[New York Stock Exchange] Rises on First US-UK Trade Deal... Treasury Yields Up as Rate Cut Expectations Fade

U.S. Reaches First Trade Deal with U.K. After Reciprocal Tariff Announcement
Auto Tariffs Lowered, Steel Tariffs Eliminated
First U.S.-China Talks This Week... Hopes Rise for Easing Tariff War
Expectations for Rate Cut in First Half Diminish After FOMC
Yields on 10-Year and 2-Year Treasuries Surge Over 10bp

All three major indices on the New York Stock Exchange closed higher on May 8 (local time). Investors responded positively to expectations for additional agreements after the United States signed its first trade deal with the United Kingdom following last month's announcement of reciprocal tariffs. Meanwhile, U.S. Treasury yields surged as the market lowered its expectations for a rate cut in the first half of the year after the previous day's Federal Open Market Committee (FOMC) meeting.

Reuters Yonhap News

On this day, the Dow Jones Industrial Average, which is focused on blue-chip stocks, closed at 41,368.45, up 254.48 points (0.62%) from the previous trading day. The S&P 500, which tracks large-cap stocks, rose by 32.66 points (0.58%) to finish at 5,663.94, while the tech-heavy Nasdaq climbed 189.98 points (1.07%) to close at 17,928.14.

President Donald Trump announced the U.S.-UK trade agreement after a public phone call with UK Prime Minister Keir Starmer in the Oval Office. The United States agreed to lower tariffs on British automobiles from the existing 25% to 10% for up to 100,000 vehicles per year. The United States will also eliminate the previous 25% item-specific tariffs on British steel and aluminum. Previously, the U.S. had imposed 25% item-specific tariffs on automobiles, steel, and aluminum imported from around the world. The UK will open its markets for ethanol, beef, agricultural products, and machinery to the United States. The UK also agreed to purchase Boeing aircraft worth $10 billion.

However, the United States will maintain a basic reciprocal tariff of 10% on the UK. Earlier, President Trump announced on May 2 that all countries would be subject to a basic reciprocal tariff of 10%, with additional country-specific reciprocal tariffs based on each country's tariff and non-tariff barriers. However, the country-specific reciprocal tariffs, excluding the basic 10%, have been suspended for 90 days.

Currently, the United States is also engaged in trade negotiations with South Korea, Japan, India, and Israel. Reports indicate that the U.S. is close to reaching a basic agreement with India, in addition to the UK. President Trump commented that the basic 10% tariff on the UK could be considered low, explaining, "Some countries are running massive trade surpluses, so the tariff rates could be much higher."

The United States will also hold its first trade talks with China, with whom it has been locked in a tariff war, in Switzerland on May 10. President Trump said he expects the U.S. and Chinese negotiating teams to "have a good weekend." Optimism that the tariff war could ease spread among investors, fueling buying activity.

Sam Stovall, chief investment strategist at CFRA, said, "Optimism is spreading that negotiations could be concluded before the July 9 expiration of the reciprocal tariff suspension period," and analyzed, "Once initial negotiations begin, the administration could be under less pressure to quickly finalize agreements with other trade partners."

News that the Trump administration may ease export controls on artificial intelligence (AI) semiconductors, which were introduced during the Joe Biden administration, also bolstered investor sentiment.

On the previous day, investors digested the week's major event, the FOMC meeting. As expected, the Federal Reserve held the federal funds rate steady for the third consecutive time at 4.25-4.5% per annum. The FOMC policy statement said, "Uncertainty about the economic outlook has increased," and added, "The committee is paying attention to both sides of its dual mandate (price stability and full employment), and risks of rising unemployment and inflation have increased." This was interpreted as confirming concerns about stagflation (rising prices amid economic stagnation) due to tariff policy uncertainty. Fed Chair Jerome Powell also stated at a press conference immediately after the FOMC, "Given the scope and scale of the tariffs, the risks of inflation and rising unemployment will certainly increase," and added, "My gut feeling is that uncertainty about the future path of the economy has become extremely high. There is no need to rush (rate cuts)."

As expectations for a rate cut weakened, U.S. Treasury yields surged. The yield on the 10-year U.S. Treasury, the global benchmark for bond yields, jumped 11 basis points (1bp = 0.01 percentage point) from the previous day to 4.39%. The yield on the 2-year U.S. Treasury, which is sensitive to monetary policy, rose 10 basis points from the previous day to 3.89%.

New weekly jobless claims declined after a sharp increase the previous week. According to the U.S. Department of Labor, for the week from April 27 to May 3, new jobless claims totaled 228,000, down 13,000 from the previous week's revised figure of 241,000. This was also below the market expectation of 231,000. Jobless claims, which had spiked temporarily at the end of April due to New York City's spring break and Easter, decreased after just one week.

By sector, technology stocks rose. Tesla jumped 3.11%. Microsoft (MS) gained 1.11%, and Apple rose 0.63%. Nvidia climbed 0.26% on news of eased AI semiconductor export controls. Boeing surged 3.34% on news of the UK aircraft purchase.