• Britain’s trade deal is narrow but leaves path open to EU deal 

• China-US talks key to meaningful de-escalation of tariffs 

• IAG profits treble in Q1, orders 53 new jets, option on 23 more 

• BP climbs on takeover chatter 

• Germany’s DAX hits record high 

Trade deal optimism seemed to be reflected in a positive move for equity markets, with European stock markets rising on Friday – the DAX hit a record high this morning at 23,500. The FTSE 100 rallied after dipping on Thursday and is back to flat for the week after its epic three-week bounce. Oil prices climbed, lifting the likes of BP and Shell, while JD Sports, which is among the companies exposed to China tariffs, rallied 2% in early trade.

BP got some extra juice from as the FT said a number of rivals have "run the numbers" about a possible takeover...I talked about this last month. We knew Shell had already run the numbers, as did Adnoc last year, but apparently Chevron and Exxon Mobil and Total have too. Whether or not it would come to anything is another matter – but there are clearly consolidation trends in the oil & gas space as it faces existential challenges. A trend to consolidate more seems inevitable and BP has opened itself up to be prey by making strategic errors and execution mistakes. It’s also the case the US-UK valuation gap means a reverse into a big US major could make sense – BP already does a lot of its business there. I'm not sure the government would like a US takeover - easing into Shell would be simpler from that point of view, but it would be hard for Starmer to tell Trump that he's blocking a CVX or XOM from doing business.

When is Free Trade Deal not Free? 

It’s a narrow 'general terms' of a deal and it is not without cost but basically it's not a huge impact on the UK economy. Carmakers will be happy. We can probably save our steel industry, or what's left of it. These are important for politicians even if they are not that important for the overall economy, which is reliant on services. The Bank of England cutting rates is a bigger deal. And the fact it leaves a trade deal with the EU on the table is an even bigger deal.  

It’s all relative – yes we took 10% but everyone else will take at least that, which leaves the UK in a relatively decent position. But it was low-hanging fruit in terms of trade – China talks this weekend is what will matter for the broader equity space, particularly the US market.  But we did see some single stock movers in the likes of Rolls-Royce (tariff exemption) and Aston Martin (cutting auto tariffs to 10%) and Burberry - China tariff/consumer story.

It's also interesting that Britain doing this deal is basically an admission that multilateralism is dead. The new world order is here. 

Retail owns it: The S&P 500 rallied nicely and US futures are looking firmer again this morning...increasingly priced for complete detente. Seven of eleven S&P 500 sectors are back to having more than 50% of stocks above their 50-DMAs. Individual investors have been net buyers of equities for 21 consecutive weeks, the longest streak on record, according to BofA.. In that time hedge funds have sold a record $1.5 billion, while institutional clients have sold about $2.7 billion, the second-largest amount in history.  

In a sign of disinflationary effects of tariffs, Chinese exports to the US plunged, offset by a surge in goods sent to Europe and LatAm. 

Meanwhile, Pakistan's armed forces launched "multiple attacks" along India's entire western border, as conflict between the nuclear-armed neighbours intensified. 

Companies

Coinbase shares fell after first-quarter revenue missed Wall Street estimates. The company, which operates the largest crypto marketplace, said consumer trading volume fell 17% from fourth quarter to $78.1 billion. Largely COIN is a proxy for Bitcoin - which is back above $100k but shares still fell. 

Boeing shares rallied 3% on the White House teasing a $10bn order, which as expected turned out to be from IAG, which initially fell this morning on the news, which is presumably a reflex to the monster order for new planes as the results look good. 

IAG profits trebled from a year ago and it reiterated full-year guidance. Whilst it noted geopolitical and macroeconomic uncertainty, it’s continuing to see good demand for air travel across core markets. Latin America and Europe is strong and the key North Atlantic market robust, with management noting strength in premium cabin mitigating some recent softness in US economy leisure. As investors parsed the earnings more closely shares ticked higher. 

Elsewhere, the rally in Nvidia shares has flattened out a bit after rising on reports Trump will rescind Biden-era chip restrictions. The latest from Reuters is that Nvidia will modify its H20 chip for China to overcome US export controls.