Trump's First Term Shows why Markets are Cautious on the China Trade Deal

China–U.S. Trade War

Economic

Summary:

The framework agreement announced on Tuesday outlines how the two nations will continue trade talks. Importantly, it involves China allowing exports of rare earth minerals.

The stock market has been encouraged by easing tensions between the US and China in recent weeks, but investors were largely unmoved by the announcement of a trade deal between the superpowers on Tuesday.

US stock futures failed to climb on news of the deal late Tuesday evening. While markets are edging higher on Wednesday, that's largely because the consumer price index report for May showed inflation was tamer than expected at 2.4% year-over-year.

On the trade front, observers say it's looking more likely that the trade war will shake out like it did during President Donald Trump's first term, with talk of constructive deals even as tensions remain elevated.

Simply put, investors see a long and winding path ahead, and knee-jerk reactions to trade announcements have largely subsided since the chaos of "Liberation Day" in April.

The framework agreement announced on Tuesday outlines how the two nations will continue trade talks. Importantly, it involves China allowing exports of rare earth minerals, while the US eases up on restrictions for exports of advanced tech to China, like semiconductors.

The reaction is far more muted than how the market reacted last month, when stocks popped after the US struck a rough framework deal with China that lowered tariffs between the nations for 90 days.

Art Hogan, the chief market strategist at B. Riley Wealth, told Business Insider that markets are reacting to trade talks similarly to when the US-China trade war first kicked off in 2018. He pointed to regular pullbacks in stocks during Trump's first term as traders digested the lack of progress in US-China negotiations.

"We still have that muscle memory from Trump 1.0, that dealing with China is difficult and there's a multitude of issues," Hogan said. "I don't think we're going to solve this in short order and likely never solve it in the longer term."

He added that markets are likely waiting for a more positive catalyst, pointing to more than 100 nations that have yet to strike a trade deal with the US.

Peter Berezin, the chief global strategist at BCA Research, said the framework made only small progress on negotiations with China.

"I would say that the 'deal' in London simply restores things to how they were right after Geneva," he told BI in an email. He added that he expected tariffs on China to remain high "for the foreseeable future."

Strategists at Deutsche Bank also said that tariff talks appear to mirror the 2018-2019 period, when the US and China didn't make much headway in resolving key issues.

Back then, the US said that China had unfair trade practices related to industries like agriculture and manufacturing. It also said China had unfairly transferred technology and stolen intellectual property from the US.

Deutsche Bank pointed out that the agreement announced Tuesday skipped over fentanyl-related tariffs that Trump implemented against China earlier this year.

"So while the mood music has stayed positive, investors may be wary of the pattern that emerged during the previous US-China trade talks in 2018-19," strategists wrote. "So there's perhaps a little disappointment this morning that we haven't yet got a bigger announcement."

The agreement also appeared to lack detail that markets were looking for, David Morrison, a senior market analyst at Trade Nation, wrote in a note.

"The big question is what kind of trade deals can the US negotiate that will be good enough to get the indices to fresh records?" he said.

US stocks have whipsawed this year amid the turmoil surrounding tariffs and incremental news of trade agreements between the US and other countries.

Indexes have erased their steep losses since the April 2 tariff announcements, with major averages now positive year-to-date.

Source: Business insider

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Olivia Brooks

Political

The US ordered some staff to depart the embassy in Baghdad and allowed military service members’ families to leave the Middle East, officials said, after Iran threatened to attack US bases if talks over its nuclear program fall through.

The decision to reduce staffing in Iraq was “based on our latest analysis,” according to the State Department. Defense Secretary Pete Hegseth authorized family members of US military stationed across the region to leave, according to a Pentagon statement.

Neither statement cited a specific threat but the New York Post published an interview in which President Donald Trump said he’s growing less confident about the prospects for negotiations to impose new limits on Iran’s nuclear program. Iran, meanwhile, warned of retaliation against US military assets in the Middle East if the talks collapse and the Islamic Republic is attacked.

“I sincerely hope it won’t come to that and that the talks reach a resolution,” Iran’s Defense Minister Aziz Nasirzadeh said in televised remarks. “But if they don’t, and conflict is imposed on us, the other side will undoubtedly suffer greater losses. We will target all US bases in host countries without hesitation.”

West Texas Intermediate futures surged as much as 5.2% after Reuters reported earlier that the US embassy is preparing for an ordered departure in response to heightened security risks in the region. Iraq is the second-largest OPEC producer.

