China’s latest tariffs focus on U.S. agricultural exports; financial markets are pricing in at least one Fed rate cut this year; U.S. consumers’ debt load reached $13.67 trillion, with student debt outstripping auto loans.
“I hope China and the U.S. can find a better way to coexist.”
China: Tariffs target U.S. farmers
Beijing’s policy response to the tariff hike on $200 billion of imports from China was smaller, but more focused than the broader-brush U.S. move. Tariffs on $60 billion of China’s imports from the U.S. will be imposed starting June 1 on some 5,000 items, with an emphasis on agriculture – including peanuts, sugar, wheat, chicken and turkey.
In addition, Chinese buyers cancelled orders for some 3,247 metric tons of U.S. pork products, the biggest cancellation in more than a year – just as China’s domestic pork market is being ravaged by a widespread outbreak of African Swine Fever. The result is a “huge missed opportunity” for U.S. farmers, according to an economist at the American Farm Bureau Federation.
Treasury Secretary Steven Mnuchin noted that American officials “most likely will go to Beijing at some point”, but that he has “no plans yet” to make the trip. However, the G-20 summit scheduled for June 28-29 in Japan will be an opportunity for Presidents Donald Trump and Xi Jinping to meet face to face, to potentially discuss trade and other matters.
Meanwhile President Trump delayed the imposition of tariffs on vehicles imported from the European Union, despite his agreement with the Department of Commerce assessment that imports of cars and their parts represent a national security threat.
U.S. rates: Markets vs. Fed
For the second time this year, the Fed Funds futures market is priced as if the odds of a Fed rate cut taking place at the FOMC’S mid-September meeting are greater than 50%. And as in late March – the last time these odds reached this level – the U.S. yield curve has become inverted in its bellwether 3-month / 10-year segment. On the whole, the speeches by Fed officials at various events have been noncommittal rather than defiant on the issue. The next official verdict on rates will be rendered on June 19, when the FOMC issues its next statement and its latest economic forecast.
U.S. consumers: Yet more debt
American consumers added to their overall borrowing in Q1, according to the New York Fed. U.S. household debt rose 0.9% from the previous quarter to $13.67 trillion, in line with the pace of recent years. But the mix shifted somewhat, with mortgage borrowing falling to $344 billion, the lowest level since Q3 2014, even as borrowing costs fell. On the other hand, total home loan balances (the largest portion of U.S. consumer debt) rose 1.3% from the prior quarter to $9.2 trillion, the highest since 2008. Student debt rose to $1.48 trillion, while auto loans increased to $1.28 trillion, the highest level on record since this data series began in 2003.
All data Source: Bloomberg, as of May 17, 2019, unless otherwise indicated.
The Federal Funds rate (Fed Funds rate, fed funds target rate or intended federal funds rate) is a target interest rate that is set by the FOMC for implementing U.S. monetary policies. It is the interest rate that banks with excess reserves at a U.S. Federal Reserve district bank charge other banks that need overnight loans.
The Federal Open Market Committee (FOMC) is a policy-making body of the Federal Reserve System responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.
The yield curve shows the relationship between yields and maturity dates for a similar class of bonds.
Inverted yield curve refers to a market condition when yields for longer-maturity bonds have yields which are lower than shorter-maturity issues.