5/11 Weekly Macro Note: US/China Trade Discussion, China Tariff Pause?, Yen Weakens, Trade Euphoria, Vision Note

In this Weekly Macro Note - the team dives into the latest from the US/Chinese trade negotiations, equity markets surging on the news, where volatility stands, currency markets, and more.

More Trade Euphoria (@DonMiami3, MacroEdge Chief Economist)

Good Sunday evening MacroEdge Readers & Community, 

This evening we’re seeing some fresh optimism on the back of what will be a joint US-China trade announcement tomorrow. Given the timing being so close to the announcement of what will take place - there’s little reason to speculate as to what it might be. Based on various leaks and ‘sources’ – the market is anticipating anything from a tariff pause between the two countries to a reduction in the total tariff rate - ranging from anywhere between 34 and 80% (down from the current 145% level). The ‘gap and go’ move in markets has taken the Nasdaq above it’s rejection point from the end of March bounce that resulted in the Liberation Day panic and subsequent early April flash crash down to lower price levels. With fiscal engaging in what one might label a ‘headline blitzkreig’ and investor optimism rising back to the February extremes - we should evaluate the forces behind these rapid moves back towards higher price levels. A shift towards a tariff pause on China would be a positive signal to Wall St. that they’re back in the driver’s seat in terms of setting policy on the Hill - and this is further reinforced by Trump’s potential tax hike on earners above $2.5mm also being canned by the GOP in the House. We’re now back to a place where risk has been comfortably priced out of markets – so we’ll have to see how the press release materializes tomorrow – along with the many expected comments from both Trump Admin (and Chinese officials) materialize over the next week. 

With the Admin putting the equity market into the #1 mandate seat (and bonds for the time being taking a back seat) fighting this force hasn’t proved intelligent since we called out Central Bank intervention in early April as a major red flag to pressing for lower price levels in markets. With so much of the present US economy reliant upon high and constantly rising asset prices – as outlined in our February note ‘Standing on K2’ it is not unsurprising why the fiscal put has been pushed as hard as its being pushed right now. The Administration is shifting us back to a place where we ended the Biden term at (in terms of things like deficit spending, short-term issuance, & more). The 10Y has clearly lost its shine as a focus of the Admin, for now, however… 

Macro Data This Week: 

Monday, May 12

• United States

  • Release of the April Monthly Budget Statement

  • Joint statement from the U.S. and China on trade negotiation progress

• Japan

  • April Eco Watchers Survey

  • Bank of Japan Summary of Opinions from April meeting

Tuesday, May 13

• United States

  • April Consumer Price Index (CPI)

• Japan

  • April Producer Price Index (PPI)

Thursday, May 15

• United States

  • April Producer Price Index (PPI)

  • April Retail Sales

  • April Industrial Production

  • Fed Chair Powell scheduled to speak

• Japan

  • Preliminary Q1 Gross Domestic Product (GDP)

Friday, May 16

• United States

  • April Housing Starts

  • April Building Permits

  • Preliminary May University of Michigan Consumer Sentiment

• Japan

  • Final March Industrial Production

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US/China Relation ‘Reset’? 

The timing of statements issued by US/China officials highlighted a warming of some very frosty relationships over the past 2 months (in terms of trade) and markets responded to this very positively. While we know very little about what was discussed or agreed upon - some expect a full tariff pause, while a more likely outcome remains something along the lines of a tariff reduction to 34-80% (or a combination of the two - with some goods having pauses on their tariffs from China, with reduced rates on others). The market priced in a lot more positive, with very little detail, though we’ll have some information tomorrow on the timing of further negotiations and a timeline for de-escalation of the 145% tariffs. Brief summary of the weekend events: