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* US tariffs on Chins won’t change again, EU at “very end”, says Lutnick

* US CPI undershoots forecasts as tariff effects remain muted

* President Trump will pick “uber dovish” Fed Chair, says hedge fund manager

* Dollar falls as US inflation cools, puts Fed in tough spot

* Middle East tensions sparked risk-off on geopolitics concerns

FX: USD turned lower after the soft CPI data. That came after the dollar had traded pretty flat on relief at the US-China trade headlines. There were only a few details on the trade ‘deal’ with tweets from President Trump. US inflation was much cooler than expected in May with little evidence of tariff-induced price hikes so far. But many economists believe that is unlikely to last, with inflation still likely to get near to 4% in the third quarter, which is likely to keep the Fed in a wait-and-see mode. But markets moved the other way after the data release, with around a 70% chance of a 25bps rate cut by September.

EUR looked to be breaking to the upside with a solid move towards 1.15. A new consensus appears to be in play at the ECB with the bank in a “very good position” regarding monetary policy. Sitting on their hands until the next staff economic projections in September seems highly likely. There’s around a 60% chance of a rate cut at that ECB meeting.

GBP found a bid after Tuesday’s sell-off on the soft jobs report. 1.3434, the previous cycle high is support and the recent high is 1.3616. As expected, the UK spending review didn’t move markets as it is more political – how departmental budgets get divided up. More money is likely to be needed in the Autumn which means tax rises.

USD/JPY printed lower as the yen saw risk-off demand late on in the day as prices consolidated just above the 50-day SMA at 144.26. Japan PPI data came in softer than expected overnight.

AUD underperformed in response the risk mood turning sour, after printing a fresh cycle high at 0.6545. CAD strengthened with the oil price recovery and narrowing interest rate differentials helped the broader trend for lower prices in the major initially, before it printed a doji.

US stocks: The S&P 500 lost 0.27% to settle at 6,022. The Nasdaq closed down 0.37% at 21,861. The Dow Jones finished unchanged at 42,866. Energy was the big gainer as Brent crude jumped over 5% on the day as US embassies were evacuated in Iraq and elsewhere in the region. Some are warning it could reflect a major threat (like an Israeli strike on Iran if nuclear talks fail), while others suggest perhaps it is a negotiating tactic ahead of talks on Sunday. Tesla finished up 0.1% after CEO Musk said he regretted some of the negative social media posts he made last week about President Trump. He also announced the robotaxi launch in Austin for June 22. Starbucks was one of the top gainers on the S&P 500 (+4.3%) after the company said it garnered “a lot of interest” in its move to explore a partnership with outside investors for a minority stake in its China business. Intel shares gave back some of its recent gains and was one of the steepest decliners on the broader index, losing over 6.4%.

Asian stocks: Futures are mixed. Asian markets mostly rose with optimism around the US-China trade talks. The ASX hit a fresh all-time high at 8,642 before paring some gains. The index has risen around 20% since the April lows, so has lagged other major indices like the S&P500 and Nasdaq, while other regional markets like the Nikkei and Kospi are up over 26%. Tech has led the gainers by some distance (+42%) with energy, finance and REITs up over 25%. The Nikkei 225 added 0.55% on Wednesday and is close to breaking previous May highs and resistance around 38,454/494. The Hang Seng and Shanghai Comp both rose with the former hitting three-month highs.

Gold spiked up to $3,360 after the CPI release before pulling back and then found a late safe haven bid amid the Middle East tensions. There’s been ongoing demand for investment metals as seen in the recent silver and platinum rallies.

Day Ahead – UK GDP

Consensus expects UK growth to have contracted by 0.1% in April. That comes after a surprising rise of 0.2% in March, which boosted GDP to a strong 0.7% in the first quarter of 2025. Signs of a faltering economy, as seen in the PMI data, and softer pay could strengthen the case for further rate cuts this year. An August move is now virtually fully priced after the lower than forecast jobs data released on Tuesday.

That said, if the GDP data points to resilience in output, rates setters could have more to think about, with consumer confidence having edged higher and retail sales recovering. The quarterly pace of rate cuts still looks likely.

Chart of the Day – FTSE 100 nears record highs

Several stock market indices across the globe have already recovered their previous record highs, having bounced 20% or more from the lows seen after Liberation Day. The FTSE100 has lagged in that respect, rising close to 17.5% and is yet to post a new top. For comparison, the German Dax is up around 27%, the Nasdaq up 34% and the S&P 500 has rebounded 25%.

Tech has driven these major indices, so it is unsurprising the FTSE 100 is behind, with few high-growth technology companies. Instead, defence firms have led the gainers this year while homebuilders have been buoyant, with one eye on the government’s plans for more housing. Bulls will no doubt have their radar on 9,000, while the 21-day SMA sits at 8,752 as initial support.