Street's Cautious Response to US-China Framework Agreement Fails to Ignite Wall Street
Financial institutions on Wall Street respond cautiously to the outline of trade deals with China.
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Wall Street showed a lackluster reaction on Wednesday, with traders expressing dissatisfaction over the US-China trade deal, despite positive inflation data. The Dow Jones Index remained stagnant at 42,866 points, while the S&P-500 and Nasdaq indices took small hits of 0.3% and 0.5% respectively.
The two-day negotiations in London resulted in a framework agreement aimed at reinstating the deal reached in Geneva. However, investors voiced concerns about a weak framework lacking substance beyond the Geneva agreement, which proved short-lived. Moreover, China's reported intention to limit rare earth export licenses to six months added to the disappointment.
Adding to the confusion, US President Donald Trump explained that the agreement still needs to be signed by himself and his Chinese counterpart Xi Jinping, with China pledging to deliver "significant quantities of rare earths and magnets in advance." Trump's statements only added to the confusion, with statements like "We receive a total of 55 percent tariffs, China receives 10 percent" causing further turmoil.
Trump's unclear statements and the perceived weakness of the framework agreement have created uncertainty on Wall Street, with investors expressing concerns about the ongoing unpredictability of the US-China trade relationship. Former Fed representative and current Pimco advisor Richard Clarida summed it up, stating, "Politics is now driving the economy, especially in the US, and increasingly in the reaction of other countries."
Bond and Dollar Dilemmas
The yield on 10-year US Treasury notes felt a 6 basis point decrease to 4.42%, thanks to lower-than-expected US consumer price growth stoking rate-cut fantasies. The yields dropped to their lowest levels of the day during a 10-year note auction worth $39 billion, marking another successful test of confidence in US bonds.
Rate-cut fantasies and falling bond yields weighed heavy on the dollar, with the Dollar Index dropping 0.4% - giving the euro a boost towards its highest level in nearly a week. The gold price also saw a 0.8% increase, supported by interest rate expectations and the dollar's decline.
Tesla Treads Water
Tesla stock saw significant gains throughout the session but managed only a 0.1% increase at the close. Tesla CEO Elon Musk toned down his criticism of President Trump, referencing his recent attacks as "too far," potentially easing concerns about Trump retaliating against Musk's companies, Tesla and SpaceX. Additionally, Musk confirmed that Tesla would likely launch its long-awaited robotaxi service on June 22.
Meanwhile, Meta Platforms shares fell by 1.2 percent, amid rumors of the company planning to invest around $14 billion in Scale AI and hire the startup's CEO to lead AI development. Lockheed Martin shares dropped by 4.2 percent due to reports suggesting that the US Air Force will order fewer F-35 combat aircraft in 2024 than initially planned.
GameStop, the video game retailer, reported declining sales in the quarter but still posted profits. The "meme stock" fell by 5.4 percent. General Motors shares rose by 1.9 percent as the automaker plans to invest $4 billion to increase US production and reduce tariff exposure. First Solar gained 2 percent after Jefferies upgraded it to "buy." Starbucks shares rose by 4.4 percent following endorsement of the coffee chain's turnaround plan from former and influential CEO Howard Schultz.
- Despite the mixed reactions on Wall Street to the US-China trade deal, investors continue to closely monitor the community policy and employment policy updates within both nations, as these factors significantly impact the business sector.
- The uncertain trade relations between the US and China have sparked interest among finance experts and technology investors, with many questioning the long-term implications of the ongoing negotiations on business investments.
- Meanwhile, in the realm of general-news, the trending stories include reports on rare earth exports, Tesla's robotaxi service launch, and Meta Platforms' potential investments in Scale AI, all of which can potentially influence the financial landscape, particularly stock markets.
