Hopes for US-China deal keep risk alive; economic data in focus

The potential of a trade agreement between the US and China and economic data are in focus as the new trading week gets underway.

US stock futures are indicating a softer start to the week following Friday’s session which saw all three major US indexes close more than 1% higher and giving the S&P 500 its fifth weekly gain out of seven. Chinese stocks trading in Hong King headed towards a bull market.

Talks between Washington and Beijing will begin today in London with US Treasury Secretary Scott Bessent and other officials meeting with their Chinese counterparts. The aim – for the Chinese certainly – will be to secure a deal before the pause on reciprocal tariffs ends on July 9.

“Trade policy will remain the big macro uncertainty,” opined Kyle Rodda, a senior market analyst at Capital.com in a client note.  “Signs of further momentum in talks could give the markets fresh boost to kick off the week.”

US economic data is also a key focus for traders this week. Following Friday’s jobs report, which was better than expected, a key reading of inflation is incoming Wednesday.

“Keep it moving! Stronger than expected jobs growth and stable unemployment underlines the resilience of the US labor market in the face of recent shocks,” said Lindsay Rosner, head of Multi-Sector Fixed Income Investing at Goldman Sachs Asset Management. “With the Fed laser-focused on managing the risks to the inflation side of its mandate, today’s stronger than expected jobs report will do little to alter its patient approach. We expect the Fed to remain on hold at this month’s meeting and think a softening in the labor market data is likely required for the Fed to continue its easing cycle.”

May’s CPI report will be the first to reflect the additional costs to American consumers of tariffs.

A Bloomberg survey of economists expects an increase of 0.3%, the highest in four months, excluding food and energy costs.

“We expect a soft print for May’s CPI, with deflation in discretionary services more than offsetting firmer goods inflation. As the recent beige book flagged, some firms are passing through tariffs costs. We see partial pass-through in categories like furniture, apparel, and auto parts. But airfares are falling sharply, and hotels and recreational services are downshifting too,” said economists Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins.