China’s Factory Slowdown May Speed Up Trade Talks

Hi, welcome to the market weekend review for the week ending June 6, 2025. My name is Alex Kusley. I'm a senior investment strategist based here in Sydney. Uh, and this week has been quite interesting from a markets perspective. We've seen US equities largely flat. Um, a little bit volatility but moving sideways. This is recording as of Thursday close. And similar with US bond yields, we haven't seen a great deal of direction uh either way on the US 10ear. So there's a couple of things to go through. I think the first is on trade. So last week we had uh some headlines that President Trump and the US administration were frustrated with China. They believed that China was dragging their feet in terms of some of the concessions they had provided or discussed uh in Geneva um largely around rare earths. uh and there was a push to get a phone call happening between Trump and Xi and that did happen this week and there are not many details but at least it's encouraging to see that they did commit to another round uh of trade talks. The second thing is on the data. So uh we've been highlighting for a while now this disconnect between the soft data so the consumer confidence and business confidence numbers that have been quite soft and the hard data so the spending the hiring decisions that were holding up quite nicely. Um it seems early days that the soft data is inflecting higher. So we've seen consumer confidence numbers picking back up. Um this week was a bit of a mixed picture for the hard data. So we had um well actually hard and soft. So we had the ISM services which was a little bit softer than expected. We had the jolts report which is job openings. Uh this is a bit large. It was for the month of April. That was a pretty big surprise to the upside. So it looks like there's pretty healthy rebound in labor demand coming from firms. And then later in the week, we had the ADP employment report, which is a privately run version of the payrolls report that is done by the government and that was notably softer. And so we'll get payrolls on Friday, so tomorrow um which we'll update you with next week. But it's a bit of a mixed picture uh this week on the data side. If I come closer to my home, so we got some data out of China and obviously there is a big backdrop of what is going on with trade. There is the front running that we saw of tariffs, but we got the PMIs from both the government run, the National Bureau of Statistics, and the Kaiin, which is the privately run. And they generally um they were biased towards the softer side. And so the the economy in China is still showing um is still struggling and not doing particularly well. And so I think that backdrop does reinforce the idea that they are probably more likely to want to come to the table and get to a trade deal because um that a a trade war would be quite a big hit with that backdrop of a softer economy. The final thing is on central banks. So this week we had both the European Central Bank and the Bank of Canada um meet. The European Central Bank cut interest rates by 25 basis points or 0.25% 25% as was largely expected by the market. Uh and the Bank of Canada held rates steady. And as we look ahead, um it's likely we see probably the scope for one or two more rate cuts from the ECB given the backdrop or the macro backdrop there. And the Bank of Canada we think are going to resume interest rate cuts through the rest of this year. And um it's really important to know that the the domestic economy is still not particularly great. Uh in Canada, there's growing labor market capacity. So the unemployment rate has been edging higher. Uh with that with those factors in mind, we think that there is scope for uh a little bit more easing from the Bank of Canada. So thank you for listening. I hope you've had a great week and we look forward to speaking to you soon. Bye. Hi, I'm Sophie, 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.