- China said it was considering an offer from the US to hold trade talks.
- Interest futures fell in the previous sessions after downbeat US data.
- The last major report this week is the nonfarm payrolls.
Interest futures edged higher on Friday as optimism built about likely trade talks between China and the US. The rebound followed declines in the previous two sessions after downbeat US economic data. Meanwhile, market participants eagerly await the US nonfarm payrolls report for clues on Fed rate cuts.
On Friday, China said it was considering an offer from the US to hold trade talks. In the previous session, the US had said it was ready to initiate talks with China, which might result in lower tariffs and even an end to the trade war.
At the start of April, Trump’s reciprocal tariff announcement led to a massive sell-off in US assets. It also escalated the trade war with China, increasing worries of a recession. Moreover, the US president started attacking the Federal Reserve, demanding lower interest rates. All this led to a sharp decline in investor confidence. They dumped US Treasuries, leading to a rally in yields.
However, in the last week or so, things have calmed down. The US and China have given up their aggressive stances. Meanwhile, talks between the US and its other trade partners are progressing well. Trump said he was confident the US would soon sign trade deals with South Korea, Japan and India. Talks with China will further boost investor confidence and support interest futures.
However, prices fell in the previous sessions after downbeat US data. Job vacancies dropped more than expected, pointing to weak labor demand in April. Moreover, private employment was slower than expected, and jobless claims jumped last week. All these points to cracks in the labor market. Trump’s tariffs increased costs for most companies, which had to find ways to survive.
Meanwhile, business activity in the manufacturing sector was stronger than expected. The PMI came in at 48.7, compared to estimates of 48.0. However, activity contracted further from the previous month, when it was 49.0.
US employment (Source: US Bureau of Labor Statistics, Bloomberg)
The last major report this week is the nonfarm payrolls. Economists expect the US economy to add 138,000 jobs in April. This is smaller than the previous reading of 228,000. Meanwhile, the unemployment rate might remain at 4.2%. A downbeat report will rekindle fears of a recession and increase expectations for a Fed rate cut in June.
