Wall Street surged on hopes of an imminent Trump-Xi call

·       US stocks were also boosted on renewed hopes of soft landing and fiscal prudence as some GOP Senators may block Trump’s Big and Beautiful Bill

·       Trump may extend tariff pause to December’25 from present July-August’25 after receiving ‘best deal proposals’ from most of the trading partners

·       Upbeat JOLTS job opening data and mixed Fed talks also helped, while subdued economic growth projections by OECD dragged

·       As per some unofficial reports, the Trump-Xi call may happen as early as Friday

On early Asian/European session Monday, June 1, 2025, Wall Street Futures slid on Trump’s doubling down on metal tariffs from 25% to 50% in a late Friday political rally. Also, China’s counter-accusations to the US about the Geneva deal violation and threat to take measures to defend its interest dragged Wall Street Futures amid escalating trade & tech war tensions.

But eventually Wall Street recovered from earlier panic low triggered by Trump’s chaotic trade war policy after a report that Trump may soon be able to call China’s President Xi to resolve Geneva deal violations issues. The expected call between Trump and Xi Jinping this week may address these tensions, though no specific date has been confirmed and China remains silent so far. There was also another report that Trump (US) may extend the China tariffs pause to August 31, 2025, from August 10. The USTR Extended Specific Exemptions from China Section 301 Tariffs.

The U.S. Treasury Secretary Bessent and National Economic Council (NEC) Director Hassett indicated in weekend interviews that a call between President Donald Trump and Chinese President Xi Jinping is anticipated soon to address escalating trade tensions. Bessent noted that trade talks are "a bit stalled," suggesting a Trump-Xi call could be crucial for progress, while Hassett emphasized Trump's stance that China must initiate contact.

Chinese Foreign Minister Wang Yi criticized recent US trade actions as "regrettable" and unjustified, arguing they harm China's legitimate interests, during a meeting in Beijing with new US Ambassador Perdue on June 3, 2025. Wang urged the US to meet China "halfway" to implement agreements from a January call between President Xi and Trump, emphasizing China’s adherence to the Geneva economic talks’ consensus. He expressed hope that Pound’s tenure would help stabilize US-China relations, strained by ongoing trade disputes. Ambassador Pound, in response, conveyed Trump’s respect for Xi and stressed the need for positive communication.

US Ambassador to China Perdue: June 3, 2025

·       I spoke with Foreign Minister Wang Yi

·       We discussed fentanyl and trade

China's Foreign Minister Wang Yi: June 3, 2025

·       It's regrettable that the US recently introduced a series of negative measures.

·       China firmly opposes the measures, which harm China's legitimate interests

·       The US should create the necessary conditions for bilateral relations to go back on the right track

China counters Trump's accusations of Geneva trade deal violations, says U.S. undermining consensus

On Monday, June 2, 2025, the Chinese Commerce Ministry (MOFCOM) accused the US of a "serious violation" of the Geneva trade consensus, rejecting claims by President Trump that China breached the agreement. The Geneva talks held May 10-11, 2025, resulted in a joint statement announcing a 90-day pause on reciprocal tariffs. The MOFCOM specifically criticized recent U.S. actions, including new AI chip export control guidelines, halting sales of chip design software to China, and revoking visas for Chinese students, as undermining the consensus. Beijing stressed it has "strictly implemented and actively upheld" the agreement while urging the U.S. to correct its "erroneous actions" and warning of "strong measures" to protect its interests if the U.S. persists.

On Monday, June 2, 2025, US stock markets started the month with modest gains. The S&P 500 rose 0.4%, the Nasdaq-100 advanced 0.7%, and the Dow Jones Industrial Average (DJ-30) added 35 points. These gains came amid renewed US-China trade friction, with Beijing rejecting US claims of violating a tariff truce and pointing the finger back at Washington.

Trump’s proposal to double steel and aluminum tariffs to 50% sparked significant market reactions. The EU, a key trading partner, criticized the move as undermining ongoing tariff negotiations, which are critical ahead of the July 9 deadline for a potential deal. Steel stocks soared on Trump’s 50% protectionist steel tariffs. Conversely, automakers like Ford and General Motors slid reflecting concerns over higher input costs and potential retaliatory tariffs. Tesla slumped after reporting weaker May sales in Europe, where trade barriers and competition are intensifying.

