Stocks Flat as Markets Wait on China and the Federal Reserve

There’s a considerable tension in the markets this week.

All as investors wait for trade talks to resume between the U.S. and China, and the Federal Reserve’s closely watched decision on a potential interest rate cut.

Trade War: Neither Side in a Rush for Resolution

On Tuesday, talks will resume between the U.S. and China, where it already appears neither side is in a rush for a resolution. People close to the talks have already said major breakthroughs are unlikely on points that led to negotiations breaking down in early May, says The Wall Street Journal.  That includes U.S. demands for China to commit to protect intellectual property and abandon state subsidies, and China’s demands that the U.S. drop all current tariffs.

At the moment, President Trump doesn’t think China will sign a deal until after the 2020 election in hopes they “could then negotiate more favorable terms with a different U.S. president,” according to Reuters.  

The Federal Reserve Likely to Cut by a Quarter Point

The central bank is well aware of economic progress.

A recent jobs report showed the addition of 224,000 jobs in June 2019, for example. Retail sales were up 0.4% month over month, which was much better than expectations for 0.1%.  Consumer spending likely grew 4.3% in the second quarter, according to The Wall Street Journal. And, the Federal Reserve just said manufacturing output increased 0.4% between May and June 2019.  

This Friday, the July jobs report is expected to show the addition of 170,000 jobs, which follows better than expected GDP growth of 2.1.%.

Still, despite all of that strength, the market is still pricing in a rate cut of at least a quarter point.  All as the Fed take pre-emptive action against trade war fallout.

Janet Yellen in Favor of a Rate Cut 

Even former Fed boss Janet Yellen says she support a 25-basis point cut this week “due to a weaker global economy and low inflation in the United States,” as reported by CNBC.

“The global economy has weakened. I think partly it’s weakened because of conflicts over trade and the uncertainty that’s caused for businesses,” Yellen said.  “The United States isn’t an island. We’re part of the global economy. What happens in the rest of the world — in Europe, in Asia — affects the United States. And it’s also true that U.S. monetary policy affects conditions all around the globe.”

Until we see clarification on the trade negotiations, and the Federal Reserve’s actions this week, markets will remain very volatile. Stay tuned for more.