Weekly house view | A Warsh welcome!
The week in review
US President Donald Trump and China’s Xi Jinping stabilised their ties without achieving any major breakthroughs at a summit in Beijing that successfully institutionalised their competition. Both leaders agreed the Strait of Hormuz should reopen as soon as possible, though they did not set out a concrete plan on how to unblock the waterway. Trump, warning Taiwan against declaring independence, invited Xi to visit the US in September and China agreed to buy more US farm products and Boeing jets.
The S&P 5001 rose 0.2%.
In the UK, the political situation grew more unstable, with challengers from his own party lining up to face Prime Minister Keir Starmer after a local election debacle. The pound weakened.
In the US, a new era is beginning with Kevin Warsh confirmed as Federal Reserve chair. Highlighting the challenges he will face, inflation came in higher than expected and the Treasury Department sold USD 25 bn of 30-year bonds at a 5% yield for the first time since 2007.
The yield on 30-year Japanese government bonds reached 4% for the first time since their introduction in 1999, reflecting rising inflation.
Quote of the week
“Can China and the United States transcend the so-called ‘Thucydides Trap’ and forge a new paradigm for major-power relations?” Xi asked. He was referring to the idea that when a rising power threatens to displace an established one, the result is often war – as ancient Greek historian Thucydides observed of the rise of Athens and the fear it instilled in Sparta.
Key data
The US Consumer Price Index (CPI) climbed to 3.8% year-over-year, marking the highest annual inflation rate since May 2023, with real wages also dropping for thefirst time since 2023.
US retail sales rose by 0.5% in April, following a revised 1.6% increase in March.
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