Trump’s 50% steel tariffs triggered a sharp rally in US steel-related stocks during premarket trading led by Nucor Steel Dynamics and Cleveland-Cliffs while U.S. Steel Corp slipped slightly due to the Nippon JV progress issue. Secondary steel & aluminum users such as automobiles, construction, industrial/machinery, and consumer durables goods may suffer. Gold, Silver, and Copper zoomed, while USD slumped.

Trump seeking ‘best’ trade deal offer proposals from almost all trading partners.

The Trump administration wants nations (trading partners) to give their best offer on trade discussions by Wednesday, June 4, 2025, as officials look to speed up talks with multiple trading partners (exporter countries) ahead of a self-imposed deadline in just five weeks (July 8, 2025). The US is asking nations to list their best trade deal proposals in several key areas, including tariff and quota offers for the purchase of US industrial and agricultural goods and plans to rectify any non-tariff barriers.

The Trump administration has set a June 4 deadline for countries to submit their best trade proposals, as outlined in a draft letter from the USTR office. This push aims to accelerate negotiations with multiple trading partners before a self-imposed July 8, 2025, deadline, following a 90-day tariff pause initiated on April 9, 2025. The U.S. is requesting detailed offers on tariff reductions, quotas for American industrial and agricultural goods, and measures to address non-tariff barriers, with evaluations to follow swiftly to propose reciprocal tariff rates.

Trump is trying to stop China’s proxy export role through other countries (transshipment)

Trump admin. Has pressed Vietnam with a complex set of demands in ongoing tariff negotiations, with a key focus on reducing Vietnam's reliance on Chinese supply chains. This push aligns with U.S. concerns about Vietnam's role in transshipment, where Chinese goods are allegedly rerouted through Vietnam to evade U.S. tariffs, a practice Washington wants Hanoi to curb. Vietnam's economy, heavily dependent on exports to the U.S.—its largest market, accounting for about 30% of its total exports—faces significant pressure, as a 46% tariff could jeopardize 5.5% of its GDP

Vietnam has shown willingness to negotiate, offering to cut tariffs on U.S. goods like LNG, automobiles, and ethanol, and to increase purchases of American defense and agricultural products. However, the demand to decouple from Chinese supply chains is particularly complex, given Vietnam's deep economic ties with China, which supplies 60% of the fabrics for its garment industry and critical components for its manufacturing sector, including for companies like Samsung and Apple. Despite efforts to crack down on transshipment, Vietnam's trade with both the U.S. and China hit record highs in April, highlighting the challenge of balancing these relationships.

Negotiations are ongoing, with a 90-day tariff pause until July providing a window for talks, but the U.S. demands pose a serious challenge to Vietnam’s export-driven economy, which relies on Chinese inputs for products like electronics and apparel. The outcome remains uncertain, as Vietnam navigates its strategic position between the U.S. and China. Trump admin is also trying to stop its perceived notion of transshipments or proxy exports by China through the EU, Canada, Mexico and Brazil.

Trump advisers defend tariffs amid legal fight, insisting they're 'not going away'. On June 2, 2025, Trump posted:

“If the Courts somehow rule against us on Tariffs, which is not expected, that would allow other Countries to hold our Nation hostage with their anti-American Tariffs that they would use against us. This would mean the Economic ruination of the United States of America!”

Trump is also trying to decouple the EU, the ‘Mini China’, but often ‘worse’ than China

The EU has reportedly not received the letter from the US urging "best offers" on trade negotiations by June 4, despite a draft letter from the USTR’s office indicating urgency to finalize deals before a July 9 tariff deadline. The EU Trade Commissioner is scheduled to meet USTR Greer later this week, with further talks planned on the sidelines of the OECD Ministerial Council Meeting in Paris on June 3-4.

This development follows a U.S. push for countries, including the EU, Vietnam, Japan, and India, to submit comprehensive trade proposals, including tariff reductions and commitments on digital trade and economic security. The EU, maintaining its offer of mutual zero tariffs on industrial goods, has gained leverage after a U.S. court questioned the legality of Trump’s "reciprocal" tariffs, though an appeals court temporarily reinstated them. The situation remains fluid, with the EU emphasizing a deal based on mutual respect, not at gunpoint, amid ongoing uncertainties in U.S. trade policy.

