When the U.S. announced it had a trade deal with the United Kingdom, stock markets rallied. However, the stock markets peaked from 1 p.m. to 3 p.m. By the end of the day, the buying momentum slowed. What happened?
The deal with the U.K. is not finalized. Currently, the U.S. has a trade surplus with the U.K., so the market is concerned about tariffs on net exporting countries. The draft deal will benefit the automotive market. Instead of a 25% tariff on foreign cars imported by the U.S., the U.K. may export up to 100,000 vehicles at a 10% rate.
Watch China
U.S. trade with China, Canada, and Mexico is significantly bigger. No initial terms are in place yet. Ahead of any discussions, China cut interest rates by a modest 10 basis points to 1.4%. It also lowered the reserve requirement ratio for banks. That would increase liquidity and lighten credit conditions. This should weaken the damage that tariffs are having on China’s economy.
Investors may infer that other countries will follow China’s monetary loosening policies. Bank stocks like JPMorgan Chase (JPM), Bank of America (BAC), and Citigroup (C) traded higher. Their share price erased more than the April selloff induced by Liberation Day tariffs.
Your Takeaway
The White House is a long way from agreeing to sharply lower tariffs against China, Asian countries, and its neighbors. The global economy remains at risk of a slowdown until the U.S. settles on slashing the proposed tariffs. Until then, look out for the 20+ Year Treasury Bond ETF (TLT) re-testing recent lows.
