At the time of writing (13:05 CEST), all major European indexes were in the red after China said the US “severely violated” the terms of their recent trade agreement. Market participants also considered the impact of US President Donald Trump’s plan to double current tariffs on steel and aluminium from 25% to 50% from this Wednesday.
The EURO STOXX 50 was down 0.68%, Germany’s DAX fell 0.48%, while France’s CAC 40 declined 0.63%.
“Donald Trump has upset markets once again,” Russ Mould, investment director at AJ Bell, said in an email note sent to Euronews.
“Doubling import taxes on steel and aluminium, and aggravating China once again, mean we face a situation where uncertainty prevails. Trump’s continuous moving of the goal posts is frustrating for businesses, governments, consumers and investors.
“Equity markets were down across Europe and Asia, with futures prices implying a similar pattern when Wall Street opens for trading on Monday. Unsurprisingly, gold got a boost as investors returned to safe-haven assets.”
US markets end May on flat note
Meanwhile, US markets ended May on a flat note, although for the month as a whole each of the main indices rose strongly following hopes of tariff reconciliations.
“Such optimism will face an immediate challenge as June begins, with comments over the weekend keeping the aggressive rhetoric in place. The latest broadsides from the White House were primarily directed at China and the EU, with both threatening a response in kind to any further tariff hikes,” Richard Hunter, head of markets at Interactive Investor, said in an email note to Euronews.
However, he noted, back on the ground, there were some promising economic signs with the Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures index coming in lower than expected and with a consumer sentiment index showing higher than had been feared.
“However, such respite could prove short-lived as the latter was largely predicated on an apparent softening of hostilities between the US and China in the latter part of the month, which has since evaporated. There will be a further signal on the state of the economy at the end of the week, with non-farm payrolls expected to show that 130,000 jobs will have been added in May compared to 177,000 the previous month and that the 4.2% unemployment rate will remain unchanged.
“In the meantime, US markets have repaired much of the damage wrought over the last few months although sentiment remains fragile. The Dow Jones and Nasdaq are down by 0.6% and 1% respectively in the year-to-date, while the 0.5% gain for the benchmark S&P500 has in part been driven by a resurgence of the mega cap technology trade,” Hunter said.
Asia markets under pressure
In addition to contending with the weekend comments, Asian markets fell foul of geopolitical uncertainty following the latest Russia-Ukraine developments, with the Hang Seng under pressure based on the renewed likely tariff hikes on aluminium and steel.
“Mainland China was closed for a public holiday, which could leave some losses being stored up ahead of its reopening, likely exacerbated by a report which showed a further contraction in factory activity over the last month,” Hunter added.
Perched high above the Cahuenga Pass, the 24-story Hilton Los Angeles Universal City Hotel is positioned to be a prime gathering spot for visitors arriving for the 2028 Summer Olympic and Paralympic Games.
Sun Hill Properties Inc., which manages the 495-room hotel, has already signed a “room block” agreement with the LA28 organizing committee, reserving hundreds of rooms for Olympics fans. The City Council recently approved a plan to let the Hilton add a second, 18-story tower, which would open just in time for the Olympics.
Now, the future of the $250-million expansion is in doubt. On Wednesday, the Los Angeles City Council is set to vote on a requirement that hotels with 60 or more rooms pay their workers at least $30 per hour by 2028, along with a new $8.35 per hour healthcare payment.
If the council approves the proposal without significant changes, Sun Hill “absolutely will be pulling out of the room block for the Olympics,” said Mark Davis, the company’s president and chief executive. The hotel’s investors will also kill the 395-room expansion, he said.
“Our board was very adamant that if [council members] go forward with this nonsense, that it’s dead,” Davis said. “They’re going to move the project somewhere else.”
The council voted 12-3 last year to instruct City Atty. Hydee Feldstein Soto to draft the package of minimum wage hikes, which would apply not just to hotels but also private companies at Los Angeles International Airport, such as airlines and concessions. The minimum wage would be the highest in the country, according to Unite Here Local 11, the hotel and restaurant workers union, which has championed the proposal.
Mark Davis, president and CEO of Sun Hill Properties, said a proposal to hike L.A.’s minimum wage for hotel workers would kill a plan for a new 18-story hotel tower unless it is reworked.
(Marcus Ubungen / Los Angeles Times)
Backers of the higher wage say L.A.’s tourism workers are struggling to pay for food and rent, and deserve to benefit financially from the Olympics just as much as private corporations. They dismiss the hospitality industry’s dire warnings, including the notion that increased wages will scuttle the development of new hotels.
