Limited Outcomes from Beijing Discussions
Markets saw gains in bonds, oil, and stocks as President Donald Trump engaged in discussions for a historic summit with Chinese officials in Beijing. However, the visit has not yet produced significant business or trade agreements, often referred to in diplomatic circles as “deliverables.”
According to ING analysts, the Chinese government’s lack of communication has prevented the market from adopting a more optimistic outlook, particularly regarding the Persian Gulf.
Earlier this week, tech stocks experienced an uptick when Nvidia CEO Jensen Huang accompanied President Trump on an unplanned trip to China. Investors interpreted Huang’s presence as a potential easing of U.S. export restrictions on the country. However, those expectations were quickly tempered. U.S. Trade Representative Jamieson Greer clarified on Bloomberg TV that the issue of chip export restrictions was not broached during the meeting between Presidents Trump and Xi Jinping.
President Trump himself noted that tariffs—a pivotal concern in U.S.-China relations—were not discussed during his dialogue with President Xi. Furthermore, officials from the Trump administration mentioned the possibility of establishing a “trade commission” with China, yet provided scant details on the subject.
The status of the existing U.S.-China trade ceasefire that has lessened export restrictions, reduced tariffs, and mitigated tensions remains uncertain. This ceasefire is temporary, set to expire in November, and its extension was left open-ended by Gurría in a recent Bloomberg interview.
Greer indicated that an announcement from China regarding “double-digit billions” in purchases of U.S. agricultural products had been anticipated, but no such statements emerged by the time President Trump departed Beijing.
Unclear Developments in the Strait of Hormuz
U.S. officials have provided mixed responses about China’s potential role in reopening the critical Strait of Hormuz. On Friday, President Trump stated he was not urging Xi to leverage China’s influence over Iran to restore traffic through the strait.
The President remarked, “I’m not asking for any favors, as requests typically necessitate reciprocal favors.” Since the onset of conflict with Iran on February 28, shipping traffic through this vital passage has essentially ground to a halt. Prior to the conflict, the strait facilitated the transportation of over 20% of the world’s energy supply daily.
Trump reiterated his view that Iran’s recent proposals to conclude the conflict were “insufficient.” The ongoing closure of the Strait of Hormuz has resulted in a surge of over 80% in oil prices this year, contributing to inflationary pressures across the U.S. economy. The consumer price index rose to 3.8% in April, marking its highest point in three years.
According to a Bank of America survey of 60 global fund managers released on Friday, investors are increasingly apprehensive about potential inflationary risks in the U.S. Many expect the Federal Reserve may be compelled to raise interest rates to counteract inflation.
Uncertain Boeing Deal Details
During his visit, President Trump also mentioned a prospective agreement involving China purchasing hundreds of Boeing aircraft. As of Friday, however, it remained unclear whether Boeing had secured any contracts with Chinese airlines.
Trump referred to the announcement as a promise, stating on Fox News, “It was kind of a statement, but I think it was a commitment.” Securing aircraft orders from Chinese carriers would mark a significant victory for Boeing, which has not seen substantial orders from the nation in several years.
That said, Boeing’s current backlog exceeds thousands of orders, indicating that any deliveries under this potential contract could take five to ten years to fulfill.
Global Market Response
European markets suffered sell-off pressures during Friday’s trading, with the Stoxx 600 index dropping 1.5%. Germany’s benchmark index fell by 2%, while indices across France, Italy, and the UK declined by approximately 1.7%.
A global downturn in bond prices further exacerbated market challenges. In the UK, the yield on 10-year government bonds reached its highest level since 2008 amid a political climate that could endanger Prime Minister Keir Starmer’s position. Similarly, 30-year gilt yields hit their highest since 1998, fueled by investor concerns about a potential liberalized government and increased spending.
Krishna Guha, Vice Chairman at Evercore ISI, noted that renewed modest increases in oil prices due to stalled U.S.-Iran negotiations, combined with robust U.S. investment data, are exerting upward pressure on bond yields both domestically and internationally. This trend is presenting another hurdle for equities.
In Japan, where the economy is highly susceptible to energy price fluctuations from the Middle East, 10-year government bond yields reached levels not seen since 1999. Meanwhile, in Germany, bond yields have not been this high since 2011.
Inflation worries are extending their grip across European and Asian markets as energy prices continue to escalate. This upward trend was evident on Friday, as European natural gas futures rose by over 6%, contributing to a staggering year-to-date increase of more than 90%.
