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The speed of this week’s record rally in the Taiwan dollar had one analyst describing it as feeling like a sort of “Asian-crisis-in-reverse”. It is certainly a warning sign for the U.S. dollar, suggesting that Asian demand for the greenback is shifting and investors and exporters are at least hedging U.S. assets if not selling them.
China and the United States are finally sitting down to talk trade this weekend in Switzerland. But it remains to be seen how substantive negotiations will be. Beijing cited a proverb in its statement that seemed to be about managing expectations -- "There is an old Chinese saying: Listen to what is said and watch what is done ... if (the U.S.) says one thing but then does another, or attempts to use talks as a cover to continue coercion and blackmail, China will never agree."
Beijing also announced sweeping measures to stabilise markets, including interest rate cuts and a major liquidity injection. Analysts interpreted the moves as tactical ahead of the weekend talks, designed to show the United States that China would not be negotiating from a position of weakness.
German luxury automaker BMW is hoping for a breakthrough. It told the market it expected car tariffs to fall from July and confirmed its 2025 outlook in an upbeat take on the trade war.
I doubt the Fed will be so definite in its soundings today. The U.S. central bank is expected to stand pat as it hunts for clues about the health of the economy. On the one hand, we’ve seen a downturn in first-quarter gross domestic product and declines in business and consumer confidence but also still-strong employment data and healthy consumer spending. The impact on inflation from Trump’s import tariffs may not be known for months.
With so much uncertainty about, the Fed and investors are leaning more on “soft” data as concrete official indicators become out-of-date too quickly in the rapidly changing environment. These anecdotal data points from surveys or one-on-one interviews with corporate officials and other economic decision-makers are showing a souring landscape. The Fed's most recent Beige Book collection of anecdotal reporting from its 12 regional districts cited "uncertainty" 80 times and called it "pervasive."
Uncertainty is now hanging over South Asia with the escalating conflict between India and Pakistan. Previous flare-ups have not had a lasting impact on Indian assets and a response from New Delhi was expected after last month’s attack by Islamist militants on Hindu tourists in Indian Kashmir. But the current tensions dampen New Delhi’s efforts to pitch itself to foreign investors as a safe haven and as an alternative manufacturing hub to China.
India’s airstrikes on sites in Pakistan and Pakistani Kashmir came hours after New Delhi sealed a landmark trade deal with the UK. It’s also actively negotiating a bilateral trade agreement with the U.S. which could be among the first to be signed by the Trump administration.
Roman Catholic cardinals are voting in secret conclave this week for a successor to Pope Francis. Will we ever find out who from his own coalition voted against German Chancellor Friedrich Merz on his first attempt to win the top job? The debacle was a reminder of the fragility of the ruling coalition’s Bundestag majority, raising the prospect of difficulties in getting laws approved. Undeterred, Germany’s Defence Minister Boris Pistorius is seeking a drastic increase in the country's annual defence budget to over 60 billion euros starting in 2025, sources have told Reuters.
Speaking of budget planning, it’s something that has become way more difficult on U.S. campuses. The Trump administration is targeting university funding in its bid to overhaul higher education. On this week’s Reuters Econ World I take a dive into the world of university endowments with Catharina (“Cappy”) Bond Hill, a former president of Vassar College. Listen here.
This newsletter will be back next Thursday as usual.
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