futures surged, with the Nasdaq, S&P 500, and Dow Jones all posting gains of over 2.5%, reflecting renewed investor confidence. Analysts have assessed the deal as better than expected, sparking a risk‑on sentiment across equities and commodities, globally. Despite all of that, experts cautioned that the 90‑day window might not be enough to resolve deeper structural issues, hence the investors will closely monitor international trade developments in the near future.

Big beautiful bill

The U.S. House of Representatives narrowly passed President Trump's "Big Beautiful Bill" by a 215‑214 vote, marking a major legislative milestone. The bill includes sweeping tax reforms such as eliminating taxes on tips and overtime, expanding child tax credits, and raising the sums to be deducted from the federal tax calculation (SALT). It also introduces stricter work requirements for Medicaid (health program for lower income Americans) and trims federal spending on food assistance. As a result, the bill is criticized as it is set to benefit the well‑off, while being net negative for the lowest income social groups.

In response, Moody’s downgraded the U.S. credit rating from Aaa to Aa1, citing unsustainable debt levels and the fiscal impact of the newly passed “Big Beautiful Bill”. The bill’s sweeping tax cuts, projected to add over $4 trillion to the deficit over the next decade, intensified investor concerns about long‑term fiscal discipline. As a result, bond yields rose, the dollar weakened, and equity markets dipped sharply before partially rebounding.

This story is bound to keep investors engaged, as Congress may still make changes to the legislation. Markets are watching closely for signs of compromise or amendments.

Chart US 30‑year Treasury bond yield, %

Source: Investing.com

Reigniting trade fears

During the month of May global markets were still experiencing the turbulence of U.S. President Donald Trump’s occasional use of trade threats. Late in the month, the targets of the president’s discontent were the European Union and the American company Apple. Mr. Trump has floated the idea of charging the imports of these subjects a 50% and a 25% tariff, respectively, for the alleged lack of progress in trade negotiations with the EU and the alleged unwillingness of Apple to reshore the manufacturing back to the US from Asia.

Apple, which is one of the largest components of the global stock indexes, is heavily reliant on overseas manufacturing, saw its shares drop over 3.5% in the wake of the news. The broader tech sector also took a hit, with investors fearing retaliatory measures from the EU. European markets retreated, with the Eurostoxx 600 falling 2%, while U.S. futures turned negative. Analysts warned that such aggressive tariffs could disrupt supply chains and raise consumer prices.

Market view

The first shock of Donald Trump administration’s ideas to the markets seems to have passed, as the markets have somewhat recovered from the recent lows. It remains to be seen, just how sustainable this recovery proves to be, as most of the ambition in the new US presidential administration is not formally gone, but merely postponed. Should the additional trade barriers and other disruptive ideas remain in the medium term, the US and global economy will have to go through the period of painful adjustment, which may witness the changes in macroeconomic variables which are not necessarily compatible with the full‑fledged bull market optimism.

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