On June 3, 2025, Brazil's President Lula said: “We have been seeking to negotiate tariffs with the US government. If there is no agreement on tariffs, we could seek WTO or take measures of reciprocity”.

On June 2, 2025, Trump wrote in his Truth handle:

“Passing THE ONE, BIG, BEAUTIFUL BILL is a Historic Opportunity to turn our Country around after four disastrous years under Joe Biden. We will take a massive step to balancing our Budget by enacting the largest mandatory Spending Cut, EVER, and Americans will get to keep more of their money with the largest Tax Cut, EVER, and no longer taxing Tips, Overtime, or Social Security for Seniors — Something 80 Million Voters supported in November. It will unleash American Energy by expediting permitting for Energy, and refilling the Strategic Petroleum Reserve. It will make American Air Travel GREAT AGAIN by purchasing the final Air Traffic Control System.

We will secure our skies from our adversaries by building The Golden Dome, and secure our Border by building more of our Wall, and supercharging the deportation of the millions of Criminal Illegals Joe Biden allowed to walk right into our Country. It will kick millions of Illegals off Medicaid, and make sure SNAP is focused on Americans ONLY! It will also restore Choice and Affordability for Car purchases by REPEALING Biden’s EV Mandate, and all of the GREEN NEW SCAM Tax Credits and Spending. THE ONE, BIG, BEAUTIFUL BILL also protects our beautiful children by stopping funding for sick sex changes for minors. With the Senate coming back to Washington today, I call on all of my Republican friends in the Senate and House to work as fast as they can to get this Bill to MY DESK before the Fourth of JULY. Thank you for your attention to this matter!”

Summary of the US Treasury Secretary Bessent’s comments: June 1-3, 2025

·       China is withholding products essential to the industrial supply chain

·       The US is never going to default

·       The Biden administration put crypto on the path of extinction

·       Trump aims to make the US a hub for digital innovation

·       China wants to be a reliable partner for others, or not

·       China must become more consumption-focused

Highlights of WH Press Secretary Leavitt’s comments on trade offer deadline and other issues: June 3, 2025

·       I can confirm the letter is authentic. USTR did give trading partners a deadline

·       We're on track for good deals

·       We wanted to remind countries that the trade deadline soon

·       Trump is keeping sanctions on Russia as a tool in the toolbox

·       Trump is willing to use Russia sanctions if he needs them

·       Witkoff sent a detailed proposal to Iran

·       Trump will go to NATO summit

·       We hope Iran will accept the proposal, otherwise, there will be consequences

·       Trump remains positive on Russia-Ukraine discussion progress

·       Republicans opposing Big Beautiful Bill are wrong

·       White House confirms that it wants best trade offers by Wednesday

·       CBO has been historically wrong on economic impacts

·       The White House will be sending the rescission package today

·       China critical mineral curbs: We're actively monitoring compliance with the Geneva Trade Agreement

·       Trump-Xi will be talking very soon

·       The USTR Greer is in Paris meeting with trading partners

·       A deal announcement will be made soon

·       Leavitt suggests executive action is possible in the future of warfare

·       Trump will sign executive order to double steel and aluminum tariffs today

·       A 50% steel and aluminum import tariff takes effect tomorrow

EU's Trade Chief Sefcovic:

·       I had a focused and in-depth discussion with China's Minister Wang on a broad range of pressing bilateral issues

·       We're working hard, with experts on both sides, to drive progress ahead of the July EU-China summit

Trump’s effort to Make America Great Again by cutting taxes and imposing higher tariffs may backfire

President Trump’s Truth Social post promotes the "One Big Beautiful Bill Act" as a transformative legislative package aimed at addressing multiple priorities of his administration. The post claims the bill will deliver the largest tax cut in U.S. history, eliminate taxes on tips, overtime, and Social Security for seniors, and enact significant spending cuts to balance the budget.

