Jamie Dimon said he can’t rule out the possibility of stagflation as the US grapples with huge risks from geopolitics, deficits and price pressures.

“I don’t agree that we’re in a sweet spot,” the JPMorgan Chase & Co. chief executive officer said in a Bloomberg Television interview at the lender’s Global China Summit in Shanghai. The US Federal Reserve is doing the right thing to wait and see before making changes to interest-rate policy, he said.

Fed officials have held interest rates steady this year amid a solid economic backdrop and uncertainty about government policy changes — like tariffs — and their potential impact on the economy. Policymakers have said they see an increased risk of confronting both higher inflation and unemployment.

Earlier this month, the US and China agreed to sharply reduce tariffs for 90 days to hammer out a new agreement, in what promises to be difficult rounds of talks between Washington and Beijing. US President Donald Trump’s tariffs on China will likely remain at a level expected to severely curtail Chinese exports after the 90-day truce, analysts and investors say.

“I don’t think the American government wants to leave China,” Dimon said. “I hope they have a second round, third round or fourth round and hopefully it will end up in a good place.”

Trump’s chaotic tariff announcements and efforts to shrink or shutter government agencies have stoked concerns about trade, inflation, unemployment and a potential recession. Companies are pausing expansion, including lucrative mergers and acquisitions handled by Wall Street dealmakers, bank executives have said.

Dimon’s comments expand on remarks he made in recent interviews, when he warned against complacency and said recession remains a possibility, adding that many of the effects of the tariffs are yet to be seen. Volatility caused by the turmoil has continued to boost JPMorgan’s stock-trading business, which notched record revenue in the first quarter.

JPMorgan, the biggest US bank, also launched its “Center for Geopolitics” this week with research on Russia and Ukraine, the Middle East and global rearmament.

The unit “is both for us, and it’s also to educate clients,” Dimon said. “Clients ask us all the time, What should we do about this country? How do you look at risk?”

JPMorgan among others have indicated that the uncertainty from Trump’s policies may cause clients to sit on the sidelines. Troy Rohrbaugh, co-CEO at JPMorgan’s commercial and investment bank, said earlier this week that its investment-banking fees could fall by a percentage in the mid-teens compared to a year ago — more than analysts had predicted.

Dimon said the US has to “attack the deficit problems,” and he also understands why investors may be cutting US dollar assets.

On Wednesday night, House Republican leaders released a new version of Trump’s massive tax and spending bill with a higher limit on the deduction for state and local taxes and other changes in a bid to win over warring GOP factions to support the legislation.

US Treasuries on Wednesday extended their recent selloff, with longer-term securities getting hit the hardest and an auction of 20-year debt receiving a relatively tepid reception. The selloff at one point pushed the yield on the 30-year bond up by as much as 13 basis points to almost 5.10%, its highest level since 2023.

“I don’t worry about short-term fluctuations in the dollar,” Dimon said. “But I do understand people might be reducing dollar assets.”

Read the full article HERE.

The European Central Bank on Wednesday said a “fundamental regime change” could be underway in financial markets as investors appear to be reassessing how risky U.S. assets really are in the wake of trade tariffs.

In its latest Financial Stability Review, the central bank discussed the recent spike in market volatility off the back of global trade tensions driven by U.S. tariff policy.

Markets have been reacting sensitively to the frequent updates around trade and levies from the U.S. and its trading partners. Stocks first tumbled when U.S. President Donald Trump announced sweeping tariffs, before rebounding when he declared a temporary 90-day pause on duties.

“During the turmoil, market functioning – which can be thought of as the ability to trade financial assets quickly without moving prices inordinately – in euro area financial markets held up well,” the ECB noted. “This was despite some atypical shifts away from some traditional safe havens like US Treasuries and the US dollar.”

While this could have been linked to technical factors, the ECB said, it might have also had broader triggers.

“These moves might also have reflected perceptions of a more fundamental regime change, with investors seeming to reassess the riskiness of US assets, possibly leading to broader shifts in global capital flows,” the ECB noted. “This would have potentially far-reaching consequences for the global financial system.”

ECB Vice President Luis de Guindos on Wednesday suggested to CNBC that there was a risk of a market correction down the line. Two key things to currently consider are elevated valuations and strong uncertainty, he told CNBC’s Annette Weisbach.