Earlier in the day, the UK Navy issued a rare warning to mariners that higher tensions in the Middle East could affect shipping, including through the Strait of Hormuz. Shipping has often been risky in the Middle East, but UKMTO, which acts as a liaison between the navy and commercial shipping, rarely puts out general warnings such as this one.

“UKMTO has been made aware of increased tensions within the region which could lead to an escalation of military activity having a direct impact on mariners,” the advisory said. “Vessels are advised to transit the Arabian Gulf, Gulf of Oman and Straits of Hormuz with caution.”

The Joint Maritime Information Center, an information sharing hub that comes under the Combined Maritime Forces, warned of heightened risks from the discord, including the possible use of missiles around chokepoints.

Source: Yahoo Finance

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Manuel

Cryptocurrency

Stocks

GameStop Corp. plans to raise $1.75 billion through a private offering of convertible senior notes due 2032, as the company explores digital asset investments, including potential Bitcoin acquisitions, under its updated investment strategy, according to a June 11 press release.

The zero-coupon notes will be offered to qualified institutional buyers under Rule 144A of the Securities Act, with an option for initial purchasers to buy an additional $250 million within 13 days of issuance.

The unsecured notes will not bear interest, will not accrete, and will mature on June 15, 2032, unless converted, redeemed, or repurchased earlier.

GameStop said it may settle conversions in cash, stock, or a combination. The conversion rate and other final terms will be determined at the time of pricing.

Bitcoin treasury accumulation

While GameStop did not disclose specific investment targets, it stated that proceeds will be used for “general corporate purposes,” including acquisitions and investments aligned with its Investment Policy, which permits the company to allocate capital to Bitcoinand other blockchain-based assets.

The move echoes similar strategies by companies such as MicroStrategy, which used convertible debt to amass over 200,000 BTC, turning the cryptocurrency into a strategic treasury reserve.

Market speculation around GameStop’s potential Bitcoin exposure has grown in recent weeks, particularly after executive reshuffles and broader engagement with the digital asset space.

The firm previously raised $1.3 billion through another convertible note offering, which led to an acquisition of 4,710 BTC for its treasury last month.

GameStop has previously hinted at ambitions beyond retail gaming, exploring digital wallets, NFTs, and decentralized infrastructure. This latest financing round could give the company additional flexibility to pursue a more aggressive pivot toward blockchain-related assets or technologies.

Limiting immediate dilution

The offering allows GameStop to raise capital without immediate shareholder dilution. However, future conversions of the notes into equity could increase the outstanding share count.

The company retains the flexibility to settle in cash, which may limit dilution depending on stock performance at the time of conversion.

The notes and any shares issuable upon conversion will not be registered under federal securities laws and may not be publicly offered or sold in the US without an exemption.

GameStop shares slipped slightly in after-hours trading following the announcement, indicating that investors remain skeptical of its investment plans for now.

Source: Cryptoslate

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Commodity

Energy

Oil prices rose as a U.S.-China trade deal and soft inflation report boosted demand expectations while concerns about political instability in the Middle East sparked fears of supply disruptions.

West Texas Intermediate futures contracts, the U.S. crude oil benchmark, rose as much as 5.2% on Wednesday to trade above $68 a barrel for the first time since April 2, when President Trump’s "Liberation Day” tariff announcement pulled prices lower.

Prices surged in afternoon trading amid reports that the State Department had ordered the departure of all nonessential personnel at the U.S. Embassy in Baghdad to address security concerns amid mounting tensions in the Middle East.

Oil prices had risen earlier in the session after the U.S. and China agreed to a trade deal that eased fears about the economic fallout of a protracted trade war between the world’s two largest economies. A soft inflation report added to Wall Street's optimism about demand.

The energy sector led stock market gainers on Wednesday. Oil companies were up, with Occidental Petroleum (OXY) gaining 2% and ConocoPhillips (COP) both finishing up more than 2%. Read Investopedia's full coverage of today's trading here.

Crude oil prices slumped to about $57 per barrel in early May, their lowest level since early 2021, after the Organization of Petroleum Exporting Countries and its allies agreed to boost production in June. Energy markets were on edge even before OPEC announced the supply increase: U.S.-China trade had effectively come to a standstill after the countries increased tariff rates on each other’s goods to more than 100%, threatening to slow global growth and weigh on oil demand.

Prices began to rebound in mid-May after the U.S. and U.K. agreed to a trade deal framework, giving Wall Street confidence that tariff rates would eventually settle below the levels announced in April. Oil's rebound picked up pace in early June when OPEC lifted its production targets by less than investors expected.