Trump also emphasizes energy reforms, including expediting energy permitting and refilling the Strategic Petroleum Reserve (SPR), modernizing air traffic control, and funding a missile defense system called the "Golden Dome” (like Israel’s famous ‘Iron Dome’). Additionally, the bill is said to enhance border security through wall construction and mass deportation of undocumented immigrants, restrict Medicaid and SNAP benefits to U.S. citizens, repeal Biden-era electric vehicle mandates and green energy tax credits, and end funding for gender-affirming care for minors.

Trump may face a hurdle in the US Senate to pass his ‘big & beautiful’ bill without major modifications.

The House passed this bill on May 22, 2025, by a narrow 215-214 vote, but it faces challenges in the Senate, where Republicans are eyeing significant changes due to concerns over the CBO's estimated $4 trillion addition to the national debt over a decade. The bill includes permanent extensions of the 2017 Trump tax cuts, temporary tax breaks on tips and overtime, and a $2,500 child tax credit through 2028. It also imposes work requirements for Medicaid and SNAP, potentially reducing Medicaid coverage by 8.6 million people by 2034, per CBO estimates, and cutting SNAP benefits for millions. Border security provisions allocate $46.5 billion for the border wall, $140 billion for immigration enforcement, and funds for 18,000 new Border Patrol, Customs, and ICE officers. Defense spending would increase by $150 billion, including $25 billion for the "Golden Dome" missile defense system. The bill also raises the debt ceiling by $4 trillion and modernizes air traffic control with a $12.5 billion investment.

However, the bill has drawn criticism. Democrats, including House Minority Leader Hakeem Jeffries, have called it a "tax scam" favoring the wealthy while cutting safety net programs like Medicaid and SNAP, which could disproportionately harm low-income Americans, women, and children. The CBO estimates suggest significant coverage losses, and critics argue the tax cuts primarily benefit high earners, with those making under $50,000 potentially seeing income decreases.

Senate Democrats led by Chuck Schumer and some Republicans express reservations, particularly about Medicaid cuts, indicating the bill may undergo substantial revisions before reaching the Senate floor. The Senate is under pressure to act before the July 4, 2025, target set by Trump and House Speaker Mike Johnson, with Treasury Secretary Scott Bessent warning of a debt ceiling breach by mid-summer if no action is taken.

On June 3, 2025, Trump posted in his Truth handle about tariffs and his ‘Big & Beautiful Bill’ (BBB):

·       Because of Tariffs, our Economy is BOOMING

·       Rand Paul has very little understanding of the BBB, especially the tremendous GROWTH that is coming. He loves voting “NO” on everything, he thinks it’s good politics, but it’s not. The BBB is a big WINNER!!!

·       Rand votes NO on everything but never has any practical or constructive ideas. His ideas are crazy (losers!). The people of Kentucky can’t stand him. This is a BIG GROWTH BILL!

Context and Background of Trump’s comments against GOP Senator Rand Paul

Senator Rand Paul’s opposition to the "One Big Beautiful Bill Act" (BBB), passed by the House on May 22, 2025, centers on its $4 trillion debt ceiling increase, which he argues undermines fiscal responsibility and burdens future generations. Paul, a known fiscal conservative (hawk), supports the bill’s tax cuts—such as extending the 2017 Trump tax cuts and eliminating taxes on tips and overtime—but opposes the debt hike, calling it the largest in US history. He has proposed removing the debt ceiling increase or tying it to mandatory spending cuts, like reducing foreign aid, to align with his goal of deficit reduction. Paul’s skepticism about the bill’s growth projections aligns with concerns from other GOP senators like Ron Johnson and Rick Scott, who worry about fiscal sustainability. Paul is a principled defender of taxpayers, while his stance reflects a focus on long-term debt risks over short-term political wins.

Is Musk Influencing the US Senate to block Trump’s BBB in its present form?

Musk’s substantial financial and public support for Trump’s 2024 election campaign—spending nearly $300 million to back Trump and other Republicans—positioned him as a key figure in Trump’s orbit, culminating in his role leading the Department of Government Efficiency (DOGE). However, recent developments suggest Musk may be experiencing buyer’s remorse, driven by the failure of DOGE to deliver promised savings, damage to his brand and Tesla’s sales, and his public criticism of Trump’s "One Big Beautiful Bill Act" (BBB), which also undermines Biden era EV and green energy incentives (subsidies), the main pillar of EV business and to stay competitive against mighty China and even EU.