City Councilmember Hugo Soto-Martínez said the Sheraton Universal Hotel, a nearby competitor of the Hilton, has already been paying a higher wage to its unionized workforce. The real threat to the development of new hotels, he said, is higher interest rates and the economic uncertainty surrounding President Trump’s trade policies.
“So, I just don’t buy it,” said Soto-Martínez, a former hotel union organizer, as he referred to Davis’ warning.
Under the city’s proposal, the hotel and airport minimum wage would reach $22.50 on July 1. It would jump to $25 in July 2026, $27.50 in July 2027 and $30 in July 2028. On top of those increases, the $8.35 per hour healthcare payment would go into effect on Jan. 1.
Business groups point out that two hotels have closed in the past year — Four Points by Sheraton next to LAX and Mama Shelter in Hollywood, for a loss of 270 jobs. They say Trump’s trade wars are driving down tourist activity from other nations, with visitors from Canada especially lagging.
Once the increases are in effect, business leaders say, hotels with on-site dining won’t be able to compete with non-hotel restaurants, which will have a much lower minimum wage.
Jon Bortz, chairman and chief executive of the Pebblebrook Hotel Trust, said his company is already looking at scaling back restaurant operations at two of its Southern California properties — the Kimpton Hotel Palomar and the W Los Angeles West Beverly Hills, both in Westwood near UCLA.
The Palomar will likely offset the cost of the higher minimum wage by converting its restaurant into a self-service breakfast operation, while the W will probably close at least one of its two restaurants, Bortz said. “We have to change the business model of these properties to have any hope of surviving,” he added.
Bortz said the proposed wage hikes, along with other hotel regulations approved by the City Council in recent years, have spurred Pebblebrook to look to other markets for new hotel projects.
“Frankly, the [L.A.] market, from a broad-based buyer perspective, has been crossed off the map by investors,” he said.
Hotels in other parts of L.A. are considering similar reductions. An executive with Lightstone Group, which owns the 727-room Moxy + AC Hotels near the Convention Center, told City Council members last year that the minimum wage proposal would likely result in the closure of Level 8, a collection of restaurants on the hotel’s eighth floor.
Mark Beccaria, a partner with the Hotel Angeleno near the 405 Freeway, said in a separate letter to city leaders that he would have to shutter not just the hotel’s restaurant but also its valet parking, eliminating 39 jobs.
“Common sense says you cannot raise wages over 50% in a year when revenues are down,” he said.
Kurt Petersen, co-president of Unite Here Local 11, accused the hotels of fear-mongering, saying they are misrepresenting the potential impact of the planned wage hikes. Hotel owners, he said, “act like the sky is falling every time they have to share profits with their workers.”
“This ‘Chicken Little’ stuff has got to end. Every single time, hotels cry poverty, and then a day later, they’re doing fine. It’s always the same routine,” Petersen said. “What’s not falling is rent and healthcare. What’s not sustainable is workers not earning enough to live in Los Angeles.”
The hospitality industry issued similar warnings a decade ago — when the council approved the current hotel minimum wage — only to see tourism flourish in the years that immediately followed, said Víctor Sánchez, executive director of the L.A. Alliance for a New Economy, a pro-labor advocacy group that produced a report on that phenomenon.
In Long Beach, where residents voted to raise the hotel minimum wage last year, revenue per available room was up 15.7% in March compared with the same month the prior year, said Sánchez, citing data from the real estate group CoStar.
L.A.’s political leaders have enacted a number of wage laws over the last few decades. The hotel minimum wage, approved by the council in 2014, is currently $20.32 per hour. The minimum wage for private-sector employees at LAX is $25.23 per hour, once the required $5.95 hourly healthcare payment is included. Then there’s the minimum wage for nearly everyone else in L.A., which is $17.28 per hour — 78 cents higher than the state’s.
The hourly minimum wage for hotel and airport workers was already slated to go up this year, as part of regularly scheduled increases in the city’s wage laws. Once the council showed interest in the much larger increases, business leaders began warning that hotel developers would take their business elsewhere.
Few were as dramatic as Davis, who told council members that their proposal, as drafted, would “likely kill” the Universal City Hilton’s 395-room expansion.
Davis, whose company has hotels in Simi Valley, Colorado Springs, Colo., and the greater Denver area, said his board instructed him last year to look at acquiring property outside of California, in markets that “make more sense financially for an investment of $250 million.”
“The owners investing this money, they have to look at the numbers,” he said in an interview. “Any project survives only by its numbers.”
