Highlights

• U.S. Q1 GDP unexpectedly contracted by 0.3%, ending a three-year expansion; inflation remained elevated with core PCE at 3.5%, raising stagflation concerns 1.
• ADP private payrolls rose just 62,000 in April, far below expectations, signaling a softening labor market and increasing recession risk 4.
• U.S. Treasury set $125B quarterly refunding, keeping auction sizes steady and evaluating buyback enhancements, but stressed this is not QE 3.
• Trump administration granted two-year tariff relief for U.S.-assembled autos, aiming to support domestic manufacturing and encourage reshoring 5.
• Major automakers GM, Mercedes, and VW withdrew 2025 earnings guidance and reported profit drops, citing tariff uncertainty and supply chain disruptions 13.
• China’s official manufacturing PMI fell to 49.0 in April (16-month low) as tariffs hit exports; Beijing quietly exempted key U.S. goods (pharma, chips, aircraft parts) from 125% tariffs to ease tensions 26.
• TSMC broke ground on a third Arizona chip plant, committing $100B and 40,000 jobs, reinforcing U.S. semiconductor supply chains amid trade tensions 9.
• Microsoft froze 1.5GW of U.S. data center projects but plans a 40% expansion in Europe, signaling a shift in AI/cloud infrastructure investment 10.
• Gold demand surged 1% in Q1, driven by a 170% jump in investment and record Chinese reserves, as investors seek safe havens amid trade and economic uncertainty 17.
• BlackRock filed to tokenize $150B Treasury fund shares on Ethereum; Grayscale and VanEck pressed SEC for crypto ETF staking approvals, signaling ongoing digital asset adoption 1516.
• Novartis agreed to acquire Regulus Therapeutics for up to $1.7B, targeting kidney disease, highlighting continued M&A activity in biotech 14.
• Geopolitical tensions remain high: US/UK airstrikes in Yemen, Israel’s warning strike in Syria, and US-Philippines joint air missions in the South China Sea; Ukraine poised to sign a major mineral investment deal with the U.S. 781820.

Commentary

Markets face a sharp pivot in narrative this morning as U.S. macro data signals a potential regime shift. The first quarterly GDP contraction since mid-2022, driven by a pre-tariff import surge and slowing consumer spending, has rekindled stagflation fears—especially with inflation metrics remaining stubbornly above target 1. The weak ADP payrolls print compounds concerns about growth momentum, and prediction markets now price in a 74% chance of U.S. recession this year 41. The Treasury’s steady refunding signals no immediate liquidity shock, but the buyback review hints at subtle shifts in market management 3.

Equities are likely to open under pressure, especially in cyclical and trade-exposed sectors. Automakers are flashing red: GM, Mercedes, and VW’s withdrawal of guidance and profit warnings underscore the disruptive power of tariffs and policy uncertainty 13. However, domestic manufacturing initiatives—such as Trump’s auto tariff relief 5 and TSMC 's $100B Arizona expansion—could provide medium-term support for U.S. industrials and chipmakers 9. Caterpillar 's earnings miss but pre-market resilience suggests some bad news was already priced in, though flat 2025 guidance reflects caution 11.

Fixed income markets are poised for volatility. The growth miss and soft jobs data should support Treasuries, but sticky inflation and Treasury’s steady auction schedule may limit the rally 134. Watch for curve flattening as stagflation risk rises. Commodities are mixed: gold continues to benefit from safe-haven flows and central bank buying, with Chinese demand at multi-year highs 17. Energy markets may see upward pressure due to ongoing Middle East tensions, with US/UK airstrikes in Yemen and regional instability in the Red Sea and South China Sea 720.

On the currency front, the dollar may see two-way risk: weaker U.S. data argues for Fed easing, but global growth concerns and safe-haven flows could provide support 14. The yuan remains under pressure amid soft Chinese PMIs and export headwinds, though Beijing’s targeted tariff exemptions signal a pragmatic approach to trade friction 26.

Digital assets remain in focus as BlackRock 's tokenization push and ETF staking debates signal continued institutionalization of crypto, even as regulatory uncertainty persists 1516. Traders should watch for further headlines on U.S. monetary policy, any Fed commentary on stagflation, and developments in trade negotiations—particularly any signs of tariff de-escalation or new fiscal support from Beijing. Defensive positioning and volatility hedges are warranted as macro and geopolitical crosscurrents intensify.