What Happened Last Week
- Markets Listless: Equity markets consolidated with notably lower volatility last week as investors digested the U.S.-UK trade framework and expectations for China talks.
- Weekend Negotiations: Talks with China yielded a better-than-expected outcome, reflected in early Monday trading.
- Monetary Policy: The Fed maintained a “wait and see” stance, pushing back expectations of cuts into the Fall.
What We’re Watching This Week
- Tariffs: Details and clarity on the path forward for China are crucial this week, while other potential deals loom in the background.
- U.S. Soft Data: Small business and consumer confidence reports update sentiment.
- U.S. Hard Data: Retail sales and Walmart earnings may show the impact of recent volatility on consumer spending, while April’s CPI report is unlikely to matter much given the recent tariff changes.
Investment Management Team’s Views
The main story of last week’s trading was the lack of volatility. All major equity markets consolidated in lackluster, low-volume action. That changed this morning due to the announced temporary lowering of tariffs with China from negotiations in Geneva over the weekend. This result exceeds the market’s expectations heading into the event, and we think that markets have room to extend in the near term due to more constructive positioning, falling volatility, and the relaxation of investors’ worst fears. We believe that markets expect this pause to be permanent, but the end state on trade is murky to us. We are watching if the Trump administration lets the recent good news build on itself or uses it to be more aggressive in implementing its tariff agenda.
The Fed meeting passed with little fanfare as the committee kept rates on hold and reiterated its “wait and see” stance. Powell still seems inclined to cut rates, but made relatively clear that the June meeting is off the table and July is also increasingly trending in that direction. That would leave any potential relief on the rate channel until September, although Fed messaging could guide market rates lower ahead of time. Meanwhile, global central banks continued to ease last week, with cuts from China, the UK, and a few smaller emerging market central banks.
This week is once again all about trade. Details from the China talks will define the week, while promises on further deals lurk in the background. Watch out for Tuesday’s court hearing on the legality of using the International Emergency Economic Powers Act (IEEPA) as a basis for tariffs. Economic data is like driving on the interstate through the rearview mirror, so don’t expect much from what would otherwise be important reports on inflation, retail sales, and Walmart’s earnings. Sentiment surveys for consumers and businesses are similarly dated.
