Key Takeaways
- China and U.S. reach rare mineral deal
- U.S. inflation numbers ease
- UK economy shrinks
On this week’s edition of Market Week in Review, Senior Investment Strategist and Head of Canadian Strategy, BeiChen Lin, discussed recent trade developments between the United States and China. He also unpacked the latest economic numbers from the U.S. and Britain.
The New Deal
Following last month’s temporary tariff truce, the U.S. and China reached another agreement on trade this week. During talks in London, Chinese leaders agreed to reduce export controls on rare earth minerals, while U.S. officials agreed to lower restrictions on sales of jet engine components.
“It’s encouraging to see the two sides talking again, especially since the pause on some of the larger tariffs between the U.S. and China expires in August. It’s in the best interest of both countries to negotiate an extended deal before then—one that brings tariffs down to a more measured level,” Lin said.
He added that the pause on reciprocal tariffs the U.S. slapped on other nations expires even sooner, in early July. “There’s been rumblings the Trump administration may be close to striking deals with a few trading partners, but uncertainty remains high,” Lin remarked.
Easing Up
This week, U.S. investors received good news on the inflation front, with consumer prices rising by less than expected during May. Wage growth was also positive but stable, at around 4%, Lin said.
“This is a level the U.S. Federal Reserve (Fed) will probably be comfortable with. It’s a healthy pace of growth that’s not hot enough to potentially feed into inflation,” he explained. In another positive development, Lin noted consumer inflation expectations declined from April to May.
With the economy remaining resilient, he said the Fed might not resume rate cuts until September. “The unemployment rate is holding steady at 4.2%, and job creation last month was slightly higher than expected. This means the Fed doesn’t necessarily need to lower rates right away. Over time, however, we expect officials to gradually lower rates to neutral levels,” he stated.
Slowing Down
A key theme this year is that the risks of an economic slowdown look higher outside the United States. The latest economic data from the UK suggests just that, Lin said. He explained that GDP (gross domestic product) in Britain shrank by 0.3% in April as the services sector contracted and goods exports to the U.S. fell sharply. In addition, the country’s unemployment rate rose to the highest level since 2021.
Still, markets expect the Bank of England (BoE) to forgo a rate cut during next week’s meeting. However, Lin said more cuts look likely later this year. “With all the economic challenges facing Britain, we think the BoE will have to start cutting rates again in the months ahead,” he concluded.