Musk’s political gamble has not been entirely fruitless, but the costs—Tesla’s sales slump, a $100 billion net worth hit, and a diluted DOGE legacy—suggest significant regret. Musk’s criticism of the BBB, which threatens Tesla’s EV market position and contradicts DOGE’s mission underscores this. The bill’s Senate fate hinges on resolving GOP internal conflicts and addressing deficit concerns.

Musk’s latest outburst against the Trump-backed "One Big Beautiful Bill Act" (BBB), calling it a "disgusting abomination" and "massive, outrageous [and] pork-filled" on X on June 3, 2025, intensifies his public rift with President Donald Trump. This follows his earlier criticism on May 28, 2025, where he labeled the bill a “betrayal” of fiscal responsibility, reflecting his frustration with its $3.8 trillion projected deficit increase over a decade, as estimated by the Congressional Budget Office (CBO).

Musk criticized a new Congressional spending bill supported by President Donald Trump on Tuesday: "I'm sorry, but I just can't stand it anymore--- it's a massive, outrageous [and] pork-filled--Shame on those who voted for it: you know you did wrong."

Can the BBB Pass the Senate?

The bill’s Senate fate is uncertain:

·       Support: Trump and House Speaker Mike Johnson are pushing for passage, citing tax cuts and border security as campaign promises. Johnson claims the bill builds on DOGE’s framework.

·       Challenges: A slim GOP Senate majority, fiscal hawk opposition, and unified Democratic resistance make passage difficult without revisions. Potential compromises include scaling back tax cuts or increasing spending offsets to address the $3.8 trillion deficit impact.

·       Economic Stakes: A less stimulative bill could stabilize the US dollar by signaling fiscal discipline but may dampen short-term growth sentiment. Failure to pass risks a debt ceiling breach by mid-summer, per Treasury Secretary Bessent, potentially triggering market sell-offs.

OECD sees US stagflation for 2025-26 if Trump’s higher tariff policies

The OECD’s latest Economic Outlook, released on June 3, 2025, significantly lowered its global and US economic growth forecasts, citing heightened trade barriers and policy uncertainty driven by Trump’s bellicose trade policies. Global GDP growth is now projected at 2.9% for both 2025 and 2026, down from 3.3% previously forecast, reflecting the impact of increased tariffs and global trade disruptions. For the US, the OECD expects GDP growth to slow to 1.6% in 2025, compared to 2.8% in 2024, with inflation rising to 3.2% from 2.8%, potentially pressuring the Federal Reserve to keep interest rates elevated.

The report highlights the severe impacts of proposed US tariffs, particularly a 25% tariff on Canada and Mexico, which could slash Canada’s growth to 0.7% and push Mexico into a 1.3% GDP contraction in 2025. A broader scenario of 10% US tariffs on all imports, coupled with retaliatory measures, could further reduce global growth by 0.3% and increase inflation by 0.4% over three years. The OECD warns that trade uncertainty is already dampening business investment and raising consumer costs, with concerns about the tariffs’ drag on global and US economic prospects.

China: Slight economic slowdown

·       2025 GDP Growth: The OECD forecasts China’s GDP growth at 4.7%, slightly down from 4.8% in its previous outlook and 5.0% in 2024

·       2026 GDP Growth: Projected at 4.3%, a further decline from 4.4% in the prior forecast

·       The slowdown is attributed to weakened domestic demand, persistent issues in the real estate sector, and reduced consumer confidence, with retail sales growth barely exceeding 3% in 2024

·       US tariff hikes, potentially reaching 60% on three-quarters of Chinese exports starting in Q3 2025, are expected to reduce growth, with a negative drag of over 1.5% on GDP

·       Beijing’s policy responses, including increased fiscal deficits, special treasury bond issuance, and interest rate cuts of 30-40 bps in 2025, aim to stabilize the property market and boost domestic consumption, though structural challenges like overinvestment in manufacturing persist

·       Inflation: Expected to weaken to 0.1% in 2025 and -0.2% in 2026, reflecting deflationary pressures from falling property prices and weak domestic demand

Conclusions

Trump is desperately seeking to pass his BBB to offer some tax cuts to Americans while imposing higher tariffs. But if Trump fails to pass the BBB, he may also extend his reciprocal tariffs pause from July-August to December’25 to ensure no supply & demand shock for the US economy. Trump may also get good trade deals proposals for US export, and reshoring of US manufacturing, using the threat of higher tariffs. Thus Trump may extend his tariff pause after getting ‘best deals’ from trading partners.