“Markets are very benign with respect to this scenario. They believe that, you know, growth is going to be low, but we are not going to enter into a recession, inflation is going to decline, and monetary policy will follow suit,” de Guindos explained.

Risks could still emerge, and various issues such as what could happen regarding trade and fiscal policies and regulation from the U.S. government are unclear, he said.

“And these elements give rise to volatility. I think that volatility is, perhaps, you know, the consequence of these two elements …, valuations and uncertainty.”

In its report, the central bank pointed out that it had previously warned about “vulnerabilities posed by high valuations that are not backed by fundamentals,” saying that “this source of risk has now partly materialised.”

Trump’s reciprocal tariff announcement was the trigger for this, the ECB said.

Uncertainty the ‘name of the game’

Taking a broader view, de Guindos said uncertainty linked to U.S. trade, fiscal and regulatory policy was now the “name of the game” throughout financial markets and the global economy. The question was now what this uncertainty and any eventual policy moves meant for Europe and financial stability in the euro area, he suggested.

Looking at inflation and economic growth, de Guindos reiterated that tariffs would be “detrimental” to growth, while the impact on prices was less clear.

In the short term, tariffs would raise the prices of imported goods, while at the same time depressing demand, which could offset the higher costs, he said.

Long-term implications could look very different.

″[In the] long term, if tariffs and trade distortions give rise to fragmentation that will be detrimental to the supply chain, and that could increase the cost of the corporates. And that could be inflationary,” de Guindos said.

Earlier this week, the European Union put out its latest economic projections, cutting its 2025 gross domestic product forecast for both the EU and euro area to 1.1% and 0.9% respectively. This compares to a previous estimate of 1.5% growth for the EU and a 1.3% expansion for the euro area.

Headline inflation is meanwhile expected to slow, falling below the ECB’s 2% target in 2026.

Read the full article HERE.

U.S. debt is a spending problem, which neither party wants to stop.

Moody’s Ratings service waddled in Friday to state the obvious, which is that the U.S. is on an unsustainable debt trajectory. We’d like to know where Moody’s was when the Biden Administration was spending at record levels, but there’s still a warning here for the Republicans now in charge in Washington.

Moody’s downgraded U.S. debt to a notch below its top rating, citing chronic budget deficits and rising debt-service costs. The rating agency lagged behind S&P Global Ratings and Fitch, which downgraded the U.S. in 2011 and 2023, respectively. Moody’s may have been late because it believes in the Keynesian model that government spending lifts economic growth.

Markets on Monday reacted poorly to the downgrade, as well as comments by Treasury Secretary Scott Bessent that there may be more bad tariff news coming. He said the April 2 “reciprocal” tariffs could return for some countries if they don’t agree to President Trump’s supposedly generous terms. The 30-year Treasury bond yield hit 5% for the first time since autumn 2023, before falling back, and the 10-year appears to be settling near 4.5%.

Moody’s is no oracle, but its downgrade is a moment to explain America’s real deficit and debt issue. The problem is spending, which neither political party wants to restrain. More revenue from faster economic growth would help, but supply-side growth policies have ebbing political support, even in the GOP.

The nearby chart tells the Washington fiscal story as a share of gross domestic product from 1995 through the present and estimated through 2030. Revenues have held within a fairly narrow band not far off from the 17.2% average from 1995 through last year.

Revenues fell with the 2008-2009 recession, and again modestly and for a short time with the Trump tax reform that began in 2018. But they are back to the long-term trend and on current policy will increase over the next decade and beyond.

Spending is a different tale. The average for outlays from 1995-2024 is 21.1%, but they spiked to more than 24% amid the Obama spending blowout after the financial panic. The GOP Congress elected in 2010 shrunk outlays back down to the average, mainly by cutting domestic and defense discretionary spending. Entitlements kept growing.

Then the pandemic hit, and outlays exploded under Presidents Trump and Biden. They’ve declined some in the last two years, but they were still 23.4% of GDP in fiscal 2024.

That left a budget deficit of 6.4% of GDP last year, which is unheard of when the economy is growing and there is no war or emergency. The Congressional Budget Office says spending will keep growing as a share of the economy, as entitlements continue to boom. Spending is the debt driver.

Republicans could do something about this but may not have the votes. DOGE has cut around the edges, but President Trump won’t touch Medicare or Social Security. Too many Republicans won’t even fix Medicaid, which has soared since ObamaCare expanded coverage to able-bodied young men. The current House budget bill doesn’t do much more than sustain the Biden spending path.

