Bessent Says US has 'Makings of a Deal' With China

Economic

China–U.S. Trade War

Summary:

U.S. negotiators "pushed back quite a bit" over two days of trade talks with the Chinese in Stockholm this week, Bessent told CNBC.

-U.S. Treasury Secretary Scott Bessent said on Friday that he believed that Washington has the makings of a deal with China and that he was "optimistic" about the path forward.

"This week's negotiations in Stockholm have advanced our talks with China, and I believe that we have the makings of a deal that will benefit both of our great nations," Bessent said in a post on X that was subsequently deleted.

"I am optimistic about the path forward," he added.

A Treasury Department spokesperson said the post was being reposted because the images attached to it had not uploaded correctly. The spokesperson also noted that the language in the post was in line with what Bessent had said in various media interviews this week.

In an interview with CNBC on Thursday, Bessent said the United States believes it has the makings of a trade deal with China, but it is "not 100% done."

U.S. negotiators "pushed back quite a bit" over two days of trade talks with the Chinese in Stockholm this week, Bessent told CNBC.

China is facing an August 12 deadline to reach a durable tariff agreement with President Donald Trump's administration, after Beijing and Washington reached preliminary deals in May and June to end escalating tit-for-tat tariffs and a cut-off of rare earth minerals.

Source: Bloomberg

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Manuel

Stocks

Bond

Wall Street saw a broad flight from risk assets, with stocks sinking amid mounting signs of job-market weakness, President Donald Trump’s latest volley of tariffs and geopolitical worries. Short-term Treasury yields plunged the most since 2023 on bets the Federal Reserve will cut rates.

The S&P 500 sank 1.6%, the most since May. An uninspiring outlook from Amazon.com Inc. spurred a rout in megacaps. A closely watched volatility gauge - the VIX - topped 20. Two-year yields tumbled 28 basis points to 3.68%. The dollar snapped a six-day advance. Gold climbed as Trump said the US is moving two nuclear submarines to respond to “provocative” statements from former Russian President Dmitry Medvedev.

Job growth cooled sharply and the unemployment rate rose, with payrolls increasing 73,000 in July after the prior two months were revised down by nearly 260,000. In the last three months, employment growth has averaged a paltry 35,000. Money markets fully priced in two rate cuts in 2025, with a 90% chance of a reduction in September.

“What had looked like a Teflon labor market showed some scratches this morning,” said Ellen Zentner at Morgan Stanley Wealth Management. “A Fed that still appeared hesitant to lower rates may see a clearer path to a September cut, especially if data over the next month confirms the trend.”

The pullback in stocks marked a sharp reversal for markets that had raced to record highs on the back of resilient economic growth, signs of cooling inflation, and a frenzy for AI-linked shares. With valuations elevated, traders are now confronting a harsher backdrop amid renewed debate over how quickly the Fed might be forced to cut rates.

“The debate now is whether the White House was right, and the Fed was too late,” said Scott Helfstein at Global X. “The Fed was probably right to wait, but job growth and the economy is slowing from a blistering rate.”

Trump told officials to fire Erika McEntarfer, the commissioner of the Bureau of Labor Statistics, hours after a report showed US job growth cooled sharply.

“The US public statistics represent the gold standard,” said Neil Dutta at Renaissance Macro Research. “Calling them into question because they tell you something you don’t like undercuts market confidence.”

Cleveland Fed President Beth Hammack, speaking on Bloomberg Television after the numbers came out, said the labor market still looked healthy — though it was a “disappointing report to be sure.”

Ahead of the data, Fed Governors Christopher Waller and Michelle Bowman issued statements explaining why they dissented Wednesday from the decision to hold rates steady, expressing concerns that hesitance to cut rates could risk unnecessary damage to the labor market.

Trump said Fed Chair Jerome Powell should be put “out to pasture” and called on the central bank’s board to “assume control” if rates were not lowered.

Fed Governor Adriana Kugler will step down from her position on the central bank’s board, handing Trump a sooner-than-anticipated opportunity to install a new policymaker who aligns with his vision for rates.

To Alexandra Wilson-Elizondo at Goldman Sachs Asset Management, the jobs miss directly challenges the Fed’s hawkish posture from this week’s meeting.

“Just two days after the conclusion of this month’s Fed meeting, suddenly the dual mandate is back on the table,” said Chris Zaccarelli at Northlight Asset Management. “The Fed will again need to balance a slowing job market with inflation which isn’t slowing fast enough.”

Today’s report provides the evidence the Fed needs to make a September rate adjustment, so the only question is how large that will be, according to Rick Rieder at BlackRock.

“September is a lock for a rate cut — and it might even be a 50-basis point move to make up the lost time,” said Jamie Cox at Harris Financial Group.

At eToro, Bret Kenwell says the most-obvious question is: How would the Fed handle a slowdown in the labor market alongside a rise in inflation?

