Key Takeaways
- US-China trade tensions are escalating, with the US threatening to halt Chinese cooking oil purchases in response to reduced American soybean imports, a move China's Global Times deems "ineffective".
- Federal Reserve Governor Miran anticipates two more rate cuts this year, citing a weakened labor market, moribund housing, and increased downside risks to the economic outlook, while emphasizing Fed independence.
- ECB's Nagel sees an improving German economy and expects France to resolve its budget issues, but warns against complacency regarding sticky services inflation.
- Germany has ordered 20 new Eurofighters from Airbus (AIR), a deal valued at €3.75 billion, securing over 100,000 jobs across Europe.
- Ukraine is discussing a new International Monetary Fund (IMF) program with Managing Director Kristalina Georgieva, while geopolitical risks, including China's rare earth announcement, are being monitored.
Global financial markets are navigating a complex landscape marked by heightened US-China trade disputes, dovish signals from the Federal Reserve, and mixed economic sentiments from the European Central Bank. Geopolitical risks also remain a significant factor, with Ukraine seeking further international financial support and China making strategic moves in the rare earth sector.
US-China Trade Tensions Flare Up
Trade relations between the United States and China have intensified, with the US administration threatening to halt purchases of Chinese cooking oil. This move comes in retaliation for China's reduced imports of American soybeans, which the US President has labeled an "economically hostile act". An industry insider, however, told the Global Times that Washington's threat to "terminate business" would be "ineffective". China has reportedly stopped buying US soybeans months ago, with CME Soybean futures closed yesterday when the comments were made.
Adding to the trade friction, the Wall Street Journal reports that China is deliberately tanking markets to force major concessions from the US in ongoing trade talks. US Treasury Secretary Bessent has urged European allies to follow suit on tariffs against Chinese goods related to Russian oil purchases. Bessent also noted that IEEPA Fentanyl tariffs could be removed if China addresses the fentanyl issue for six months. Federal Reserve Governor Miran acknowledged that US-China tensions are a "potentially important" downside risk to the economic outlook.
Federal Reserve Signals Further Rate Cuts
Federal Reserve Governor Miran indicated that two more rate cuts this year sound realistic, pointing to a clearly weakened labor market and "moribund" housing sector as evidence of restrictive policy. Miran stated that the economy is more vulnerable to shocks due to current restrictive policies and that there is "more downside risk than a week ago". He expects unemployment to "edge slightly down" if policy moves are enacted.
Miran also expressed hope for inflation on the headline PCE to reach 2% in about a year and a half, noting that data are backward-looking and policy should be based on future price expectations. He anticipates "substantial disinflation coming from housing in coming months". Emphasizing the critical importance of Fed independence, Miran stressed that policy should be based on mandates, not an electoral calendar, and should remain non-political.
ECB Assesses European Economic Health
ECB's Joachim Nagel provided an optimistic assessment of the German economy, stating that it is improving. Nagel also expressed confidence that France "will find a solution" to its budget challenges, acknowledging that France "knows they have to agree on budget". Despite these positive signs, Nagel cautioned against complacency, particularly regarding sticky services inflation. He concluded that it is "too early to give indications about next rate move".
Geopolitical Developments and Defense Spending
Ukraine's Prime Minister announced discussions with IMF Managing Director Kristalina Georgieva regarding a new International Monetary Fund program. This comes as global geopolitical risks remain a concern. Fed Governor Miran noted a "new risk to the outlook because of China's rare earth announcement," although he added that it "has not materialized" economically. Miran also suggested a potential "geopolitical risk premium in the price of gold" but dismissed significant economic consequences, stating he does not care that gold is at a record high.
In a significant defense development, Germany has ordered 20 new Eurofighters from Airbus (AIR) to strengthen its air superiority. The first aircraft is scheduled for delivery in 2031, with the last in 2034, and the Eurofighter is planned to remain in service with the German Air Force until the 2060s. This order is expected to secure more than 100,000 jobs in Europe, with 25,000 of those in Germany alone.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.