Democrats and the press want to blame the tax portion of the House GOP bill, but that mainly keeps the current tax rates. The new Trump tax ideas—expanding social handouts via the tax code and state-and-local tax deductions for wealthy blue-state residents—do nothing for growth.

But its pro-growth tax provisions will at least kick back some revenue to Treasury, unlike more social-welfare spending. And if the bill fails to pass, the economy will be hit with a $4.5 trillion tax increase. Add Mr. Trump’s tariff tax of some $300 billion or so, and the economy might go into recession. Then watch spending and the deficit explode. Extending the lower tax rates and deregulation are crucial to keep the economy growing.

None of this is a fiscal or financial crisis, at least not yet. The dollar’s reserve-currency status gives the U.S. a unique borrowing privilege. There will always be buyers for Treasury bonds, though the question is at what price? Higher interest rates mean net interest on the federal debt is now 3% of GDP and closing in on $900 billion a year.

The Moody’s downgrade joins the list of warnings to Washington that the country needs better economic and fiscal policies. We wish we could see more signs of them.

Read the full article HERE.

Wall Street got a rude awakening after the US downgrade by Moody’s Ratings, with stocks, bonds and the dollar falling amid renewed anxiety over the nation’s fiscal outlook at a time when there’s little clarity about the impacts of Donald Trump’s trade policy.

Following a torrid surge that put the S&P 500 on the brink of a bull market, the gauge fell about 1% on Monday. A selloff in big tech, which had led the equity rally from April’s lows weighed heavily on the market, with Tesla Inc. and Apple Inc. sliding at least 2.9%. Walmart Inc. slipped as Trump said the retailer should stop trying to blame tariffs as the reason for raising its prices.

Long-dated Treasuries, which had already been moving higher before Moody’s statement, topped 5% amid investor concerns about a surging debt load. The US deficit has been in excess of 6% of gross domestic product for the past two years, an unusually high burden outside of economic recessions or world wars. The greenback dropped against most of its global peers. Gold climbed.

“The US credit rating downgrade adds to a long list of uncertainties that the stock market is weighing right now, including tariff, fiscal, inflation and economic ones,” said Clark Geranen, chief market strategist at CalBay Investments.

The S&P 500 fell 0.7%. The Nasdaq 100 slid 0.8%. The Dow Jones Industrial Average dropped 0.4%.

The yield on 10-year Treasuries advanced four basis points to 4.52%. The Bloomberg Dollar Spot Index fell 0.5%.

“The Moody’s downgrade of the US debt was not a shocking development, but it’s not what the Treasury market needed given that it’s on the cusp of signaling an important change in trend for long-term interest rates,” said Matt Maley at Miller Tabak. He also noted that news came at a time when the stock market is “overbought and overvalued,” helping trigger the pullback.

The US government lost its last triple-A credit score from a major international ratings firm after a downgrade by Moody’s on May 16, citing more than a decade of inaction by successive US administrations and Congress to arrest a trend of large fiscal deficits.

And there’s concern the situation could get worse, with Republican lawmakers discussing a tax and spending package from Trump that critics say would add trillions more to the federal debt over the coming decade.

Treasury Secretary Scott Bessent downplayed concerns over the US’s government debt and the inflationary impact of tariffs on companies, saying the Trump administration is determined to lower federal spending and grow the economy.

Asked about the Moody’s Ratings downgrade of the country’s credit rating Friday during an interview on NBC’s Meet the Press with Kristen Welker, Bessent said, “Moody’s is a lagging indicator — that’s what everyone thinks of credit agencies.”

“We view this latest credit action as a headline risk rather than a fundamental shift for markets,” said Mark Haefele at UBS Global Wealth Management. “We would also expect the Federal Reserve to step in if there were a disorderly or unsustainable increase in bond yields. So while the downgrade may lean against some of the recent ‘good news’ momentum, we do not expect it to have a major direct impact on financial markets.”

Investors should buy any dips in US stocks fueled by Friday’s credit rating cut, as the trade truce with China has reduced the odds of a recession, according to Morgan Stanley’s Michael Wilson.

The strategist sees a greater chance of a pullback in equities after the downgrade

by Moody’s Ratings pushed 10-year bond yields above the key 4.5% level. However, “we would be buyers of such a dip,” Wilson wrote in a note.