“While neither is at an extreme right now, inflation is moving higher and the labor market is losing steam,” he said. “When push comes to shove, the Fed would likely step in by easing financial conditions if the labor market truly begins to deteriorate, but it may not be as fast or as accommodating if inflation remains stubbornly high.”

To Marvin Loh at State Street Global Markets, the latest jobs data signal what a tough balancing act the Fed has given that wages are still growing at a decent clip and tariffs are still a major uncertainty.

Four months after Trump shocked the world by unveiling a placard full of tariff rates, his revisions Thursday left investors scrambling to grasp the full impacts of those levies. At an average of 15%, the world is still facing some of the steepest US tariffs since the 1930s, roughly six times higher than they were a year ago.

“Our base case remains that the US effective tariff rate should settle at around 15% by the end of the year, and the economic impact is likely to prove manageable,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. “Still, tariffs are a headwind for global trade and growth, and they have started to contribute to a rise in inflation.”

With markets already pricing in much of the good news on the trade front, she expects stock volatility to pick up in the near term.

Source: Bloomberg

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Manuel

Central Bank

Political

The Federal Reserve said Friday that Governor Adriana Kugler is resigning early from her term and will exit the central bank on Aug. 8, potentially shaking up what was already a fractious succession process for Fed leadership amid difficult relations with President Donald Trump.

The Fed said in a statement that Kugler, who became a governor in September 2023, will leave before her term’s conclusion, which was scheduled for Jan. 31, 2026. In a press release, the Fed said Kugler will return to Georgetown University as a professor next autumn.

Kugler did not attend this week’s rate-setting Federal Open Market Committee meeting, which is unusual.

Kugler’s early exit may shake up the timeline for the succession process now surrounding Chair Jerome Powell, whose term ends next May. Trump has threatened to fire Powell repeatedly believing interest rates should be much lower than they are.

Trump will now get to select a Fed governor to replace Kugler and finish out her term. Some speculation had centered on the idea Trump might pick a potential future chair to fill that slot. The White House did not immediately respond to a request for comment about the Fed appointment.

In a letter to Trump announcing her resignation, Kugler wrote “I am proud to have tackled this role with integrity, a strong commitment to serving the public, and with a data-driven approach strongly based on my expertise in labor markets and inflation.”

Kugler’s time at the Fed was a challenging one as central bankers raised rates aggressively to combat high inflation pressures. Those high rates have put them in the crosshairs of Trump and have caused economic challenges, although inflation pressures have moved much closer to the 2% target.

Source: Reuters

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Manuel

Economic

Central Bank

For months, Wall Street brushed off Donald Trump’s trade war and the Federal Reserve’s higher-for-longer stance — confident a resilient economy would keep propping up US markets.

This week, that confidence began to unravel. Weak job growth and Trump’s latest volley of tariffs rattled investors, intensifying pressure on Fed Chair Jerome Powell to lower interest rates and exposing a new unease with the White House’s protectionist push.

A three-month stretch of nearly unbroken market calm was shattered on Friday after a US report showed a sharp slowdown in the labor market. Traders rushed into the safety of government bonds — pushing down yields on two-year notes to 3.71% in the biggest drop since last August — while ramping up bets for a rate cut next month. The dollar fell and the S&P 500 Index continued its retreat from an all-time high, poised for the worst week since April.

“Today’s release is best characterized as ‘bad news is bad news’ in our view,” said Jeff Schulze, head of economic and market strategy at ClearBridge Investments. “With job creation at stall-speed levels and the tariff headwind lying ahead, there’s a strong possibility of a negative payroll print in the coming months which may conjure up fears of a recession.”

The lackluster jobs results prompted Trump to direct officials to remove the commissioner of the Bureau of Labor Statistics, accusing Erika McEntearfer of politicizing the data without any evidence.

“The US public statistics represent the gold standard,” said Neil Dutta, head of economics at Renaissance Macro Research. “Calling them into question because they tell you something you don’t like undercuts market confidence.”

Geopolitical tensions added to the risk-off tone across markets. Trump said he ordered nuclear submarines to be deployed “in the appropriate regions,” citing “highly provocative” remarks from former Russian President Dmitry Medvedev.

The market action marked a sharp reversal from July, when the dollar rallied, haven trades were abandoned and US equities outpaced their international peers, buoyed by robust earnings and a still‑healthy economy.

By week’s end, that narrative looks far more tenuous. Trump’s new tariffs — lifting the average US levy on global imports to 15%, the steepest since the 1930s — landed just as data showed that job growth averaged a paltry 35,000 in the last three months, the worse since the pandemic in part due to Trump’s efforts to pull back spending. The prospect for a slowdown caused traders to ratchet up the likelihood for a rate cut in September to 88%, up from 40% earlier this week.

