US reaches deal with China: "It feels like a move in the right direction"

CGTN Europe

CGTN Europe interviewed Fiona Cincotta, Analyst, City Index

Transcript

00:00Well, let's get a bit more analysis with Fiona Senkota, who's an analyst at Citi Index.

00:04Welcome back to the programme, Fiona. Good to see you.

00:07So, markets are going to be pretty happy about this deal between the US and China.

00:11What do you think the key takeaways are for investors? Were there any big surprises?

00:18You know, I think it's just the broad understanding that there has been a de-escalation,

00:24a quite considerable de-escalation between the US and China.

00:30It does feel that they are much more moving towards being on the same page.

00:36And that has brought a lot of optimism to the markets because, you know,

00:39we only need to think back to when we had China and the US ramping up tariffs against each other,

00:46the impact that that was having on risk sentiment and the mood in the market was very strong.

00:52So, we're actually seeing the reverse of that, and that's been good news.

00:56I think as far as surprises are, is that potentially it's quite few, the details are few and far between.

01:04So, I think, you know, this is very much broad framework.

01:07It's not the details of a strong trade agreement.

01:11I mean, that would be rather too optimistic right now, I think.

01:14And are there any potential risks, you think, unresolved issues in the agreement

01:18that really could reignite future tensions?

01:20You know, I think relations between China and the US are fragile.

01:27They are easily reignited.

01:30We've already had Trump once accusing China, and then China accusing the US, actually,

01:35of not adhering to the initial agreement in Geneva.

01:39So, I mean, potentially, I think that there could be some bumps in the road ahead.

01:43But it definitely does feel like it's a move in the right direction.

01:48So, that's not to say it's going to be plain sailing from here on in.

01:51But it does feel like the US and China are managing to agree, at least broadly, on a few points which are putting them in the right direction,

01:59which is keeping the market mood much more buoyant than it was back in April, for example.

02:05Well, absolutely.

02:06And talking about buoyant moods on the market, Fiona, the S&P 500 hitting a record high this week.

02:13Zooming out, what's driving that surge?

02:15Yes, so we've seen some record levels in the US.

02:20I mean, we saw the S&P 500 at record levels.

02:23We also saw the tech-heavy NASDAQ 100 is also at record highs.

02:28A couple of factors here.

02:29I think not only have we got this sort of optimism that worst-case scenario with US and trade tariffs may have been avoided,

02:39although we've still got the July 9th deadline to come, but it does feel like the mood music has changed quite considerably

02:45and that there are deals being done.

02:48That's helped the mood considerably.

02:50Also, I think, you know, we've heard from Federal Reserve Chair Jerome Powell speak,

02:54testified before Congress a couple of times this week,

02:57and he was sounding a little bit less hawkish,

03:01potentially moving a little bit more towards the possibility of rate cuts coming sooner

03:08than he had the previous week in the Federal Reserve meeting.

03:12So that optimism surrounding the potential for more interest rate cuts from the Federal Reserve is also boosting the mood.

03:20And then also, obviously, the ceasefire in the Middle East, that's holding up.

03:24Oil prices have come down, and it all seems to be happening at the same time,

03:28which is giving sentiment that boost it needed.

03:30And what other fresh economic data are you looking at, Fiona?

03:34Well, today we had the release of core PCE.

03:39Now, that's the Federal Reserve's preferred gauge for inflation.

03:43Now, we know the Fed have been watching inflation very closely

03:46because of those concerns that Trump's trade tariffs could actually add inflationary pressure to the US economy.

03:55Now, interestingly, the inflation data did show that inflation ticked up, but only very slightly,

04:01not enough to cause any concerns.

04:03It came in 0.2% month-on-month, 2.7% year-on-year, just up from 2.6%.

04:09But that data also showed that personal spending had fallen, so it fell by 0.1%.

04:16Now, that comes as consumer confidence has deteriorated in the US,

04:19and that is all coming on the back of these erratic policies that we have seen from Trump.

04:24So there are sort of effects that are happening in the economy because of it.

04:28Fiona, as ever, great to have you with us.

04:30Thank you so much.

04:31Fiona Sincotta from CityIndex.

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