Daily Economic Update

US: Court blocks most of Trump’s tariffs, a major blow to his economic agenda, but positive for the global economy. President Trump’s sweeping global tariffs, including ‘Liberation Day’ and drug-related ones, have been blocked by the US Court of International Trade, citing an unlawful invoking of the International Emergency Economic Power Act (IEEPA) by the president. The IEEPA allows US presidents to regulate international trade and transactions, including by imposing sanctions in response to any threats to US security or foreign policy through the declaration of a national emergency. The court ruled that the latest tariff actions “exceed[ed] any authority granted to the President.” However, 25% sectoral tariffs on metal and auto imports are unaffected by the court ruling as they were imposed under different acts. The US administration has hit back saying "it is not for unelected judges to decide how to properly address a national emergency” and filed a notice of appeal with the US Court of Appeals for the Federal Circuit. The case could potentially reach the Supreme Court later, which would have the final say. For now, most tariffs imposed by Trump will be paused pending the appeal – but could be reinstated during the litigation process. This ruling is a key development, and it will weaken Trump’s bargaining power in his ongoing negotiations with the US’ key trading partners. Indeed, this ruling might simply freeze some of these negotiations. If the ruling is sustained, it will be a major positive development for the US and the global economy. However, even if the ruling is sustained, the US administration may try to find other ways to re-impose tariffs via different routes, such as the ones governing the sectoral tariffs (Section 232). In addition, if the ruling is sustained, one negative is that the government’s fiscal trajectory will come under increased pressure, given the deficit-increasing bill that is expected to be passed by Congress. As expected, global equity markets cheered the developments, with US equity futures jumping around 1-2% and most Asian markets trading sharply higher this morning. The USD index is also up but UST 10Y bond yields have inched up only by a couple bps. Dealing another potential blow to the president’s agenda, Elon Musk, the key figure in the Department of Government Efficiency (DOGE), has left the agency. DOGE had initiated a reduction in the so-called “wasteful” federal spending and cut several thousands of federal jobs over the recent months.

Oil: OPEC+ holds quotas steady ahead of July output talks. The 39th OPEC and non-OPEC Ministerial Meeting concluded yesterday with the group reaffirming their unity and commitment to work towards achieving a ‘stable’ oil market and their decision to maintain all production cuts implemented since the 33rd OPEC/non-OPEC MM on 5th October 2022, which includes 2 mb/d from that meeting and 1.65 mb/d announced at the JMMC meeting of 3 April 2023, which will all remain in place until December 2026. The group also agreed to establish a new mechanism to set baseline production levels for 2027. Note that these cuts are separate from the 2.2 mb/d of voluntary production cuts that the smaller OPEC-8 group began unwinding last month. Discussion on the latter is set to take place on Saturday 31 May, and the market is expecting the group to opt for another 411 kb/d supply hike for July. Since April, OPEC-8 has raised its total quota by 960 kb/d, though it is unclear for now if actual production will rise proportionately since only April’s data is available. And in April, OPEC-8 output rose by just 23 kb/d m/m, well down on the 135 kb/d that was scheduled. With output in OPEC-8 member Kazakhstan already exceeding its quota by 350 kb/d, actual increases ahead will likely be smaller compared to the headline 411 kb/d m/m figure.

Saudi Arabia: Aramco issues $5 billion in bonds. Saudi Aramco finalized its first bond sale of 2025 with the issuance of $5 billion in three tranches. The bond sale was priced at 80, 95, and 155 bps over US treasuries for the 5, 10, and 30-year maturities, respectively, spreads that came in tighter than initial guidance. The issuance follows $9 billion in bonds sold in 2024 as an exceptionally high dividend of $124 billion was paid out last year, which, given the government’s majority stake (82%) in the company contributed significantly towards fiscal revenues and deficit financing. An additional 16% is owned by the Public Investment Fund, tasked with implementing a large part of Vision 2035 key development projects. Earlier this year, Aramco slashed the expected dividend for 2025 by 30% by suspending the majority of the performance-linked dividend portion (from $40 billion to only around $1 billion in 2025). The latest bond issuance comes amid a continued need for financing as the company contends with higher operating costs, lower oil prices, and ongoing expansion plans. The company is also reportedly considering potential asset sales to boost liquidity.             

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