After a temporary thaw in Sino-US relations, China’s economy seems to be on the mend. The two countries appear to be deftly sidestepping the minefield that is their bilateral trade relationship. In the last week or two, rapid changes have created both opportunity and concern in international markets.
The short truce, initially set for 90 days, represents a major change. Only a month ago, growing tensions were the hallmark character of our trade relationship. The now-expired brief reprieve on tariffs has allowed China to show its true colors. Today, all sectors are booming and reacting favorably to the new economic climate.
The ongoing negotiations have sparked a wave of euphoria in the markets, although analysts warn that this enthusiasm may quickly fade. The euphoria around the US-China trade agreement is coming to an end. With uncertainties continuing to mount, investors have gravitated to safer assets, allowing gold prices to bounce back.
The economic environment is changing more incredibly than ever. Painting an optimistic picture, eyes are now on the upcoming release of the US Consumer Price Index (CPI) for April, which some economists predict will show stable inflation figures. The CPI excluding food and energy (core CPI) is forecast to remain unchanged at 2.8% YoY. At the same time, analysts predict that the general inflation index will increase at an annual rate of 2.4%. The full high-impact report comes out Tuesday. It will provide important clues regarding consumer price inflation trends and will help inform decisions about the future course of monetary policy.
Inflation hawks are on the warpath again. At the same time, the latest labour market statistics point to a minor increase in the ILO Unemployment Rate, which rose to 4.5% in the three months ending in April. Even with this increase, the GBP/USD currency pair sits fairly comfortably around 1.3200 as a result of strong employment data from the UK. In the background, the EUR/USD exchange rate remains above the 1.1100 level as investors focus on the upcoming US inflation data.
Market participants are now focused on assessing the initial effects of tariffs on both economies. Recent Chinese economic indicators point to a recovery following the mini-trade truce. Uncertainty looms about how long this good news will continue before the effects of tariffs are felt once more.
“Rising after the thaw: China’s economy post-trade truce” – source title
The themes of US-China relations are still shifting quickly and decisively, keeping the eyes of the entire investment community and policy community glued to rapid developments. The short-term nature of the trade truce means that there is even more urgency for business on both sides to pursue economic opportunities while they last. All stakeholders are hungry for long-term certainty. They’re deeply worried about what happens when that 90-day clock runs out — and the potential for resumed hostilities to resume.