The Universal City Hilton already pays most of its workers more than $25 per hour, while also offering healthcare coverage, Davis said. If those health plans have a financial value lower than the $8.35 per hour, the company will need to make up the difference, he said.
Davis said he, too, is looking at scaling back restaurant operations, which would likely require layoffs.
At one point, Davis’ project drew support from the city’s political leaders.
The Universal City Hilton reached an agreement early on with construction trade unions, promising to pay a higher prevailing wage to the estimated 1,000 construction workers who would work on the new tower.
In August, the council voted unanimously to seek an economic analysis that would determine whether the city should provide taxpayer assistance to the project. The analysis, requested by Councilmembers Nithya Raman and Soto-Martínez, would have explored whether to allow the hotel to keep a share of the tax revenues generated by the new tower.
Raman, whose district includes a portion of Universal City, did not respond to questions from The Times about the project — or the potential impact of the higher tourism wage.
In recent days, the Hotel Assn. of Los Angeles has been appealing directly to Mayor Karen Bass, purchasing digital ads that ask her to intervene on the minimum wage issue.
Bass, in an interview earlier this year, said she wants hotel workers to “make a decent living” while also ensuring that their employers “are able to survive.”
“We have to make sure that we can address both — that we can address the needs of the workers without crippling the industry,” she said.
Speaking after the trade talks, US President Donald Trump told reporters at the White House on Monday: “China will also suspend and remove all of its non-monetary barriers. They’ve agreed to do that,” he said. “It’s going to take a while to paper it. You know, that’s not the easiest thing to paper,” he added.
In early April, China imposed rare earth export restrictions on the US as a major non-tariff countermeasure in response to Trump’s reciprocal tariffs. The export controls affected seven critical minerals, on which the US heavily relies. These minerals are essential components in the manufacture of electric vehicles and electronic devices.
Trump’s remarks suggest that whether China will suspend or remove its export controls on these key minerals will be a central term in the negotiations. The removal or suspension of the controls could further bolster optimism surrounding a de-escalation of trade tensions.
On Monday, the world’s two largest economies reached an agreement to pause tariffs for 90 days. The US will reduce tariffs on China to 30% from 145%, while China will lower import levies on US goods to 10% from 125%.
Stock market rally loses steam
The broad-based market rally showed signs of retreat during Tuesday’s Asian session, indicating investor caution over the progress of US-China negotiations. Although both sides agreed to establish a mechanism for further discussions following the weekend’s talks, no specific dates have yet been set for future meetings.
US stock futures declined, pointing to a lower open. As of 4:50 am CEST, the Dow Jones Industrial Average fell 0.25%, the S&P 500 dropped 0.38%, and the Nasdaq Composite slid 0.47%. By contrast, European major index futures were more resilient, with the Euro Stoxx 600 slipping 0.17%, the DAX flat, and the FTSE 100 falling 0.23%.
Markets are awaiting further details of the agreement, particularly regarding China’s non-tariff countermeasures. Investors are also concerned about whether a comprehensive trade deal can be secured between the two nations after the 90-day pause.
“The critical issue from here is solidifying trade deals and ensuring the reduced tariffs don’t lapse after 90 days,” wrote Kyle Rodda, a senior market analyst at Capital.com, Australia, in an email. He added that markets would also look to see whether the US can achieve trade deals with other partners. “The markets will also want to see the US maintain this momentum and nut out deals with its other trading partners. Should that happen, the recovery in equities and the dollar ought to continue,” he said.
Euro rebounds from month-low
The US dollar weakened slightly against other major G10 currencies during the early Asian session. The EUR/USD pair rebounded to above 1.11 after falling to as low as 1.1065 on Monday – its lowest since 10 April.
The euro was seen as a major haven asset in April as the trade war heightened fears of a global economic recession. The common currency surged against the greenback last month to its highest level since November 2021. However, the euro’s rally could reverse course if future US-China negotiations lead to further de-escalation of trade tensions.
Investors appear to be seeking bargains in US assets amid an easing of risk-off sentiment. Despite the trade war, the impact on the US economy is expected to remain limited thus far. The market sell-off has been driven more by deteriorating sentiment than by any materialised downturn.
Markets will also turn their attention to the US Consumer Price Index (CPI) for April, due for release on Wednesday. Sticky inflation may further drive up the dollar, thereby putting pressure on the euro. Markets expect the Federal Reserve to reduce interest rates twice this year in response to tariff-driven inflationary risks. Meanwhile, the European Central Bank is also expected to continue its rate-cutting cycle on economic grounds, albeit on a meeting-by-meeting basis.
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