May 30 – Stock futures came under modest pressure overnight following an Appeals Court decision that reinstated President Trump’s reciprocal tariffs. Those losses increased this morning following a social media post by President Trump stating that China has violated its agreement with the United States. However, this morning’s economic data cut those losses somewhat as we head into today’s trading session. The VIX is trading near 20, while the dollar index is trading near 99.4. Yields on 10-year Treasuries are trading near 4.42%, while yields on 2-year Treasuries are trading near 3.94%. Crude oil prices, along with the grain and oilseeds, are mostly weaker.
China has “totally violated its agreement with us,” according to a Truth Social platform post by President Trump early this morning. The president went on to say that he made a “fast deal” with China in mid-May to “save them from what I thought was going to be a very bad situation, and I didn’t want to see that happen. Because of this deal, everything quickly stabilized and China got back to business as usual. Everybody was happy! That is the good news!!! The bad news is that China, perhaps not surprisingly to some, has totally violated its agreement with us. So much for being Mr. Nice Guy!” That last part was probably what impacted Wall Street the most, as it suggests that perhaps President Trump is considering specific actions to shut down trade with China once again.
The above post comes the day after an U.S. Federal Appeals Court reversed the decision of the Federal Trade Court the previous day that had stated that the president’s reciprocal tariffs were illegal. China and the United States reached an agreement on May 11 to essentially pause their tariff war for 90 days, although both left additional 10% tariffs in place against each other, while the United States also left an additional 20% tariff on China due to the flow of fentanyl into this country. That led to U.S. retailers rushing to stock up on inventories again for the approaching Christmas shopping season – at least their attempting to do so. The president’s comments this morning reinstate some uncertainty going forward. U.S. Treasury Secretary Scott Bessent admitted this morning that follow-up negotiations between China and the United States have stalled, and getting a deal would likely necessitate direct involvement of President Trump and Chinese President Xi.
A recent survey suggests that the current trade tensions are making European businesses reluctant to do business in China. The survey conducted by the European Union Chamber of Commerce was conducted in January and February, garnering data from 500 chamber members. Just 29% of the respondents expressed optimism about growth prospects in China over the next two years, which is the lost response since 2013. Meanwhile, 49% held negative expectations for their earnings in China. The main mentioned concerns were the trade war and geopolitical tensions. EU businesses have cut their new investments in China in roughly half compared to 10 years ago, according to the survey, with just 12% of respondents rating China as their best destination for future investment.
The reciprocal tariffs announced on April 2 dramatically reduced imports into the United States, according to data released this morning, following a surge of inventories as retailers stocked up in March. This morning’s data revealed that the imbalance of trade shrank to -$87.6 billion in April, down from -$162.3 billion in March, and much better than the -$143.0 billion expected by analysts. Imports fell 19.8% on the month in April, after being up 5.7% in March. Exports rose 3.4% on the month in April, after rising 2.3% in March. First quarter GDP was negative by 0.2% due to the surge of imports in March as retailers stocked up ahead of the reciprocal tariffs. This morning’s data suggests that we should see stronger GDP data for the second quarter due to the sharp improvement to the trade imbalance in April.
Personal income rose 0.8% on the month in April, up from 0.7% growth in March and well above the 0.3% growth expected by analysts. Personal consumption expenditure rose 0.2% on the month in April, down from 0.7% growth in March when consumers were stocking up ahead of the tariffs, but matching analyst expectations. So, in other words, consumers pulled back spending in April due to the tariff uncertainty, as consumer sentiment tumbled, but their income remained strong. Recent data indicating a resurgence in consumer confidence suggests that we should see a return of consumer spending show up in the data.
The PCE price index rose just 0.1% month-on-month in April, after being flat in March, but matching analyst expectations. The PCE price index rose 2.1% on the year in April, putting it just slightly above the Federal Reserve’s 2% mandate. The April number was down from 2.3% in March, but it matched expectations. The core PCE price index that excludes the more volatile food and energy sectors also rose just 0.1% on the month in April, up from 0.0% in March, but matching expectations. The core PCE price index was up 2.5% on the year in April, down from 2.7% in March, but matching analyst expectations.
