Fast reading
- US-China ‘framework’ trade deal agreed, details in short supply.
- US dollar sinks to three-year low amid ongoing concerns about US economy.
- US inflation rose less than expected to 2.4% in May.
US-China trade talks held in London this week culminated in an extended truce between the world’s two largest economies, but a lack of detail has left investors on edge.
The deal, which is subject to final approval, would increase supplies of rare earth metals and minerals to the US, while restrictions on exports of AI chips and semiconductors to China could be relaxed.
The two nations had come to a temporary truce over trade tariffs, pledging in Switzerland last month to cut their respective tariffs by 115% and provide a 90-day pause to resolve the trade war, before subsequently accusing each other of breaching the agreement.
Dollar resumes slide
The US dollar sunk to a three-year low on Thursday, after US President Donald Trump announced he would set new levies on trading partners in the next one or two weeks.
The euro, meanwhile, hit its highest level against the dollar in almost four years1, as investors seek out alternative ‘safe haven’ assets. The greenback has lost almost 10% in value against a wider basket of major currencies so far this year2.
Stocks in China and Hong Kong, which had been on track to enter a bull market earlier this week ahead of the London talks, traded lower on Thursday led by declines in the tech sector amid ongoing trade uncertainty. The Hong Kong benchmark Hang Seng Index closed down 1.36%, while the Hang Seng Tech Index ended down 2.20%3.
Figure 1: The Hang Seng’s bumpy ride
“We are closer to the end than the beginning of the trade war,” says Martin Shultz, Head of International Equities at Federated Hermes, adding that in China, consumer sentiment is rebounding, the property market may be bottoming out, and the Beijing government has provided further policy support.
“The geopolitical issues [related to US-China tensions] remain, but we believe that this bull market has got long legs,” he says.
Schulz adds: “The US and China have realised that they need to take a pause. The two nations still have a strong trading relationship. At the end of the day, China requires access to US advanced semiconductors, and the US needs China’s rare earth resources. While the US-China trade talks may not yield a major agreement in the near term, they may have created a stepping stone to achieving one.”
While the US-China trade talks may not yield a major agreement in the near term, they may have created a stepping stone to achieving one.
Elsewhere…
The US Consumer Price Index (CPI) came in weaker than expected in May. On an annual basis, inflation edged up to 2.4% last month from 2.3% in April, slightly under the projected 2.5%4.
“This print showed little flowthrough from tariffs and the pace of shelter inflation continues to grind lower albeit at a slow pace,” explains Damian McIntyre, Senior Portfolio Manager, Multi Asset Solutions, at Federated Hermes.
“US small caps – characterised as companies with market caps between US$250m and US$2bn – were the big beneficiary (jumping over 100bps in the 15 minutes after the US inflation data was released on Wednesday). Yields, however, fell, with the 10-year US Treasury dropping from 4.50% to 4.43%, while the two-year US Treasury dropped from 4.04% to 3.94%,” McIntyre adds.
“We remain overweight equities, with tilts towards large value, small growth, small value and emerging markets. Within fixed income, we remain defensive with an underweight in high yield and are slightly long duration.”
Share:
1 The Financial Times, as at 12 June 2025.
2 Reuters, as at 10 June 2025.
3 Bloomberg, as at 12 June 2025.
4 US Bureau of Labor Statistics, as at 11 June 2025.
BD016075