‘Eyes on the Exit’

“Lots of folks have their eyes on the exit door,” said Joe Saluzzi, co-head of equity trading at Themis Trading. “Weak job numbers should solidify the rate cut story for September, but there is some worry that the Fed is waiting too long.”

The specter of lower rates sent the dollar down as much as 1%, the worst intraday drop since April. Economically sensitive companies led the retreat in the S&P 500 amid growth angst. The Russell 2000 Index of small-caps extended declines for a fifth day, poised for the worst week in four months.

The latest data, which also showed that US manufacturing contracted by the most in nine months, casts into sharp relief the conundrum that Powell, and rest of the Fed’s rate-setting committee, face in the weeks and months ahead, as Trump and his administration ramp up their criticisms that the central bank isn’t moving quickly enough to lower rates.

Many economists have noted that Trump’s punitive tariffs and his attempt to single-handedly rewrite the rules of international trade are now undermining the economy that lower rates would help support — by raising the cost of production for US companies and imposing a tax on ordinary Americans. At the same time, those very tariffs may spur a pickup in inflation, which could prevent the Fed from easing, even as the labor market weakens.

The current state of play has undercut investor confidence in the direction of the US economy, and by extension, where asset prices are headed.

Volatility whipped up across markets as traders re-assessed the economic reality after $15 trillion was added to equity values since April. The Cboe Volatility Index, a gauge of equity options cost, jumped above the widely watched level of 20 for the first time since April’s tariff-induced rout. Similar measures on high-yield and investment-grade bonds also climbed.

“Investors may have gotten too complacent while waiting for the impacts of slower economic activity resulting from tariffs and higher interest rates,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “The economic cooling associated to tariffs is beginning to take hold. Softer labor conditions should raise eyebrows at the Fed and knowing they have been a reactionary organization in recent years, we should expect a higher chance of Fed action in the coming months.”

The dual retreat in the US dollar and equities is a reminder that American assets aren’t impervious to economic and geopolitical shocks. Betting against the dollar — voted as the “most crowded trade” for the first time on record in Bank of America Corp.’s survey of money managers — turned out to be one of the biggest blunders as the greenback posted its first monthly gain since Trump took office. US skeptics, who continued to dominate in BofA’s survey, also had a setback in stocks as the S&P 500 outperformed the rest of the world for a third straight month.

Significant Negatives

The renewed weakness likely marked a welcome development to those who stuck to a preference in non-US assets of late. Rich Weiss, chief investment officer for multi-asset strategies at American Century Investment Management, has continued to be underweight US equities, citing stretched valuations.

“There are significant potential negatives out there with the deficit, tariffs and inflation,” he said. “The overall volatility, which President Trump himself induces into the whole equation, indicates we still should remain somewhat cautious.”

The whiplash between the America First trade and doubts on the strength of the US economy is creating headaches for money managers who are already struggling to keep up with fast-shifting market narratives.

Take those who make investments based on macroeconomic and market trends. The HFRX Macro/CTA Index is down 3% this year, poised for the worst annual performance since 2018.

“While growth had been firm and investors had become more sanguine on tariffs in recent months, the combination of today’s weak employment report and the tariff uncertainty is challenging,” said Jeffrey Palma, head of multi-asset solutions at Cohen & Steers. “This backdrop is a reminder that there are big risks ahead.”

Source: Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

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Manuel

Commodity

Economic

Oil sank as the outlook for the world’s largest economy darkened after a barrage of poor US data and tariff announcements, weighing on the prospects for energy demand growth.

West Texas Intermediate crude fell 2.8% to settle near $67 a barrel on Friday, the biggest plunge in a single day since June 24. Prices also came under pressure as investors widely anticipate that OPEC and its allies will decide to add more supplies to the market during an upcoming weekend meeting.

US jobs growth cooled sharply over the past three months, while factory activity contracted in July at the fastest clip in nine months, in a sign the economy is shifting into a lower gear amid widespread uncertainty. The swath of bearish data increased investor concerns that the impact of US President Donald Trump’s ever-changing tariff rates — which had so far been muted — has finally begun to weigh on economic growth.

The weaker data come as Trump finalized plans for tariffs on several countries, including a higher rate on neighbor Canada, though oil is exempt.

“Tariffs are now officially a part of daily life. With the catalyst in the rearview, focus must shift to the fallout,” said Daniel Ghali, a commodity strategist at TD Securities.

Oil traders had been forced to the sidelines in recent weeks as numerous wild cards surrounding US trade policy and OPEC+ production confounded supply-and-demand outlooks. The unpredictable environment, which initially caused wild price swings earlier in the year, has dampened risk-on sentiment and sapped volatility from the market.

