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How will the Fed react if US and China reach a trade truce this weekend?

A trade truce between US and China will be good for risk assets but does that mean the Fed will shelve its rate cut plans?

WIRP US 28-06

Although risk assets will steal the focus in the aftermath of the Trump-Xi meeting tomorrow, the dollar and the Fed are likely to be the more talked about topics in the coming weeks with the next FOMC meeting scheduled for 31 July.
A 25 bps rate cut is all but a given at this point but markets are still seeing a 22% probability that the Fed may cut rates by 50 bps, according to Fed fund futures.
But if US and China are able to achieve a trade truce this weekend, which I reckon they will find some form of agreement to resume talks at the very least, it puts the Fed in an interesting spot ahead of their July meeting.
Final Q1 GDP data yesterday gave little concerns for the Fed to be immediately cutting rates and the revised uptick in PCE is also a welcome sign on the inflation front. And if trade talks find some limited progress in the near-term, it’ll be very interesting to see how they would phrase their decision in cutting rates in July.

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China says cooperation is the only right option in trade talks

Comments by China’s commerce ministry

  • Urges US to immediately cancel sanctions on Chinese firms including Huawei
  • Hopes that US will drop its wrongdoings
  • Says that it is not feasible for firms to shift their supply chain out of China
  • Calls for favourable environment ahead of Trump-Xi meeting
Based on their remarks here, it’s not really suggestive that there’s a so-called trade truce already agreed between the two countries ahead of the Trump-Xi meeting. Regardless, the outcome of talks over the weekend will still be the key driver for markets currently.

G20 starts today, US – China meeting tomorrow. Deal seen as unlikely … but

Perhaps there is scope for some sort of US – China agreement stemming from the Trump – Xi meeting at the G20 summit.

‘Agree to keep talking’ seems the most likely outcome IMO, but we’ll soon find out. Any increase in hostility would be a negative but a dinner together is probably not going to lead to this, at least right away.
When do we get a deal? If we do.?
An interesting overnight note from ING says it’ll not be until towards the end of this year:
both sides want a deal
  • China can hurt the US economically but it knows that the US can hurt China even more. 
  • President Trump needs a deal to show the American people that he delivers on his promises to get better terms of trade for the US. He knows that this is best done without the US economy having to suffer from Chinese retaliation for an extended period of time.
We expect a deal to be struck in the last quarter of this year
  • it is likely that China as well as the US are prepared to make concessions in the end
  • After all, this is what’s happened in the renegotiation of Nafta
  • To strike a deal, Trump had to accept that Mexico and Canada would not agree to all of his original demands
On that 
  • Trump had to accept that Mexico and Canada would not agree to all of his original demands
You’d say the same of China, but so far they’ve held firm. 
Added – G20 start 28th.

Durable goods orders and inventory data the highlight for New York trade

Trump coming up too

Trump coming up too
The first event to look out for in New York trade is an interview with the President on Fox Business at 8:15 am ET (1215 GMT). The message here is the medium. Trump likes to bring good news so I imagine he will be saying something in an effort to pump up markets.
However the good news could be unwound quickly if data disappoints at the bottom of the hour. That’s when we get the May prelim US durable goods orders report along with data on wholesale/retail inventories and the advance goods trade balance. For what’s expected, check out the economic calendar.
At 10:30 am ET (1430 GMT) the weekly US oil inventory report is due. Here is the API data.
At 11:30 am ET (1530 GMT) we hear from the Fed’s Daly at the Forecasters Club of New York. The venue suggests the talk will be on monetary policy and the outlook.
Finally, there’s a US 5-year note sale today at 1 pm ET (1700 GMT).

Wilbur Ross: US is looking for reasonable deal with China over trade

Comments by US commerce secretary, Wilbur Ross

  • Trump’s tariff threat on China is not a bluff
  • US has national security concerns over Huawei
Nothing that really stands out so far but just be aware that we’re seeing more US officials speak on trade with China so far today. Trump himself will be on the wires in just under an hour from now so best to be prepared.

People Who Make The Minimum Wage Need To Work 127 Hours A Week To Afford Two-Bedroom Apartment

The federal minimum wage of $7.25 has not risen in a decade. The price of most essentials like housing, clothing, and food has. As a measure of how little the minimum wage covers when gauged against a yardstick of housing costs nationally, people whose incomes are at the minimum level would have to work 127 hours week, every week,  to afford a two-bedroom apartment.

New research by the National Low Income Housing Coalition measured housing costs against the minimum wage in all 50 states, and several large cities. The current survey is the 30th annual installment of the analysis.

The report is unusually comprehensive and runs 285 pages. It shows that the pool of low-income housing in the U.S. is shrinking. Its authors note that to afford a two-income apartment based on the national average rent means people would need to work three full-time jobs at the minimum wage. The stark bottom line conclusion of the report is that “In no state, metropolitan area, or county in the U.S. can a worker earning the federal or prevailing state minimum wage afford a modest two-bedroom rental home at fair market rent by working a standard 40-hour work week.”

Renters with the lowest wages in America range from 20% of Black households to 16% of Hispanic households, to 6% of Whites.  The difference in racial makeup, the researcher report is “because of historical and persisting wage disparities and barriers to homeownership.”

The ability for minimum wage workers to afford two-apartment rental costs varies sharply by state and city. The states where the ratios are most disadvantageous are Hawaii, where a family would need to make $36.82 an hour to afford an apartment that size and New York were the figure is $34.69 to, at the low end, Arkansas at $14.26 and West Virginia at $14.27. Even at the low end, the affordability of rent against a $7.25 wage is stark.

In several cities, the figures are much worse for low-income renters. In San Francisco, a family would need to make $60.96 an hour. In nearly San Jose, the number is $54.60. The two cities are at the very top of most lists in terms of housing expenses. Several of the zip codes in these cities are among the most expensive zip codes in the U.S. 

The conclusion of the reports is depressing. “Low wages, wage inequality, racial inequities and a severe shortage of affordable rental homes leave too many vulnerable people unable to afford their housing” And, all of the data in the report show that the trend worsens year after years.