Wall Street Mixed on US-China Trade Deal Amid Confusion
Financial institutions on Wall Street respond cautiously to the announced framework agreements with China.
The street's reaction to the US-China trade framework agreement was a tad cautious on Wednesday, with traders voicing disappointment over the deal between the world's economic giants. The Dow Jones Index remained steady at 42,866 points, while the S&P-500 and Nasdaq indices saw a minor dip of 0.3% and 0.5% respectively.
In London, the two-day negotiations resulted in a framework agreement intended to resurrect the deal first agreed upon in Geneva. Yet, market pundits expressed concerns about a weak framework that might not surpass the Geneva agreement's short lifespan. Moreover, China, in a potentially concerning move, reportedly reserved the right to reimpose strict export limits on rare earths. Insiders claim Beijing will limit rare earth export licenses to six months.
Meanwhile, US President Donald Trump didn't help matters with his confusing statements about tariffs: "We receive 55 percent tariffs, China receives 10 percent." The lack of clarity sent shockwaves through the market, with Richard Clarida, former Fed representative and current Pimco advisor, commenting that "politics is now driving the economy, especially in the US and increasingly in the reaction of other countries."
Trades tariffs and Commodities: Politics at Play
The unclear terms of the agreement stoked skepticism on Wall Street. Furthermore, the US Court of Appeals upholding Trump's tariffs met with negative reactions.
Bonds and Dollar Yield: Mysteries Abound
The yield on 10-year US Treasury bonds went down by 6 basis points to 1.64%. Lower-than-expected US consumer prices in May sparked fantasies of future interest rate cuts. Yields reached their lowest levels of the day during a $39 billion auction of 10-year bonds, leading traders to hail another successful stress test of faith in US bonds.
Rate cut expectations and falling bond yields put pressure on the dollar, causing the Dollar Index to lose 0.4% as the euro reached its highest level in nearly a week. The gold price climbed 0.8% alongside decreasing bond yields, buoyed by the weaker dollar.
Tesla's Mixed Bag
Tesla stock managed to eke out a 0.1% gain at the close despite surrendering significant gains throughout the day. Tesla CEO Elon Musk backpedaled from his recent harsh criticisms of President Trump, potentially allaying concerns about Trump retaliating against Musk's firms, Tesla and SpaceX. Musk also announced a tentative June 22 launch date for Tesla's long-anticipated robotaxi service.
Meanwhile, Meta Platforms shares dropped by 1.2 percent due to rumors of massive investment plans in Scale AI and the potential appointment of its CEO to spearhead the company's AI development. Lockheed Martin shares suffered a 4.2 percent slide owing to a report suggesting the U.S. Air Force plans to purchase fewer F-35 fighter jets in 2024 than initially anticipated.
GameStop, the quintessential "meme stock," reported decreasing quarterly sales but still managed to turn a profit. Its stocks took a tumble of 5.4 percent. General Motors stocks, on the other hand, climbed by 1.9 percent due to the automaker's plans to invest $4 billion in increased U.S. production and reduce tariff costs. First Solar gained 2 percent following an upgrade by Jefferies to "buy." Starbucks stood to gain with former CEO and influential shareholder Howard Schultz expressing support for the coffee chain's rehabilitation plan, resulting in a 4.4 percent increase in Starbucks stock.
1. The unclear terms of the US-China trade agreement, coupled with the upholding of Trump's tariffs, have sparked concerns among Wall Street traders about the future of business, finance, and technology, particularly in investment and employment policies.
2. Following the release of lower-than-expected US consumer prices in May, there has been increased speculation about possible rate cuts, affecting the yield on 10-year US Treasury bonds, the dollar's value, and the price of commodities like gold, as well as impacting companies' employement policies, such as Tesla, Starbucks, and First Solar, due to the potential changes in financing and economics.
