Inflation data

Futures are pointing to a weak opening today. After falling sharply in May, US equity markets have recouped most of their losses. The SPDR S&P 500 ETF (SPY) has gained almost 5% this month and is currently up 16.1% for the year. An agreement between the US and Mexico has helped remove the risk of tariffs on Mexico for now.

Trade war

But the risk of further escalation in the US-China trade spat is still a potent challenge for the markets. President Donald Trump has indicated that he might impose tariffs on more Chinese goods after the G20 summit, which is scheduled for later this month. President Trump and Chinese President Xi Jinping are expected to meet at the summit. However, there hasn’t been any official confirmation from China regarding the proposed meeting.

Rate cut hopes

Data released today showed that the seasonally adjusted consumer price index increased only 0.1% in May compared to 0.3% in April. May’s inflation data was below what the markets were expecting. The recent jobs data also came in below expectations. After soft inflation data, the markets could fancy the possibility of a rate cut. Federal Reserve Chair Jerome Powell has already dropped hints that the Fed could look at lowering interest rates if the situation warrants it.

Reflecting on the recent trade issues, Powell said recently, “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective.” Some other Fed officials have also put forward the case for a rate cut. Read Trump Has the Fed on His Side, but Will It Win the Trade War? for more analysis.

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