“By our measures sentiment and positioning is still flashing an unambiguous contrarian buy signal,” said Max Kettner at HSBC. “We see a S&P 500 dip on Moody’s US downgrade as a potential opportunity.”

Thomas Lee at Fundstrat Global Advisors also views the Moody’s downgrade as a “largely non-event,” while adding that in case of any stock weakness, he would be “buying this dip aggressively.”

“There is no “surprise” here as Moody’s is citing facts we already know, the sizable US deficit,” Lee said. “And we doubt any major fixed income manager is surprised. There is simply no incremental information here.”

Meanwhile, Goldman Sachs Group Inc. strategist David Kostin said he expects the Magnificent Seven group of technology stocks to resume outperforming the broader S&P 500 on robust earnings trends. The cohort has slumped so far this year as investors dumped pricey US stocks.

Corporate Highlights:

Stocks

Currencies

Cryptocurrencies

Bonds

Commodities

Read the full article HERE

Fed Chair Jerome Powell said interest rates may be higher in the long run due to risks from inflation and supply shocks

Federal Reserve Chairman Jerome Powell on Thursday said that the central bank’s framework for setting monetary policy may need to be adjusted to account for the possibility that supply shocks will become more common given the difficulties they pose for policymakers.

Powell delivered remarks at the Federal Reserve’s Thomas Laubach Research Conference and said that the central bank’s policy rate — the target range for the benchmark federal funds rate — could be higher in the future because of the potential for volatility with inflation and supply shocks occurring more often.

“Many estimates of the longer-run level of the policy rate have risen, including those in the summary of economic projections,” Powell said. “Higher real rates may also reflect the possibility that inflation could be more volatile going forward than during the inter-crisis period of the 2010s.” 

“We may be entering a period of more frequent and potentially more persistent supply shocks — a difficult challenge for the economy and for central banks,” the chairman added.

Powell noted that the Fed’s policy rate is currently well above the “lower bound” of cutting the policy rate to zero — it currently sits at a range of 4.25% to 4.5% — and that the central bank has historically made significant cuts during times of recession.

“While our policy rate is currently well above the lower bound, in recent decades we have cut the rate by about 500 basis points when the economy is in recession. Although getting stuck at the lower bound is no longer the base case, it is only prudent that the framework continue to address that risk,” Powell said.

The Federal Reserve and other central banks face policymaking constraints when the policy rate is near zero, as it negates their ability to cut interest rates to stimulate the economy amid a downturn.

Powell also discussed how keeping longer-run inflation expectations anchored at the Fed’s 2% target will remain a key part of the Fed’s policymaking framework, saying that while some aspects of it “must evolve, some elements of it are timeless.” 

“Since the Great Inflation, the U.S. economy has had three of its four longest expansions on record. Anchored expectations played a key role in facilitating these expansions. More recently, without that anchor, it would not have been possible to achieve a roughly 5 percentage point disinflation without a spike in unemployment,” Powell noted.

Read the full article HERE.

Retailer has weathered the trade war but says the full impact of tariffs on consumers has yet to come

Key Points

Walmart plans to raise prices this month and early this summer due to tariff-affected merchandise.

Higher prices are coming to Walmart’s shelves.

The retailer said Thursday that it plans to raise prices this month and early this summer, passing along some of the cost as tariff-affected merchandise hits store shelves. 

“The magnitude and speed at which these prices are coming to us is somewhat unprecedented in history,” Walmart Chief Financial Officer John David Rainey said in an interview. He said sales rose steadily in the latest quarter as shoppers flocked to deals and fast shipping, but the full impact of the trade war on consumers has yet to come.

“It’s a dynamic and fluid environment,” said Rainey. Walmart didn’t share a profit forecast for the current quarter because the company may absorb some tariff costs to keep prices lower than competitors, Rainey said. 

Walmart is already raising some prices as its suppliers pass through higher costs. For example, tariffs drove up the price of bananas, one of the most frequently purchased items at Walmart, to 54 cents a pound, up from 50 cents, he said. 

Earlier this week, the U.S. agreed to temporarily lower tariffs on Chinese imports to 30% from 145%. A 30% tariff on Chinese goods is better than 145%, but still means a meaningful price increase for most consumers, Rainey said.

