(Reuters) -Investors are relieved that the United States and China have paused their damaging trade war, stocks are rallying and U.S. shelves may not be empty at Christmas after all – but trade tensions have not disappeared, they have merely receded.
Here’s your look at the week ahead from Dhara Ranasinghe, Naomi Rovnick and Marc Jones in London, Lewis Krauskopf in New York and Kevin Buckland in Tokyo.
1/ UNITED WE STAND…
Markets have (mostly) ignored G7 meetings for years. The May 20-22 gathering of finance ministers and central bank governors from the seven big Western economies in the Canadian mountain town of Banff might change that.
First, the tension is palpable, given U.S. President Donald Trump’s tariff policy and growing signs of U.S. isolationism. And Trump wants Canada to become the 51st U.S. state, a suggestion that has angered the G7 host, Canada.
Also, watch currencies. In addition to the volatility from tariff uncertainty, there’s speculation that some will tolerate the strength of their own currencies against the dollar as part of trade negotiations. Taiwan’s dollar has surged, South Korea and the U.S. have discussed foreign exchange, and Japan also wants to talk currencies.
Meanwhile, the next U.S. Treasury currency manipulator report, which could add extra spice to the meeting, is due any day.
2/ BARBIE’S CHRISTMAS IS SAVED
Investors know not to take anything for granted, but signals from China following the 90-day tariff truce have all been pointing in a positive direction.
China’s rare earths – a critical component for high-tech applications from electric vehicle (EV) motors and smartphones to missile guidance systems – are flowing again. It has also paused some non-tariff barriers on U.S. entities.
Washington has also ceded, pulling duties on small packages back to as low as 30%, in a lifeline for Shein and China’s other fast-fashion giants.
Both sides are now less worried about hyper-inflated Barbie prices in the U.S. this Christmas, as the piles of dolls – and other goods – currently piled up in Chinese warehouses will start to shift.
Exports have been the bright spot for China’s economy. Monday’s retail sales and factory output data will provide some guidance on the health of the domestic economy.
3/ ATTENTION, SHOPPERS Major U.S. retailers’ earnings will be in focus, after industry bellwether Walmart warned it would start raising prices because of tariffs. As first-quarter earnings season winds down, Home Depot, Target, Lowe’s and TJX Cos are among those reporting. Investors hope the companies will shed more light on the impact from sweeping tariffs on consumer spending and any other trade-related fallout. Data on Thursday showed U.S. retail sales growth slowed in April as the boost from households front-loading motor vehicle purchases ahead of tariffs faded and households pulled back on other spending. Overall, U.S. corporate profit numbers have topped expectations. About 90% of S&P 500 companies have reported, with earnings set to have climbed 14% from the year-ago period, from an estimate of 8% on April 1, according to LSEG IBES.
4/ BREXIT RESET?
Investors anticipate that a UK-EU summit on May 19 will lead to a resetting of Britain’s relationship with its biggest trading partner.
UK Prime Minister Keir Starmer, of the Labour party, has lambasted the previous Conservative government’s “botched” Brexit deal and wants to remove trade barriers to boost Britain’s sluggish economy.
Purchasing managers’ indices, next due on May 22, have signalled that the dominant services sector is contracting sharply.
Consumer price data due on May 21 may also show Britain’s tight labour market has kept inflation too high for the Bank of England to rapidly cut rates.
For Starmer however, the political risks of renewing EU links might outweigh the potential economic gains, as he grapples with surging support for the eurosceptic Reform Party.
5/ DESPERATE FOR DAN
Romania holds the deciding round of its presidential election on Sunday. The stakes are sky-high.
A win for hard-right front-runner George Simion against reformist Nicursor Dan would mean more trouble for the currency after the first round triggered its biggest fall in 15 years and drove speculation about a loss of the country’s investment grade status.
There are growing worries of an even deeper political crisis and that much-needed fiscal consolidation won’t happen, or at least not quickly enough to avoid a disgruntled European Commission cutting off Bucharest’s vital EU funding.
Dan hasn’t really proposed a credible solution to the key concerns, but analysts warn that if the eurosceptic nationalist Simion wins but fails to form a government, and the EU then turns the taps off, the leu could find itself as much as 20% weaker.
(Compiled by Amanda Cooper; Graphics by Prinz Magtulis; Editing by Rachna Uppal)
Comments