Source: Reuters

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Manuel

Commodity

Energy

JERA, Japan's biggest power generator, has agreed to new supply deals for U.S. liquefied natural gas (LNG) from four projects to diversify its global portfolio away from its reliance on Australia, it said on Thursday.

JERA plans to buy up to 5.5 million metric tons per annum (mtpa) of U.S. LNG under 20-year contracts, with deliveries starting around 2030. That total includes some previously reported deals as well as newly announced agreements.

The move illustrates Japan's efforts to seek stable and flexible LNG supply to strengthen energy security and meet growing electricity demand driven by expanding data centres. The country is the world's second-largest LNG importer after China.

JERA, Japan's biggest LNG buyer, has signed a heads of agreement with Sempra Infrastructure for 1.5 mtpa from its Port Arthur LNG phase 2 project and a HOA with Cheniere Marketing for up to 1 mtpa from Corpus Christi LNG and Sabine Pass LNG.

The Japanese utility also signed a 20-year sales and purchase agreement (SPA) with U.S. LNG developer Commonwealth LNG for 1 mtpa from its Louisiana project. On Tuesday, sources familiar with the negotiations told Reuters about the deal though both companies declined to comment at the time.

The 5.5 mtpa figure also includes its deal announced on May 29 with NextDecade to buy 2 mtpa from its Rio Grande LNG project.

All four are 20-year, free-on-board contracts with no destination restrictions, although the Cheniere deal could go beyond 20 years, JERA said.

"We made these decisions because cost-competitive and flexible LNG is essential as we look towards the 2030s," JERA's Global CEO and Chair Yukio Kani told Reuters.

He added that LNG has become increasingly important amid rising power demand from data centres and the soaring costs of cleaner alternatives like hydrogen and ammonia.

"We were also aiming to secure contracts with the projects already under development and tied to the EPC (engineering, procurement, and construction) agreements before the recent surge in LNG project costs and interest rates," he said.

The announcement comes amid ongoing trade talks between Japan and the United States, though Kani stressed there was no government pressure behind the deals which he said were purely private sector decisions.

"We are rebalancing towards the global supply mix," he said, to reduce its weighting toward Australia.

After the new deals, the U.S. will supply nearly 30% of JERA's LNG mix, up from 10% now. Oceania and Asia, including Australia, currently account for more than half.

JERA, jointly owned by Tokyo Electric Power and Chubu Electric Power, already buys U.S. supply from Freeport LNG and Cameron LNG. In 2023, it signed a 20-year contract to buy 1 mtpa from Venture Global's CP2 project.

Source: Reuters

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China–U.S. Trade War

Economic

Treasury Secretary Scott Bessent told Congress that it is "highly likely" that a pause related to steep new US tariffs on other countries will be extended for countries that are negotiating with the administration "in good faith."

"There are 18 important trading partners — we are working toward deals on those — and it is highly likely that those countries that are ... negotiating in good faith, we will roll the date forward," Bessent said during testimony before the House Ways and Means Committee.

On April 9, after President Trump's announcement of steep new tariffs across global trading partners roiled markets, Trump imposed a 90-day pause on the import taxes. The US continues to negotiate new trade deals with various countries, as well as the European Union.

Earlier on Wednesday, US and China agreed to a framework and implementation plan to ease tariff and trade tensions on Tuesday. President Trump signaled his approval, saying the deal was "done" pending sign-off from him and Chinese President Xi Jinping.

Trump and other US officials indicated the deal should resolve issues between the two countries on rare earths and magnets, though reports later indicated China would only loosen restrictions on rare earth mineral exports for a six-month period. Trump also said the US will allow Chinese students in US colleges, a sticking point that had emerged in the weeks following the countries' mid-May deal in Geneva.

Trump said the US would impose a total of 55% tariffs on Chinese goods. Yahoo Finance's Ben Werschkul reports, citing a White House official, that Trump arrived at that figure by adding together an array of preexisting duties and not any new tariffs.

Meanwhile, though Trump's most sweeping tariffs continue to face legal uncertainty, on Tuesday, the president received a favorable update. A federal appeals court held a decision saying his tariffs can temporarily stay in effect. The US Court of International Trade had blocked their implementation last month, deeming the method used to enact them "unlawful."

Source: Reuters

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Manuel

Political

Economic

Headline inflation was up a scant 0.1% month over month (m/m), below consensus expectations of a 0.2% m/m rise. On a yearly basis (y/y), the consumer price index rose 2.4% — very near the Federal Reserve’s ultimate target of 2% y/y price growth.

