- Treasury yields fell after reports of an expected meeting between Trump and XI Jinping.
- Trump proposed a 25% auto tariff affecting major economies like the Eurozone.
- US unemployment claims increased to 219,000, compared to estimates of 215,000.
Interest futures rose on Friday as Treasury yields, and the dollar fell due to a likely trade deal between China and the US. Recent weak data on sales and unemployment claims has raised expectations for Fed rate cuts this year.
Treasury yields fell on Thursday after reports of an expected meeting between US President Trump and China’s XI Jinping. Market participants are concerned about a potential trade war after Trump announced a 10% tariff on Chinese imports. China responded immediately with tariffs on certain US goods. However, the fact that the two presidents are ready to meet shows they can negotiate. Moreover, Trump said that a trade deal with China would be possible.
On Tuesday, interest futures collapsed after Trump proposed a 25% auto tariff affecting major economies like the Eurozone. However, the news of a likely negotiation between the US and China reduced the impact of Trump’s tariff threats. His threats are proving to be more of a negotiation tactic.
Meanwhile, recent data from the US has raised expectations for Fed rate cuts, boosting interest futures. Last week, the US released a dismal report, showing a massive drop in sales in January. Retail sales fell by 0.9%, indicating weak consumer spending. As a result, Fed rate cut expectations rebounded, pushing Treasury yields lower.
US jobless claims (Source: US Labor Department)
Meanwhile, data on Thursday showed an unexpected increase in US unemployment claims, indicating softness in the labor market. Claims increased to 219,000, compared to estimates of 215,000, with the biggest surge in the US capital.
Market participants are now looking forward to business activity data from the US for more clues on the Fed’s rate cut outlook. Robust business activity will lower bets for a rate cut, hurting interest futures. On the other hand, another downbeat report would increase rate-cut bets, leading to a rally in interest futures.
Meanwhile, investors are keeping an eye on developments in the Ukraine war. A peace deal between Russia and Ukraine would end the war and improve risk sentiment. However, recent reports have shown growing tensions between the two presidents. Initially, Trump was confident he could mediate a peace deal between Zelenskyy and Putin. However, Ukraine has taken a step back, citing secret deals between the US and Russia.