In March and April, stock markets gyrated and consumer sentiment plummeted, but Walmart’s sales grew. The company’s U.S. comparable sales, those from stores and digital channels operating for at least 12 months, rose 4.5% in the three months ended May 2, beating investors’ expectations.

Unlike many other companies, Walmart left its sales and profit forecasts for the full year unchanged. Previously Walmart had set cautious expectations for its financial performance this year, in part because of the unpredictability of tariffs. Walmart is likely to be a relative winner in a time of economic uncertainty, Rainey said. “We tend to gain share, come out stronger.”

Walmart shares rose around 2% in premarket trading. 

Walmart grew steadily through the pandemic and the period of steep inflation that followed. The Trump administration’s on-and-off-again tariffs have created a new challenge for retailers. Some of those impacts have yet to hit retailers’ shelves, in part because many companies stockpiled goods ahead of the tariffs or postponed shipments from China. So far, the economic impact of tariffs has been muted in the U.S., with unemployment and inflation holding steady. 

Walmart said its consumers in the latest quarter continued to shop cautiously, as they have for the past few years because of inflation on essentials such as groceries and child care. That has been a boon to Walmart. 

Walmart Thursday said more high-income households in the U.S. chose the retailer for groceries, and shoppers embraced its low-price store brand and “rollbacks,” or temporary deals. Overall inflation ticked slightly higher in the latest quarter, primarily due to the price of eggs, the company said. Walmart’s global e-commerce business grew 22% in the quarter.

Read the full article HERE.

When and how much prices will rise depends on the product, and on the ripple effects of the tariff regime, said Paul Donovan, chief economist at UBS Global Wealth Management.

President Donald Trump’s tariffs are already increasing prices on consumer goods. More price hikes could be ahead. But when and how much prices will rise depends on the product and the knock-on effects of the tariff regime, Paul Donovan, chief economist at UBS Global Wealth Management, said Wednesday. Of course, it also depends on how long the tariffs stay in place and at what level, which is in flux.

Trump’s announced levies on trade so far have cumulatively lifted the effective tariff rate to roughly 25% from 2.5% at the start of the year, but are expected to be negotiated down from here. Donovan estimates that a 10% increase in tariffs could raise price levels by about 1.1%. He doesn’t expect companies would raise prices gradually over time, but would instead opt for one-time increases to compensate for the hit to their profits.

However, second order effects, including price-led inflation, could persist at the retail level, he said on the call with members of the media. “If consumers believe prices are increasing, then retailers can push through price increases because their customers are expecting it as a concept.”

The behavioral component, meaning how businesses and consumers react to both price hikes and the anticipation of further increases, makes it hard to judge risks, he said.

Delayed impact. The impacts will begin showing up in economic releases in the coming weeks, Donovan said. “On average I would expect something to show up in June price inflation data,” he said. “But the perception is already shifting.”

When prices move depends on product shelf life, which varies widely, and that affects how soon companies have to react to tariffs. Some companies stockpiled inventory in advance of tariffs. Many consumer items are shipped overseas and the supply chain takes weeks. In contrast, “The life span of a head of lettuce is a matter of days,” Donovan said.

Donovan notes that recent consumer surveys show higher inflation expectations and a gloomy economic outlook. Some surveys also show a partisan split with Democrats and independents anticipating higher rates of inflation than their Republican peers.

The University of Michigan’s consumer sentiment index for April showed that Americans anticipate inflation for the year ahead to jump to 6.5%. That’s the highest reading since 1981.

Donovan said that he doesn’t expect tariffs to remain at significant levels for a prolonged period, but if they did, the impact would be initially inflationary, but then disinflationary because economic growth would slow.

Federal budget impact. While tariffs, like other tax increases, will increase revenue to the U.S. government, the impact on consumer prices may be larger than the benefit to federal coffers, Goldman Sachs economists explain.

“[P]rohibitively high tariff rates on imports from China will shift import demand away from China toward countries with higher production costs but lower U.S. tariff rates,” Goldman Sachs researchers led by Chief Economist Jan Hatzius wrote in a May 7 note. “This was true in the last trade war as well, but the tariff differential is now vastly larger—145% for China versus just 10% for most other countries. That shift will also raise U.S. prices, but without a commensurate increase in the effective tariff rate.”

Economic outlook weakens. Worsening economic forecasts by many Wall Street economists are a sharp contrast to the beginning of the year when the economy was on strong footing, inflation had declined substantially, and businesses were projecting confidence about economic expansion.

