Daily Market Outlook - Monday, May 12

By Patrick Munnelly of Tickmill

Monday, May 12, 2025 6:15 AM EDT

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Image Source: Pixabay

Risk-on sentiment prevails as US-China trade talks show 'substantial progress,' according to both sides. Over the weekend, significant developments unfolded. In summary: US-China trade discussions achieved notable advancements, but a joint statement later today will specific details. While markets responded positively, even a reduction in US tariffs on China from 145% to 50-60% (as speculated last week) would still pose a considerable challenge to trade and economic activity. Elsewhere, the India-Pakistan ceasefire sparked a ~3% rally in Indian equities. Additionally, the possibility of high-level Ukraine-Russia talks on Thursday depends on the ceasefire holding. Contributions from Federal Reserve officials reinforced Chair Powell’s cautious ‘wait and see’ approach. Musalem (St. Louis, voter) suggested the Fed should avoid committing to rate cuts until the tariff impact is clearer. Similarly, Hammack (Cleveland, non-voter) emphasised the need for patience, while Cook (Board) highlighted the inflationary risks of tariffs due to lower productivity. Markets currently do not expect the first full 25bp Fed Funds rate cut until September. In the UK, the latest KPMG/REC labour market survey showed continued gradual recovery, with the permanent placements index rising to 44.7 from 43.4, indicating a slower decline in new roles. A more noteworthy update came from the quarterly CIPD survey, which reported a drop in the balance of firms planning to increase headcount in Q2, down to 13% from 21%. The Financial Times highlighted declining hiring intentions in the public sector, reflecting the impact of spending constraints. The official UK labour market report is due tomorrow.

The key macroeconomic highlight this week is Tuesday’s US CPI report. Following two consecutive downside surprises, disinflation is expected to ease, with the current median forecast predicting a 0.3% month-on-month increase for both headline and core inflation. This would likely keep year-on-year rates steady at 2.4% and 2.8%, respectively. However, the significance of these figures is somewhat diminished by ongoing uncertainties surrounding tariff impacts and the upward trend in price components from survey data, which will likely keep the Federal Reserve cautious for the foreseeable future. Thursday’s US retail sales report may carry more weight, given the dip in consumer confidence stemming from these uncertainties. This report will be released alongside PPI data and weekly jobless claims. Additionally, the first release of the Michigan Consumer Sentiment Survey on Friday will provide updates on sentiment and inflation expectations. In the UK, Tuesday’s labour market report comes with the usual caveats regarding data quality. While sentiment remains fragile, it has yet to result in a significant weakening of employment. A continuation of this trend would likely reinforce the Bank of England's cautious approach. On Thursday, Q1 GDP data is expected to show a stronger 0.6% quarter-on-quarter growth, as indicated by monthly figures. However, the BoE’s updated Monetary Policy Report suggests stagnation is likely to return in Q2. BoE perspectives will be further clarified through a busy schedule of speeches this week. The BoE Watchers’ conference today features Lombardelli, Greene, Mann, and Taylor, while Pill and Bailey are set to speak on Tuesday, Breeden on Wednesday, and Dhingra on Thursday. Notably, Fed Chair Powell is also scheduled to speak on Thursday.

FX Options Expiries For 10am New York Cut

(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)

EUR/USD: 1.1150-55 (1.11BLN), 1.1185-90 (1.22BLN
1.1190-00(2.4BLN), 1.1200-10 (915M), 1.1220-30 (743MLN
1.1240-50 (3.2BLN), 1.1270-80 (578M), 1.1290-00 (600M)
1.1315-25 (820M), 1.1350-55 (1.4BLN, 1.1360-70 (1.2BLN)
USD/CHF: 0.8315 (698M). EUR/CHF: 0.9350 (241M)
EUR/GBP: 0.8450-55 (387M)
GBP/USD: 1.3200 (675M), 1.3315 (731M), 1.3385 (846M)
AUD/USD: 0.6340-50 (1.2BLN), 0.6550-55 (756M)
AUD/NZD: 1.0800 (250M)
USD/CAD: 1.3700 (861M), 1.3800 (1.23LN) 1.3860 (309M)
1.3995-000 (434M)
USD/JPY: 145.00 (3.0BLN), 145.65 (1.1BLN), 146.00 (312M)
146.25-30 (745M), 146.45 (335M), 147.00-05 (551M
AUD/JPY: 89.00 (250M), 95.67 (700M)

CFTC Data As Of 9/5/25

Speculators raised their net short position in CBOT US Treasury bonds futures by 10,233 contracts to a total of 95,789. They also increased their net short position in CBOT US Ultrabond Treasury futures by 13,381 contracts, bringing it to 264,775.
In addition, speculators elevated their net short position in CBOT US 2-year Treasury futures by 14,416 contracts, resulting in a total of 1,220,793. The net short position for CBOT US 5-year Treasury futures went up by 3,952 contracts to 2,296,496. The net short position for CBOT US 10-year Treasury futures increased by 81,631 contracts, reaching 953,168.
Equity fund managers reduced their net long position in the S&P 500 CME by 13,088 contracts, bringing it to 813,162. Meanwhile, equity fund speculators raised their net short position in the S&P 500 CME by 6,469 contracts, totaling 255,931.
The net long position for the Japanese yen stands at 176,859 contracts, the euro at 75,719 contracts, and the British pound at 29,235 contracts. The Swiss franc has a net short position of -23,574 contracts, and Bitcoin's net short position is -1,781 contracts..