In addition to the trade disputes between the US and China, investors have focused on fresh consumer price data for the United States in recent trading days. As the week draws to a close, stock markets on both sides of the Atlantic are likely to be confronted in particular with newly ignited geopolitical risks in the Middle East conflict between Israel and Iran. It remains to be seen how long the legs of geopolitical stock markets will be.
DAX
Source: TradingView
Trade dispute: US and China reach agreement in principle on contentious issues, according to Trump
At the beginning of the week, representatives of the Chinese and US delegations met in London to discuss the trade dispute. According to Trump, there was an agreement in principle with China on contentious issues relating to the tariff conflict. Both countries agreed to reduce export restrictions on rare earths.
According to Trump, there is also an agreement between the world's two largest economies. The USA would impose tariffs of 55% on Chinese goods. Conversely, the Middle Kingdom would impose a tariff of ten percent on US imports.
The Chinese side, however, spoke of "progress" and, on balance, of a constructive exchange, but was more reserved overall.
China's exports to the USA slump to the greatest extent since February 2020
From the perspective of the economic calendar, new economic data from China provided important guidance at the start of the week. Chinese exports picked up again in May, increasing by 4.8% compared to the same month last year. In April, exports were up 8%, while imports fell by 3.4%.
Due to the trade dispute, however, Chinese exports to the US slumped more sharply in May than at any time since February 2020.
US inflation weaker than expected - interest rate cut fantasies may have gained momentum
Weaker-than-expected US consumer price data could have boosted interest rate cut fantasies overall. Inflation, including the drivers energy and food, was 2.4% year-on-year in May, lower than economists had previously estimated (2.5%).
The downward price trend was also confirmed on Thursday by US producer prices, which rose by 0.1% compared to the previous month, only half as much as expected.
At 2.8% (compared to the same month last year), the core inflation rate was also below expectations (2.9%).
It remains unlikely that the US Federal Reserve will cut interest rates next Wednesday. According to the "Fed Watch Tool", there is currently a 97.2 percent probability that there will be another interest rate pause. The interest rate band currently stands at 4.25 to 4.50 percent.
German inflation rate remains just above 2.0 percent - Uni-Michigan consumer confidence in focus
According to the latest data, German inflation remains just above the 2% threshold. As in April, consumer prices rose by 2.1% in May (compared to May 2024), according to the Federal Statistical Office on Friday.
Last but not least, investors will be looking at new consumer sentiment data from the University of Michigan at the end of the week (16:00).
Dow Jones Industrial Average Index
Source: TradingView