Some companies have already begun raising prices. For instance, Ford Motor is increasing prices on several 2025 models, Microsoft is increasing Xbox prices, and Mattel has indicated toy prices will go up. Several luxury brands have announced they would be hiking prices.

Other companies, even those not directly affected by tariffs, have suspended earnings guidance due to the significant economic uncertainty wrought by trade policy changes. For example, Southwest Airlines, American Airlines and Alaska Air pulled their 2025 guidance.

Read the full article HERE.

Gold prices rose on Tuesday on bargain-hunting after a sharp loss in the previous day, while softer-than-expected inflation data from the U.S. also lent support.

Spot gold rose 0.2% to $3,241.16 an ounce as of 0938 ET (13:38 GMT), after falling as low as $3,207.30 on Monday. U.S. gold futures were up 0.6% at $3,245.50.

“We had a big correction in gold on Monday on the news that there is a deal made between the U.S. and China,” Bart Melek, head of commodity strategies at TD Securities, said.

“However, tariffs (on China) are still 30%, which is quite negative for the economy.”

The U.S. and China on Monday said they would pause their tariffs for 90 days. Following the talks in Geneva over the weekend, the U.S. said it will cut tariffs on Chinese imports to 30% from 145% while China said it would cut duties on U.S. imports to 10% from 125%.

Bullion had shattered multiple record highs in 2025, owing to concerns over economic slowdown following U.S. President Donald Trump’s sweeping tariffs, strong central bank buying, geopolitical tensions and increased flow into gold-backed exchange-traded funds.

Elsewhere, U.S. consumer price index increased 0.2% last month, the Labor Department’s Bureau of Labor Statistics said on Tuesday. Economists polled by Reuters had forecast the CPI would rise 0.3%.

“The report does lean slightly friendly for the precious metals markets because it’s not a problematic inflation report that would give the Federal Reserve pause on cutting interest rates,” Jim Wyckoff, senior analyst at Kitco Metals, wrote in a note.

Financial markets expect the central bank to resume its policy easing in September.

Lower interest rates increase non-yielding bullion’s appeal.

Spot silver added 0.1% to $32.62 an ounce, platinum climbed 1.4% to $989.95 and palladium gained 0.2% to $947.24.

Read the full article HERE.

Tariff reductions are bigger than expected and Bessent says ‘neither side wants to decouple’

Key Points

A few days ago, it would have seemed almost impossible. But on Monday, to the surprise of global investors and everyday businesses fearing a trade war, the U.S. and China agreed to a truce. 

The world’s two biggest economies unwound for now most of the tariffs they had imposed on each other since April in a tit-for-tat battle that was threatening to stoke U.S. inflation, crash China’s export engine and upend the global economy. 

Stock markets in the U.S. and elsewhere surged on the news. The dollar and bond yields rose, reflecting expectations of faster U.S. growth as trade tensions recede.

Investors and analysts said the outcome was much better for the global economy than they had expected on Saturday when U.S. and Chinese negotiators started two days of intensive talks at the Geneva residence of the Swiss ambassador to the United Nations. 

The U.S. agreed to lower the base level of tariffs on most Chinese goods to 30%, from 145%, while China said it would cut its levies on U.S. products to 10% from 125%. The 30% rate imposed by the U.S. includes a levy related to China’s alleged role in the fentanyl crisis plaguing the U.S., an issue in the weekend’s talks. 

The U.S. tariff on many Chinese products will be higher than 30%. U.S. duties on steel, aluminum and autos remain in place, as do some earlier tariffs on certain Chinese goods imposed during President Trump’s first term in office and that of former President Joe Biden. 

Washington and Beijing agreed to keep the new tariff levels in place for 90 days, with the goal of working toward a broader deal on trade in further talks. 

China said it would cancel or suspend some nontariff trade measures it had imposed to hit back at the U.S., potentially including easing export restrictions on critical minerals used in batteries and other high-tech applications. 

Speaking at a news conference in Geneva, Treasury Secretary Scott Bessent said the U.S. was seeking “a long-lasting and durable trade deal” with China. He said a clear break between the two economies wasn’t desirable and “neither side wants to decouple.”

Bessent said the U.S. still had grave concerns about its unbalanced trading relationship with China. He cited issues such as China’s management of its currency and its subsidies for manufacturing, which Washington believes are a major factor driving factory-job losses in the U.S. Those and other issues will be discussed in talks over the next 90 days, he said. 

