The stock market is a reader of tea leaves. On this Tuesday morning, it's reading the scattered leaves of U.S.-China trade negotiations in London, where diplomats and technocrats are carefully shaping the future of a deeply entangled global economy. 

At the center of the delicate choreography is not just tariffs and trade balances, but a 21st-century arms race in semiconductors, rare earths, and geopolitical trust. A tentative easing of restrictions is on the table, with the U.S. signaling a willingness to lift some semiconductor export controls - if Beijing expedites rare earth deliveries in return. If this sounds transactional, it is. But it's also a reflection of just how vital and vulnerable the world's supply chains have become.

Commerce Secretary Howard Lutnick claims the talks are "going well," while the markets listen for inflection - was that optimism or mere platitude? Analysts note the significance of a pause in tariff hostilities, but it's a ceasefire born of necessity, not resolution. President Trump's re-election calculus, China's industrial ambitions, and a global economy softened by cautious earnings reports all demand a temporary détente.

The objective for the U.S. is nothing less than to rebuild its trade relationship from the ground up. By contrast, China's aspiration is to preserve the status quo and implement as few changes as possible.

There is, therefore, a considerable gap between the respective positions, one that negotiators will strive to bridge. Donald Trump acknowledged that “China is not easy,” but expressed satisfaction with his negotiators, noting they are “doing well” and delivering “only good reports.”

Trade ties between the two countries will be very difficult to change without damaging both partners. For decades, the United States has compulsively bought what China methodically produces, resulting in the outcome we all know: a huge US trade deficit. At first glance, everyone wins: America gets cheap goods and feed its consumer frenzy, while China racks up surpluses and sustain its growth. But over time, this relationship has become one of mutual dependence rather than symbiosis. One cannot consume without going into debt, the other cannot grow without exporting. Washington criticises Beijing for its subsidies, dumping and techno-industrial ambitions, but flexibly draws on all kinds of raw materials, components and finished products at unbeatable prices. Beijing condemns tariff barriers, export controls on semiconductors and targeted sanctions by Washington, while recycling dollars into US Treasury bonds.

The most likely outcome of these talks is a slight improvement in the situation for the United States compared to the pre-Trump 2 period. Equity investors are betting on this. Even if the new situation is likely to create further dysfunction and will not address the underlying tensions between the two countries or the fundamental problems facing the United States. The Stoxx Europe 600 lost 0.1% yesterday. The S&P 500 gained 0.1%. Move along, there's not much to see here. It is worth noting, however, that the MSCI World Index, which tracks the leading stocks in 23 major economies, reached a new all-time high at yesterday's close.

In domestic politics, the standoff between the federal government and California is intensifying. What is at stake in the richest state in the United States goes beyond a simple institutional dispute. Following protests against immigration raids in Los Angeles, Donald Trump mobilized the California National Guard and deployed 700 marines without the consent of Governor Gavin Newsom, the first time this has happened since 1965. California responded by filing a lawsuit, denouncing a violation of state sovereignty and an authoritarian drift by the federal government. In the health sector, Robert Kennedy Jr. dismissed the 17 experts on the vaccine advisory panel, accused of conflicts of interest with the pharmaceutical industry. This announcement is unlikely to be good news for vaccine manufacturers.

Meanwhile, investors await another tea leaf: Wednesday's U.S. consumer price index. Inflation is the unseen player at the table, capable of crashing the party if tariffs sneak their way into prices. The Fed is expected to hold interest rates steady next week, but traders have already priced in two cuts by the end of the year, with bets rising on a September move.

It will be a quiet day for economic indicators and corporate earnings, which is fairly typical for June. So far, the main consequence of the Sino-US negotiations has been a rise in oil prices. The slightly positive tone of the initial feedback is seen as favorable for trade, and therefore for global activity and demand for oil.

Shares were up this morning in Asia-Pacific, while leading indicators are mixed in Europe.

Today's economic highlights:

  • Dollar index: 98,950
  • Gold: $3,339
  • Crude Oil (BRENT): $67.39 (WTI) $64.87
  • United States 10 years: 4.46%
  • BITCOIN: $109,665

In corporate news:

  •  Merck KGaA receives regulatory approval in China for tumor treatment pimicotinib.
  •  Qualcomm acquires Alphawave for $2.4 billion at a 96% premium.
  •  Walt Disney finalizes acquisition of NBCUniversal's stake in Hulu for $438.7 million.
  •  Canada's Competition Bureau sues DoorDash for misleading advertising.
  • Amazon is set to invest $20 billion in Pennsylvania for its AI infrastructure.
  • BlackRock, Vanguard, and State Street are defending themselves against accusations of collusion made by Republican states, which accuse them of promoting climate activism.
  • Warner Bros. Discovery will separate its streaming platform from the rest of the group.
  • Apple is opening up its AI to developers, but remains modest about its longer-term ambitions.
  • The CEO of T-Mobile US is set to step down prematurely, according to Handelsblatt.
  • MercadoLibre has reversed its decision to move its headquarters from Delaware to Texas.
  • DR Horton will seek an additional listing in Texas.
  • Sunnova files for Chapter 11 bankruptcy protection amid difficulties in the residential solar market.
  • IonQ will acquire Oxford Ionics for $1.08 billion to expand its quantum computing business.

Analyst Recommendations:

  • Amazon.com, Inc.: William O'Neil & Co Incorporated upgrades to buy from dropped coverage.
  • Arch Capital Group Ltd.: Jefferies downgrades to hold from buy with a target price reduced from USD 106 to USD 100.
  • Crowdstrike Holdings, Inc.: Daiwa Securities upgrades to outperform from buy with a price target raised from USD 400 to USD 500.
  • Manhattan Associates, Inc.: Redburn Atlantic downgrades to neutral from buy with a target price reduced from USD 270 to USD 200.
  • Viking Holdings Ltd: William O'Neil & Co Incorporated upgrades to buy from dropped coverage.
  • Warner Bros. Discovery, Inc.: President Capital Management Corp downgrades to neutral from buy with a target price reduced from USD 11 to USD 10.36.
  • Yum! Brands, Inc.: Redburn Atlantic upgrades to buy from neutral with a price target raised from USD 145 to USD 177.
  • Affirm Holdings, Inc.: President Capital Management Corp maintains its buy recommendation and raises the target price from USD 63 to USD 79.
  • O'reilly Automotive, Inc: Morgan Stanley maintains its overweight rating and reduces the target price from USD 1580 to USD 105.33.