New China Trade Deal Spurs Optimism as Clock Ticks

Transcript

Hello everyone and welcome to market weekend review for the week ending June 13th, 2025. My name is Beethin Lynn. I'm a senior investment strategist and head of Canadian strategy here at Russell Investments. On this week's edition of Market Weekend Review, we'll be discussing three topics. First, we'll talk about the latest in the US China trade developments as well as some other developments related to the US tariff situation. Next, we'll talk about the US inflation backdrop and what it means for the Federal Reserve. And finally, we'll wrap up with a look at the British economy. So, let's get started. This week, there was another trade deal reached between the US and China. Now, I know what some of you are thinking. Wasn't there already a trade deal that was reached between these two countries back in May? And the short answer is yes. In May, both sides agreed to pause some of the larger tariffs on each other such that China would only impose a 10% additional tariff on US imports into China and the US would only impose a 30% tariff on the imports of goods it gets from China. Now, at this week's meetings, both sides agreed to reduce the amount of export controls they've implemented against the other nation. So for China they've agreed to reduce the amount of export controls on rare earth minerals and for the US they've agreed to reduce the amount of ex export restrictions on jet engine components for example. So it's encouraging to see that both sides are talking. However, one risk factor that remains is that the pause on some of those larger tariffs that expires in August. That being said, we do think it's in the best interest of both countries to ultimately negotiate a deal with each other, an extended deal that sees tariffs go back down to a more measured amount. And so it will be something we'll have to keep an eye on. In addition, you'll remember that some of the larger reciprocal tariffs on other US trading partners were also paused for 90 days. Now, that pause expires a little bit earlier sometime in early July. And so, that's going to be another key point to monitor. There have been some rumblings of potential accelerations in trade deals with some of these trade partners, but it is once again something that's highly uncertain and subject to change. So, the next thing we're going to discuss is the US inflation picture. Now, this week we got several pieces of good news on the US inflation front. the consumer price index. We saw both headline and core measures of inflation come in softer than expected and also at the same time we saw wage growth was positive but stable. In other words, with nominal wage growth at around 4% this is a level that the Federal Reserve is probably comfortable with. It's still a healthy pace of wage growth but not overly hot to the point that it could potentially feed into inflation. In addition, we saw that consumer inflation expectations as measured by the Federal Reserve Bank of New York actually fell somewhat compared to the previous month. So people are expecting a little bit lower of an inflation rate than what they were anticipating last month. And so all of those are positive developments, but at the end of the day, we still expect that the Federal Reserve might not continue its rate cutting cycle until September of this year. And part of the reason is because the US economy for now still remains quite resilient. The unemployment rate stands at 4.2%. Job creation came in slightly higher than expected. And so bottom line, this is a Federal Reserve that doesn't necessarily need to cut interest rates right away, but we still continue to think that over time the Federal Reserve will gradually normalize interest rates. And finally, let's talk about the United Kingdom. Now, one of the themes we've emphasized throughout this year was that non US might face more cyclical risks than the US and that was apparent with some of the economic data we got from the United Kingdom where GDP in the month of April actually contracted. We saw contractions in both the services side and the goods side that was somewhat offset though by stronger than expected data on the construction side of things. Meanwhile, from the unemployment rate perspective, the unemployment rate came in in line with consensus expectations, but accelerated from the previous month. And overall, the unemployment rate now stands at the highest level since 2021 in the United Kingdom. Markets for now continue to expect that the Bank of England will remain on hold when they meet next week. But ultimately because there are a lot of economic challenges in Britain, we continue to think that they will eventually have to resume their rate cutting cycle and ultimately also take rates down to a more neutral setting over time. That's all for us this week. See you next time on Market Weekend Review. 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.

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.

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