The outcome forestalls for now what was shaping up to be a destructive clash between the world’s two biggest economies, with potential ripple effects across the globe. 

Retailers in the U.S. were warning of empty shelves if they couldn’t get Chinese products, and some small businesses were worried they would go under without easy access to China’s vast factory floor. Economists warned higher prices and shortages risked reigniting inflation. 

For China, an unrestrained trade clash with the U.S. would threaten millions of jobs tied to serving U.S. consumers and potentially worsen trade tensions with other countries wary of a surge in Chinese imports. China was also worried about losing access to some U.S. products it still needs, such as Boeing planes, aircraft parts and certain chips. 

Prices for goods leaving Chinese factories have been falling for more than two years as production outstrips demand—a deflationary trend that would only get worse if trade barriers rose further. 

Dan Ives, an analyst at Wedbush Securities, said the scale of the tariff reduction was “a dream scenario.” Trump had suggested just days ago that an 80% tariff on Chinese goods “seems right.” 

“The tariff pause offers a reprieve from what had begun to resemble a bilateral trade embargo,” said Robin Xing, chief China economist at Morgan Stanley in Hong Kong. He said a surge in trade between the U.S. and China was likely during the 90-day window as both sides rush to take advantage of the lower tariffs, a repeat of frontloading that occurred earlier in the year. 

Bessent said the two sides agreed to a framework to keep talks progressing, which he said should help avoid any future tit-for-tat escalation of the kind that followed Trump’s April 2 tariff announcement. At the time, Trump imposed an additional 34% tariff on China as part of his global tariff plan affecting most U.S. trading partners, and the figure kept rising as Beijing and Washington traded rounds of retaliation.  

Though the sides didn’t come to agreement over the fentanyl tariffs, the U.S. made clear in private meetings its views on the importance of combating the deadly drug. Trump has accused China of playing a role in the illicit fentanyl trade, something Beijing denies. 

In a private meeting on Saturday, Bessent picked up a bit of sugar out of a dish on the table and told Chinese officials that the amount he was holding could kill a person if it were fentanyl, said a person with direct knowledge of the exchange. Bessent picked up a little more sugar and said that amount could kill people across Geneva. Then he picked up more and said that much could kill people across Switzerland. 

In a briefing with a small group of reporters, Bessent said that although fentanyl wasn’t the main focus of the trade talks, the Chinese delegation included China’s minister of public security, Wang Xiaohong, who was able to discuss the issue in detail with U.S. officials. Such an official isn’t usually part of a trade team, Bessent said, and that “shows their responsiveness to our concerns,” he said.

Since the start of his second term, Trump has been adamant about the need to raise tariffs on China, sticking to his position even when markets were taking a hit. He said China had been ripping off the U.S. for decades and it was time to put pressure on Beijing. 

But in recent weeks, Bessent had focused on the potential downside of an extended trade war with China. He repeatedly said the situation with China was unsustainable.

In the same social-media post suggesting an 80% tariff on China, Trump also named his Treasury secretary as the person to make the call. He said the rate was “up to Scott B.”

Bessent said during the briefing that Trump was given updates after each of the two days of meetings in Geneva.

Read full article HERE.

Banks and brokers are seeing rising demand for currency derivatives that bypass the dollar, as trade tensions add a sense of urgency to a years-long shift away from the greenback.

Firms are receiving more requests for transactions including hedges that sidestep the dollar and involve currencies such as the yuan, the Hong Kong dollar, the Emirati dirham and the euro. There’s also demand for yuan-denominated loans, and a bank in Indonesia is setting up a desk for the Chinese currency.

The vast majority of foreign-exchange trades use the dollar even if they’re transferring money between two local currencies. For example, an Egyptian company wanting Philippine pesos will typically transfer its local currency into the greenback before buying pesos with the dollars it receives. But companies are increasingly looking at strategies that skip the dollar’s role as a go-between.

The attempt to find alternatives is another sign that companies and investors are turning their backs on the world’s reserve currency, which was hit with a wave of selling this week amid shifting bets on trade deals. Stephen Jen, a high-profile strategist known for his work on the “dollar smile” theory, has warned of a potential $2.5 trillion “avalanche” of dollar selling that could derail the currency’s long-term appeal.

