China’s Factory Slowdown May Speed Up Trade Talks
Key takeaways:
- U.S., China to resume trade negotiations
- Job openings rise in U.S.
- ECB cuts rates, BoC holds steady
On this week’s edition of Market Week in Review, Director and Senior Investment Strategist Alex Cousley discussed recent trade developments and economic data from the United States and China. He also unpacked the latest rate decisions from the European Central Bank (ECB) and the Bank of Canada (BoC).
Call Me Maybe
President Donald Trump and other U.S. officials recently expressed frustrations with China over a lack of follow-through on concessions made in May’s temporary trade deal. “In particular, government leaders complained China was dragging its feet on increasing exports of rare earth minerals to the U.S.,” Cousley explained.
The uptick in tensions between the two countries led both sides to push for a phone call between Trump and Chinese President Xi Jinping. Cousley said the two leaders spoke for 90 minutes on Thursday, with the details of their call mostly unknown.
“What we do know is that Trump and Xi committed to another round of trade talks, which is very encouraging to see,” he said.
Mixed Bag
Cousley said the latest U.S. economic data paints a mixed picture for the economy. Some “soft” data indicators—like consumer confidence—have improved, while other measures have declined. For instance, the PMI (purchasing managers’ index) reading for the services sector came in softer than expected, falling into contractionary territory for the first time in a year.
The latest “hard” data was also split, Cousley said. “The job openings report for April was a big surprise to the upside, showing a healthy rebound in labor demand from businesses. On the other hand, May’s employment snapshot of the private sector was notably weaker than April’s,” he commented.
In China, the latest PMI surveys were softer than expected, demonstrating the Chinese economy continues to struggle. “This suggests China will probably be more inclined to strike a trade deal with the United States. Being in the middle of a trade war while your economy is struggling would not be a good place to be,” Cousley said.
More Cuts Coming
Both the ECB and the BoC held policy meetings this week, with the ECB cutting rates by 0.25% in a widely expected decision. “Looking ahead, we expect one or two additional cuts from the ECB this year due to Europe’s macroeconomic backdrop,” Cousley said.
Meanwhile, the BoC left interest rates unchanged at 2.75%. However, Cousley said Canada’s central bank will probably resume rate cuts later this year.
“The Canadian economy is not doing particularly well. The unemployment rate is edging higher, which I believe strengthens the case for lowering rates in the months ahead,” he stated.