The potential onset of an economic slowdown threatens to coincide with a period for oversupply widely expected for later this year. Second-quarter earnings for oil industry giants blew out expectations, with record oil production blunting the impact of lower crude prices. Exxon Mobil Corp. pumped the most oil for this time of year in a quarter century, and expressed little intention of slowing down US shale output. Meanwhile, Chevron Corp. is expected to lift output to an all-time high of almost 4 million barrels of oil equivalent a day later this year.

Fueling further bearish sentiment, traders expect OPEC+ to agree on another 548,000 barrels-a-day boost. The cartel is scheduled to meet this weekend.

“With those dynamics, we probably see some price pressure in the second half of the year,” Chevron Chief Financial Officer Eimear Bonner said in an interview. “We’re positioned for all price environments so if we see the softening, if it does in fact play out, we’re in a good spot.”

Still, there are bullish factors at play. Prices eased off of intraday lows on Friday after Trump said in a social-media post that he deployed two nuclear submarines in response to “highly provocative” statements from former Russian President Dmitry Medvedev.

“Traders appear to be taking a wait-and-see approach, as there’s still time before the negotiation deadline and this is more of a deterrent action,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group.

Trump’s decision to deploy the submarines is in line with his hardening stance against Russia over recent weeks. His threat to impose tariffs on nations buying barrels from Moscow had helped propel oil prices to the highest in a month earlier this week. The US President singled out India for buying Russian crude, a move that caused the nation’s state-run refiners to come up with plans to buy alternatives, a directive amounting to scenario planning, according to a person familiar with the matter.

On Friday, one Indian refiner snapped up large volumes of supplies from the US and UAE.

Source: Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

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Devin

Political

President Donald Trump on Friday said that he ordered two nuclear submarines "to be positioned in the appropriate regions" in response to warnings made to the United States by top Russian official Dmitry Medvedev earlier this week.

"Based on the highly provocative statements of the Former President of Russia, Dmitry Medvedev, who is now the Deputy Chairman of the Security Council of the Russian Federation, I have ordered two Nuclear Submarines to be positioned in the appropriate regions, just in case these foolish and inflammatory statements are more than just that," Trump said in a Truth Social post.

"Words are very important, and can often lead to unintended consequences. I hope this will not be one of those instances. Thank you for your attention to this matter!"

FILE PHOTO: Russia's Security Council's Deputy Chairman Dmitry Medvedev attends a meeting of the Council for Science and Education at the Joint Institute for Nuclear Research in the Moscow region's city of Dubna, Russia June 13, 2024.

Medvedev, in a post on X on Monday, wrote, "Trump's playing the ultimatum game with Russia: 50 days or 10… He should remember 2 things."

"1. Russia isn't Israel or even Iran. 2. Each new ultimatum is a threat and a step towards war," Medvedev wrote.

"Not between Russia and Ukraine, but with his own country. Don't go down the Sleepy Joe road!" Medvedev added, referring to former President Joe Biden.

Source: CNBC

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Manuel

Cryptocurrency

Stocks

A complex mixture of news and data is hitting stocks to close out the week. One side effect: a drag on crypto-related investments, which not long ago were riding high on big-picture optimism.

Shares of Coinbase Global (COIN), which late Thursday reported quarterly results that missed revenue expectations (though also included signs that the current quarter's trading volume was looking better than the last), were recently down 17%, among the worst performers on the S&P 500. Robinhood Markets (HOOD), which turned in strong quarterly numbers earlier this week, was almost 2% lower Friday afternoon.

Bitcoin, which touched $120,000 not too long ago, is now below $115,000. Leading bitcoin treasury Strategy (MSTR), formerly known as MicroStrategy, is off about 8%.

Some of this is likely tied to a risk-off sentiment seen in Friday's broad trading, with all three major U.S. indexes down substantially amid fresh trade uncertainty and a July jobs number that—while perhaps strengthening the case for an interest-rate cut by the Federal Reserve—may also signal economic deterioration.

Analysts Pull Back on Crypto-Stock Enthusiasm

A recent run of strong results for tech and other stocks could also simply mean investors are taking a breather. Retail investors, according to Vanda Research, have lately pulled back from the most-speculative stocks after a short-lived meme-stock frenzy. On crypto stocks specifically, some analysts have shifted to more wait-and-see attitudes; Morgan Stanley reiterated a "neutral" rating on Robinhood Thursday.

But some bulls are still running strong, noting recent regulatory wins and signs of future regulatory clarity that reinforce the belief that crypto's best days lie ahead.

Oppenheimer analysts on Friday trimmed their price target on Coinbase by a few dollars to $413, holding well above the Street's roughly $383 average. They called the latest pullback "an attractive buying opportunity" and generally characterizing Thursday's results as meeting expectations.

And Deutsche Bank on Thursday lifted its target on Robinhood to $118, which is $6 above the Street's average. "We believe our forecasts could actually be conservative given the potential upside from continued strong execution on [Robinhood's] product roadmap," they wrote.