The greenback’s tumble this week reflected short-term anxieties about trade tensions that are now dominating sentiment. But structural changes in how the greenback is used — and by whom — point to a longer term trend of de-dollarization.

“The increase in transactions between non-US currencies is largely due to technological development and increased liquidity,” said Gene Ma, head of China research at the Institute of International Finance. “The trading parties feel that the price may not be worse than using the US dollar, so transactions naturally pick up.”

Peak Dollar

The attempt to bypass the dollar is picking up steam, based on conversations with employees of companies and financial institutions across Asia, who asked not to be identified as they aren’t allowed to comment publicly.

Financial institutions from Europe and elsewhere are increasingly pitching yuan derivatives that cut out the US currency, said a person at a commodities trading firm in Singapore. Closer commercial ties between mainland China, Indonesia and the Gulf are spurring demand for non-dollar hedges, several people said.

European carmakers are driving up demand for euro-yuan hedges, said a trader at a financial institution in Singapore. In Indonesia, a foreign bank is due to set up a dedicated team in Jakarta this year to meet growing demand from local clients to facilitate rupiah-yuan transactions, according to an executive at the firm.

The gradual shift away from the dollar erodes one of the building blocks of global trade. For decades, it has been ubiquitous in everything from emerging market debt financing to trade settlement. The use of the dollar as a go-between currency accounts for around 13% of its daily trading volumes, according to a recent estimate.

But global use of the dollar was under threat even before US President Donald Trump’s unpredictable approach to trade forced a radical rethink about the greenback’s place in the world.

China has for years been trying to promote international use of its own currency, signing currency settlement agreements with Brazil, Indonesia and others and promoting the global use of the yuan. The BRICS group of emerging-market nations has discussed de-dollarization. Russia’s invasion of Ukraine in 2022 spurred interest among some countries in shifting away from the dollar, after sanctions on Moscow raised questions about whether the currency had become weaponized.

To be sure, few market participants doubt that a move away from the dollar will be anything but a gradual shift. For one thing, there are no realistic candidates to replace it. The use of the euro in global transactions has fallen over the past two years, according to data from data from global payments company Swift, while China’s currency remains a novelty for trade not directly involving the world’s second-largest economy.

China’s Trade Anchor

China’s yuan was used in around 4.1% of global payments in March, according to data from global payments company Swift, a far cry from the dollar’s 49% global use. But some of China’s payments are being done through its own system, which is growing rapidly.

Annual volumes through the Cross-Border Interbank Payment System reached around 175 trillion yuan ($24 trillion) in 2024, a more than 40% year-on-year growth rate, according to its own data.

Chinese investors and trading companies used the yuan in a record percentage of their cross-border activities in March. The country’s exporters are also speeding up the exchange of dollars into yuan, reversing a previous trend of exporters sitting on dollar revenues amid fears the yuan would weaken.

Chinese exports to Southeast Asia have grown more than 80% in the five years to March 2025, while those to the United Arab Emirates and Saudi Arabia more than doubled, according to Bloomberg-compiled data. That far exceeds the rate of growth for the country’s exports to the US and the European Union.

While yuan-based hedges are often more expensive than those based on the dollar, low interest rates on underlying yuan loans can mean the total cost is still attractive for borrowers.

“You can fund yourself at a third of the cost that you would fund yourself in dollars,” said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis. Still, “the renminbi has limitations because there’s not a lot of liquidity offshore.”

The cost of hedging the dollar against major currencies has increased over the past year, with spikes just before the US presidential election in November and again in April. Demand among options traders for hedges against dollar declines has surged. A Bloomberg gauge of the dollar has lost around 6% this year as anxiety about trade tensions have loomed large.

The tariff-related dollar swings make clear that it’s not just China and other major economies that are chipping away at the dollar’s place in the world. Trump has sent mixed signals about the currency, but he has complained about dollar strength and has given a top job to Stephen Miran, an economist who has written about a radical shake-up of the dollar-based world order.

Trump’s approach to trade, his apparent willingness to jettison longstanding practices and his repeated criticisms of the Federal Reserve have all added to a sense that the dollar’s dominant role in the global economy is facing its biggest threat in decades.

“Given the dollar’s remarkable staying power, it would appear to require truly epochal shifts in the international environment to displace it,” wrote Deutsche Bank analysts including Oliver Harvey in a recent note. “But there are growing risks that just such shifts are taking place.”

Read the full article HERE.