Trump may soon withdraw his 20% Fentanyl levy on China and the US will continue with 10% universal tariffs on all and sectoral higher tariffs of 50% on metals, 25% on automobiles, and pharmaceuticals along with selected exemptions. But even at around 15%-20% weighted average tariffs, it’s still substantially higher than 2.5% prior, which will inevitably cause a higher cost of living for Americans, subdued discretionary consumer spending, tepid private capex, higher unemployment, and lower economic growth. In other words, the US economy may be heading for a stagflation-like scenario in the coming days unless there is a corresponding increase in real income along with productivity.

If Trump goes on with his higher reciprocal tariffs, it would cause supply shock and a higher cost of living for ordinary Americans, most of which live on a pay check to pay check basis. Further, such tariffs would cause a demand shock in the future and an all-out recession. This will also cause a loss of Vote Bank (ordinary Americans) and Note Bank (political funding by corporate America) for Trump and Republicans. Thus Trump is bound to blink.

The U.S. cannot dramatically ramp up steel and aluminum production to avoid a supply shock from 50% tariffs due to raw material constraints, energy shortages, and infrastructure gaps. A modest production increase is feasible but insufficient to close import-export gaps, leading to price hikes and downstream disruptions. Trump’s 25% metal tariffs since 2018 didn’t eliminate US import dependency on metals, but the overall situation was in balance comparing US steel & aluminum production costs and another constraint. Trump may again flip-flop off his 50% metals tariffs as it was not economically viable/feasible and purely politically motivated in a swing state. Trump’s unusual 50% metals tariffs may be a negotiation tool to get better concessions for a free & fair trade deal.

Market impact

On Tuesday, June 3, 2025, Wall Street recovered, surging after a muted start on hopes of US fiscal prudence and a soft landing. The market is expecting an imminent telephone talk between Trump and Xi, which may result in the withdrawal of Trump’s Fentanyl levy of 20% on China (to be eventually paid by Americans). The market is now also expecting the US Senate may pass Trump’s BBB tax cut bill with some vital modifications to make it less fiscally disruptive. Also, stronger than expected JOLTS job report and mixed Fed comments indicate a soft landing for the US economy and cumulative Fed rate cuts of 50 bps in Q3 and Q4 (September and December 25). Earlier Wall Street Futures were almost flat after the OECD predicted US stagflation if Trump’s higher tariffs were implemented in late 2025.

On Tuesday, Wall Street was boosted by techs (hopes of US-China trade war de-escalation), energy (higher oil), materials, industrials, consumer discretionary, utilities, healthcare, and financials, while dragged by communication services, real estate, and consumer staples. Dow Jones (DJ-30) was boosted by China-sensitive NVIDIA, Home Depot, Caterpillar, Nike, and Chevron, while dragged by Coca-Cola (potential conflict with Trump admin over tariffs), United Health, J&J, Verizon, P&G, Amazon and Travelers. Gold slips, while oil surged on hopes of trade war de-escalation with China.

Technical outlook: DJ-30, NQ-100, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42600) now has to sustain over 42900 for a further rally towards 43200/43600*-44000/45300 in the coming days; otherwise sustaining below 42800, DJ-30 may again fall to 41900/41700-41400/41000* and further 40600/40100-39200/38000 in the coming days.

Similarly, NQ-100 Future (21600) has to sustain over 22000 for a further rally to 22400/22500-22700/23000 in the coming days; otherwise, sustaining below 21900, NQ-100 may again fall to 21900/20900-20700/20200 and 19890/18300-17400/16400in the coming days.

Also, technically Gold (CMP: 3350) has to sustain over 3375-3395 for a further rally to 3405/3425*-3450/3505*, and even 3525/3555 in the coming days; otherwise sustaining below 3365, Gold may again fall to 3340/3320-3300/3280 and 3255/3225-3200/3165* and further to 3130/3115*-3075/3015-2990/2975-2960*/2900* and 2800/2750 in the coming days.