As the June 28–29 G-20 summit in Japan moves closer, speculation continues to increase about whether Presidents Trump and Xi will meet there to discuss trade.
According to Reuters, Trump does plan to meet with Xi, after which he will decide “whether to extend tariffs to almost all Chinese imports.” Investors will be watching closely, as the stalemate in negotiations in May led to a more than trillion-dollar loss in global markets for the month, reports Reuters.
Chinese and U.S. leaders are not optimistic about an agreement, and it appears neither side has done much to prepare with only weeks left until the summit. Foreign Ministry representative Geng Shuang said China would “‘fight to the end’ if Washington escalates trade fictions,” according to Reuters.
“Eswar Prasad, a trade professor at Cornell University and a former head of the China department at the International Monetary Fund, said expectations from any talks were low. …
“Trump accused Beijing of reneging on promises to meet U.S. demands to extend protection of intellectual property, end state-sponsored cyber theft, open more markets to U.S. firms, and reduce industrial subsidies.
“China has said U.S. demands are so extensive that they violate its sovereignty.”
All of this makes Federal Reserve Chairman Jerome Powell’s job a lot more difficult. Investors and President Trump will be listening attentively to the Fed’s meeting minutes next week to see if it decides to cut interest rates.
Along with trade, the Fed has the slowdown of economic growth and inflation on its mind. Job gains have dropped abruptly from April to May, the yield curve has inverted (short-term interest rates exceed long-term rates), and private forecasters estimate economic growth has slowed from a 3.2% annual rate through March to half that in the current quarter, according to The Wall Street Journal.
Another major influence on the Fed’s decision is inflation, which clocked in at 1.6% in April, per the Journal. This means that inflation is already below the Fed’s target of 2%. Low inflation leads to low interest rates over time, limiting the Fed’s ability to make monetary decisions and further cut rates.
The Fed meets a week before the G-20 summit, making members a bit more cautious, as they are unsure whether trade relations will further sour or negotiations will resume. The patient approach used by the Fed in recent months may continue as it continues to gauge the impact of trade negotiations, or lack thereof.
Sectors: The average momentum score for the Sector Benchmark ETFs increased from -7.55 to 8.64. Momentum increased for all 11 sectors last week. Technology led the pack with a 31-point increase in momentum score. Consumer Staples jumped from third to first in rank after an 18-point increase in momentum score. Energy (NYSEARCA:XLE) remains the laggard despite a 13-point increase in momentum score.
Factors: Among the Factor Benchmark ETFs, the average factor score increased from -7.75 to 9.67. Momentum increased for all 12 factors last week. High Beta gained 23 points, pushing that factor up one spot in the rankings. Small Size fell to last despite an 11-point increase in momentum score. Momentum, which had a 21-point jump in momentum score, overtook Low Volatility, which gained only 13 points.
Global: The average Global Benchmark ETF momentum score increased from -10.00 to 4.55 for the week. Momentum in the global sector increased in all 11 regions last week. USA increased the most, gaining 18 points. Pacific x-Japan, which gained 13 points, took the top spot from Latin America, which gained 12 points.