What the Tariff Truce Means for Recession Risks

"Hi, welcome to the market weekend review for the week ending May 17th uh to 2025. My name is Alex Kusley. I'm a senior investment strategist for Asia Pacific. Uh and really this week was another week of constructive market developments on the back of trade. So last week we had the US and UK agreeing to a trade deal and over the weekend uh coming into the week we had the beginning of the US China trade discussions. Uh heading into that there had been suggestions that the US would be open to lowering tariffs from the 135% and as it's as it landed um Trump announced that they would be reducing tariffs to 30%. Uh and China will be reducing them to 10%. So that's a very meaningful shift down uh from where they were previously sitting and this is for a 90-day truce effectively as they continue to build out um those negotiations. So that was quite an encouraging development in terms of the change on the effective tariff rate from the US. It's done it quite a it has come down quite a bit from where we were at the peak and that does reduce some of the recessionary pressures uh a little bit. So we're kind of still debating about 35 or 40% and we think probably towards the lower end of that is is probably appropriate for now. Um looking ahead there is still obviously a lot of work to be done on this USChina uh relationship and then we also have India, Japan and South Korea where discussions have been ongoing. It seems that India is more likely to be closer to an announcement than the latter two, especially given South Korea has some domestic political considerations. The second thing that's really come through this week from my perspective uh sitting here in Sydney is what is going on in China. So we got the credit numbers uh for the month of April and I think generally you know it suggests a continuation of the trend we've seen where then there isn't a huge pickup. It's a gradual improvement uh in some of the credit numbers, but you know, we aren't seeing a really resurgence uh in credit demand. I kind of think that reflects the domestic softness in the economy as well as some of that uncertainty around trade. Uh and so as we look forward, we think we're going to see more monetary policy easing from the central bank uh in China and potentially a little bit more fiscal stimulus. Uh that potential for that though has probably come off a little bit if this trade deal um is a sign of where things are going to land. The final thing you know in terms of the US economy is really around this soft versus hard data. So for a while now we've been seeing that surveys and softer data has been showing uh deterioration in uh in people's views on where the economy is going and to date we hadn't really seen much of a deterioration in the hard data. So we can track uh job listings uh on Indeed. we can track consumer spending through JP Morgan and Bank of America card data and all of those things were pointing that things were holding up pretty well. We got the retail sales number this week in the United States again that looked relatively okay. Uh and then the jobless claims again was quite healthy and so we aren't seeing any rising signs of stress in the labor market. So jobless claims have been fairly set in. From what we can see, consumers are holding up quite well. And so that divergence for now uh is continuing and perhaps with this trade negotiation developments, uh the soft data might be starting to bottom out and perhaps improve if these um more positive headlines continue. So with that, thank you for your time. Thanks for listening and we look forward to seeing you next week. Bye. Hi, I'm Sophie Antaly, head of portfolio and business consulting at Russell Investments. If you liked what you just saw and heard, consider subscribing to our YouTube channel or check us out on LinkedIn. Thanks for tuning in."