Core inflation, which removes items with volatile pricing like food and energy, was also up 0.1% m/m. In a Bloomberg survey of 73 economists, not one forecast a core reading as low as 0.1%.

Not-so-great expectations

What, in fact, did economists expect from this print?

In a note from June 5, Bank of America predicted that “tariffs should have a broader impact on the data” than in April, and expected “to see more signs of tariffs driving prices higher” in May.

Nor were they alone in this call.

Forecasts for tariff-driven price increases were practically unanimous: Economists surveyed by Reuters bet that a rise in core inflation “would be attributable to higher prices from President Donald Trump’s sweeping import duties,” and that “May would mark the start of tariff-related high inflation readings that could last through year-end.”

Indeed, low-cost retail behemoth Walmart shocked markets by announcing that it would begin raising prices in May, citing higher tariffs. “The magnitude and speed at which these prices are coming to us is somewhat unprecedented in history,” stated John David Rainey, chief financial officer at Walmart, in a mid-May interview.

While this move could be interpreted cynically as “greedflation,” in which companies hide behind an inflationary environment to justify price increases that aim to boost — rather than simply protect — margins, it is unlikely that Walmart’s price hike was so motivated. The retailer has gained market share in recent years specifically due to its status as a low-cost alternative to other big-box stores.

What was worrisome, however, was the potential cover that Walmart would give its competitors. “If Walmart is doing it, everybody else is probably going to be doing it — if not already, they will be in the future,” argued UBS economist Alan Detmeister.

May’s inflation data, then, was set to be the first real test of how consumer prices would be impacted by historically high tariffs.

“Retailers showed remarkable restraint in April,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, yesterday. “May should bring the leading edge of price increases, with the maximum impact coming in June and July.”

On June 3, Chicago Fed President Austan Goolsbee warned that April’s soft inflation reading would likely be the “last vestige” of pre-tariff price data and that the impact of tariffs “would start showing up very soon.”

He who hesitates is lost

Even though Goolsbee so confidently assumed that tariffs would have an inflationary impact — thus prompting the Fed to further delay additional interest-rate cuts — the Fed as a whole is not convinced.

Minneapolis Fed President Neel Kashkari revealed that there was a “healthy debate” among Fed officials about whether to “look through” the inflationary effect of these historic tariffs, treating any related price growth as a one-time shock and therefore prioritizing economic growth by cutting rates. This view is best represented by Fed Governor Christopher Waller, who reaffirmed a path to further rate cuts in 2025 earlier this month.

Others, like Goolsbee and Kashkari, are less convinced that tariffs will only have a transitory influence on consumer prices. This camp is thus more comfortable maintaining the current “wait-and-see” approach to quantitative easing, citing the surprisingly strong labor market as justification for withholding cuts.

But there is a third alternative, albeit one that is somewhat of a dark horse in influencing future policy.

This group argues that the Fed’s response, far from raising rates to combat tariff-induced inflation or even looking through the tariffs and not adjusting current policy, should in fact be expansionary.

This third view, outlined in Javier Bianchi and Louphou Coulibaly’s working paper, “The Optimal Monetary Policy Response to Tariffs,” concedes that tariffs will lead to a substantial price increase.

The issue, however, is that consumers will fail to realise that tariffs generate revenue for the government, which (all else being equal) raises household income. Equipped with a higher income, households could largely shrug off higher prices.

Given this disconnect between how consumers would ideally respond to tariffs and how they likely will, which is by reducing consumption, Bianchi and Coulibaly argue that the Fed should be prepared to tolerate higher inflation in order to stimulate employment.

Crucially, it is not just finished goods that are impacted by tariffs; some intermediate inputs necessary for domestic manufacturing cannot be domestically sourced and so must be imported.

The real threat is that domestic production and employment would suffer if not bolstered by lower interest rates: U.S. companies are constantly expressing their unwillingness to invest in the current restrictive policy environment, making this point a no-brainer.

The authors argue that their course, under which the Fed should give more weight to maximizing employment than to stabilizing prices, is optimal. Since there have yet to be signs of broad, tariff-driven inflation, cutting interest rates sooner rather than later seems like the obvious thing for the Fed to do.

Although no cuts are expected at next week’s meeting, markets are betting that the Fed will cut in September. Prior to May’s inflation data, traders had priced in a 57% chance of such a cut. At the time of writing, this probability has jumped to 68%.