Weekly house view | China plays hardball
The week in review
President Trump pivoted to a softer stance on China tariffs last week and said he had no intention of firing Federal Reserve Chair Powell, helping markets rebound. Trump said US tariffs on Chinese goods would come down substantially, and also claimed to have cut 200 trade deals. The White House indicated the China levies could fall from 145% to between 50 and 65%, while some tariff exemptions for the auto sector are reportedly on the way.
China, by contrast, showed no sign of de-escalating, insisting it was not in negotiations with the US on tariffs. Beijing wants Taiwan’s future included in a broader discussion. Underlining its tough stance, China has stopped imports of US liquefied natural gas and its state-backed funds are retreating from US private equity, while it has also seized a disputed reef, claimed by the Philippines, in a show of geopolitical strength.
In a positive development for markets, Fed Governor Waller indicated a potentially more dovish stance, saying rate cuts could come from rising unemployment. The market rebound was also supported by robust US earnings reports.
The S&P 500[i] rose 4.6% on the week. The 10-year Treasury yield fell to 4.26%, with the spread between 30-year and 2-year bonds continuing to broaden. Gold, asafe-haven asset, eased 0.2%.
Quote of the week
Trump said he had “no intention” of firing Powell. “None whatsoever,” Trump said in the Oval Office.
Key data
The S&P Global US services PMI declined by 3.0 points to 51.4, slightly below consensus expectations. The US manufacturing PMI increased by 0.5 points to 50.7, slightly above consensus. Crucially, export orders fell markedly and sentiment among companies about their output over the coming year dropped sharply to register the least optimistic outlook since July 2022. In the euro area, April's flash PMI surveys indicated slower activity in Q2, especially in services; manufacturing remains resilient. In the UK, CPI fell to 2.6% year-on-year in March from 2.8% in February. The April PMI shows contractions in manufacturing and services.