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May 13, 2025
[Market Musings] Trading Truce: From Tariff Tensions to Teasing Détente
By
Kristal Advisors
(6th-10th May 2025)
The week delivered a remarkable market recovery driven by evolving US-China trade dynamics. After opening with steep losses on President Trump's threat of 100% tariffs on non-US films, markets found their footing midweek following the ISM Services PMI beat, which helped ease concerns about economic deceleration after Q1's negative GDP print.
The true catalyst emerged Thursday with two key developments: the announcement of a US-UK trade deal and Trump's remarks that China tariffs "cannot go higher than 145%" and "will come down." Reports that US officials are considering reducing the China tariff to as low as 50% ahead of weekend negotiations in Switzerland electrified markets, sending the S&P 500 on a three-day rally to close at 5,660.
This dramatic shift in trade narrative overshadowed Wednesday's FOMC decision, where the Fed maintained rates at 4.25-4.50% and added language noting that "risks of higher unemployment and higher inflation have risen." Chair Powell emphasized a "wait-and-see" approach, stating the Fed needs to assess tariff impacts before adjusting policy. Markets responded by reducing rate cut expectations to 67 basis points for 2025, down from 81 basis points earlier in the week.
Treasury yields reflected the changing sentiment, with the 10-year climbing to 4.37% as risk appetite returned. The dollar attempted to break above 100 midweek but surrendered gains Friday as traders positioned ahead of US-China talks. Oil markets recovered from early lows, with WTI settling above $61 per barrel despite OPEC+'s announced production increases.
The key question now: can market optimism about cooling trade tensions withstand the reality of complex negotiations, or will investors face renewed uncertainty from America's evolving trade stance?
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The combination of resilient economic activity, persistent price pressures, and mixed labor market signals reinforces the Fed's cautious policy stance.
Palantir (PLTR) moved beyond government contracts into commercial AI dominance with 68% YoY growth in U.S. commercial revenue. The company's AIP platform is rapidly becoming the enterprise AI operating system of choice, with global organizations moving from initial bootcamps to seven-figure deals in weeks. Palantir secured 139 contracts over $1 million (up from 129 last quarter), while raising guidance across revenue (+3.9%), EBIT (+10%), and FCF (+6.2%).
AMD (AMD) demonstrated server momentum despite geopolitical headwinds, with data center performance exceeding expectations by 7.9%. The company secured 30 new cloud instance deployments for its 5th generation EPYC processors, now capturing 10 out of 10 of the largest telecom, aerospace and semiconductor companies as clients. Trade tensions cast a shadow over these results, with AMD warning of a $1.5 billion revenue hit in 2025 from AI chip export controls to China.
Uber (UBER) demonstrated its platform resilience despite a slight revenue miss. The company's diversified model continues delivering with mature markets growing above 10% YoY. The Uber One subscription program now drives 60% of delivery gross bookings, pushing retention to record levels. Autonomous vehicles are showing surprising strength, with Waymo-powered cars in Austin boasting higher utilization rates than 99% of Uber's human-driven fleet. With $7.8 billion in trailing 12-month free cash flow and EBITDA conversion exceeding 110%, Uber's capital allocation flexibility continues expanding despite economic uncertainties.
Shopify (SHOP) showed remarkable agility in responding to trade tensions, deploying a suite of tools including duty calculators and TariffGuide.AI within days of new tariff announcements. This responsiveness helps explain why US GMV consistently grows at twice the overall e-commerce rate. Enterprise momentum remains strong with VF Corp bringing eight brands to the platform, while B2B GMV surged 109% YoY. The company maintained its 15% free cash flow margin guidance while delivering 28% YoY currency-neutral growth, exceeding the 25% analyst estimates.
Mercado Libre (MELI) demonstrated the power of geographic diversification with revenue beating estimates by 8%, as unexpected strength in Argentina (items sold +52% YoY) offset margin pressure in Brazil and Mexico. Financial services continued their exponential growth with assets under management climbing 103% YoY to $11.22 billion. Most notably, management confirmed they have "seen zero impact on their consumer from global trade wars" and are "not reliant on U.S.-sourced goods for inventory," making MELI an attractive hedge against US-China tensions.
· US-China Trade Negotiations: Treasury Secretary Bessent and China's Vice Premier He Lifeng began weekend talks in Switzerland following Trump's comments that tariffs "will come down." Reports suggest the US is considering reducing tariffs to between 50-80% as negotiations commence.
· Apple's Search Browser Shift: Apple VP Eddy Cue revealed the company is exploring adding AI to its search browser, mentioning Perplexity or Anthropic's Claude as potential partners. Cue stated Apple has "no intention of making its own general search engine," news that sent Alphabet shares tumbling 7.5%.
· Energy Sector Warnings: Several US energy companies including Occidental Petroleum and APA Corp warned of reduced drilling activity due to lower oil prices. APA is reducing its rig count to six by Q2-end with potential further cuts if prices remain depressed. ConocoPhillips expects "a lot of activity cutback in the industry" if prices remain below $60/barrel.
· The Trade Desk (TTD) silenced critics with a remarkable recovery, beating revenue estimates by 7.1% while EBITDA crushed expectations by 41%. CEO Jeff Green's contention that "headwinds have historically accelerated market share gains" appears well-founded. Regulatory scrutiny of walled gardens could become tailwinds for TTD, with Green highlighting that both Google and Meta are already "turning off some of the illegal practices of their past."
The week's volatility underscores markets increasingly responsive to trade developments rather than traditional economic indicators. With US-China negotiations taking center stage, investors are poised between optimism for a new framework and skepticism about the complexity of reaching meaningful agreements.
Disclaimer: This musing is for informational purposes only and should not be considered as investment advice.
By
Kristal Advisors
May 13, 2025
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May 13, 2025
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We are licensed in Singapore, Hong Kong and India. Kristal Advisors (SG) Pte. Ltd. presently operates under the CMS license by the Monetary Authority of Singapore (MAS). Kristal Advisors (HK) Ltd is licensed and regulated by the Securities and Futures Commission (SFC) to carry out Type 4 and Type 9 regulated activities and is not involved in the discretionary management of any collective investment scheme. Kristal Advisors Private Ltd. presently operates as a Registered Investment Advisor under the jurisdiction of the Securities and Exchange Board of India (SEBI).
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