Five things you need to know

• The Trump administration is weighing a tariff cut during this weekend’s talks with China. The US has set a target of reducing tariffs below 60% as a first step, people familiar with the matter say, and officials think China may be prepared to match the move.
• China’s exports to the US slumped in the first month after Donald Trump targeted the country’s goods with trade levies above 100%. The data captures only the initial damage from the tariffs, with their effects likely to become more pronounced starting this month.
• Germany’s DAX became the first major European stock index to surpass its March record high, recouping all declines sparked by Trump’s trade war. Stocks in Europe are gaining on easing tariff tensions and a suggestion by an ECB policy maker that another interest-rate cut may be in store next month.
• Trump is pushing lawmakers to raise taxes on the wealthy. He’s calling for a new 39.6% tax bracket for individuals earning at least $2.5 million, or couples making $5 million, people familiar with the discussion say.
• Panasonic plans to cut 10,000 jobs as part of its push to boost profitability. The Japanese company, which supplies batteries to Tesla, aims to streamline operations and trim areas that aren’t growing such as industrial devices and TVs.

On the new episode of Trumponomics: Niall Ferguson and Fareed Zakaria join to place Donald Trump’s ambitious plans for the US economy in historical perspective. Listen on Apple, Spotify, or wherever you get your podcasts.

Dollar shift

Banks and brokers in Asia are seeing rising demand for currency derivatives that bypass the dollar, as trade tensions add a sense of urgency to a years-long shift away from the greenback.

Firms are receiving more requests for transactions including hedges that sidestep the dollar and involve currencies such as the yuan, the Hong Kong dollar, the Emirati dirham and the euro.

The vast majority of foreign-exchange trades use the dollar even if they’re transferring money between two local currencies. For example, an Egyptian company wanting Philippine pesos will typically transfer its local currency into the greenback before buying pesos with the dollars it receives. But companies are increasingly looking at strategies that skip the dollar’s role as a go-between.

The attempt to find alternatives is another sign that companies and investors are turning their backs on the world’s reserve currency, which was hit with a wave of selling this week amid shifting bets on trade deals. 

The shift is picking up steam, based on conversations with employees of companies and financial institutions across Asia, who asked not to be identified as they aren’t allowed to comment publicly.

Financial institutions from Europe and elsewhere are increasingly pitching yuan derivatives that cut out the US currency, said a person at a commodities trading firm in Singapore. Closer commercial ties between mainland China, Indonesia and the Gulf are spurring demand for non-dollar hedges, several people said. 

The gradual shift away from the dollar erodes one of the building blocks of global trade. For decades, it has been ubiquitous in everything from emerging market debt financing to trade settlement. The use of the dollar as a go-between accounts for about 13% of its daily trading volumes, according to a recent estimate. —Catherine Bosley,  Harry Suhartono and  Tao Zhang

On the move

• Pinterest shares surge 15% in premarket trading, after the social-media company’s second-quarter revenue guidance topped estimates, easing concerns of an advertising slowdown. 
• Lyft shares are jumping 7.4%. The ride-hailing company reported better-than-expected gross bookings in the first quarter — a sharp contrast to the disappointing results issued by larger rival Uber a day earlier.
• Expedia falls 9.2%. The travel booking company cut its full-year outlook for gross bookings and revenue, citing weaker-than-expected domestic and inbound travel demand in the US at the start of the year.
• Cloudflare rises 10% after the software company reported first-quarter revenue that beat expectations and affirmed its full-year forecast. —Subrat Patnaik 

Bearish signal

The stock market’s tariff storm sure looks like it’s blowing over: The S&P 500 is up 14% since touching its low for the year just about a month ago. But there are plenty of reasons to remain skeptical, not least of which is the reading from a Bloomberg Intelligence market model.

The indicator, the Equity Market Regime Model, has entered a phase historically associated with the worst return prospects for the S&P 500, according to data compiled by BI’s Gina Martin Adams and Gillian Wolff. The model is based on six factors, including shifts in earnings estimates, the S&P 500’s position compared to its 200-day moving average and the change in the benchmark’s price-to-book ratio.

The seven prior instances have been associated with a 5.6% average drop in the S&P 500 in the next 12 months. The current reading is the model’s first bearish signal since February 2022, when anxiety about the Federal Reserve’s interest-rate path sent US stocks into a bear market.

 The finding jibes with the latest from Bank of America strategist Michael Hartnett, who says the stock rebound is likely over. With their rally since Trump announced a reprieve in some levies on April 9, equities have already priced in the good news on tariffs, so the next leg is likely to be lower, he says. 

“Either the global trade war comes to an end soon and all of this resolves itself, or the selling in stocks needs to get worse, with people throwing in the towel before things get so bad that it turns into a buying opportunity,” BI’s Wolff, an equity strategist, said by phone. “But we’re not there yet.” –Jessica Menton

AI threatens Google

The threat to Alphabet’s Google search business from AI has never been more clear, and investors are not happy. 

Court testimony from an Apple executive on Wednesday revealed that the iPhone maker is exploring adding AI services to its web browser for which Google now pays an estimated $20 billion a year to be the default search engine. Potentially more worrisome: searches on Apple’s Safari fell for the first time last month, according to the executive.

The revelations implied that queries fielded by OpenAI and Anthropic already may be eating into Google search, which accounts for more than half of Alphabet’s revenue and the vast majority of profits. Alphabet said in a subsequent blog post that search queries continue to rise, including those coming from Apple users. 

The comments helped arrest the selloff that saw the shares close down 7.3% on Wednesday. But Alphabet is still on pace for a weekly decline of about 6% and $120 billion drop in market value.

“The basic issue is, will Alphabet lose its cash cow?” said Art Hogan, chief market strategist at B. Riley Wealth Management. “This is the first time Alphabet has really seen competition in search since the category was originated, and we’re already seeing chinks in the armor.” —Jeran Wittenstein and Ryan Vlastelica

Word from Wall Street

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