Daily Commentary

MarketMinder’s View: How is monetary policy likely to evolve under new Fed head Kevin Warsh? “Several former top officials said that they expected Warsh, whom President Donald Trump swore in to succeed Jay Powell as Fed chair in May, to begin rolling back the central bank’s ‘forward guidance’ on interest rates as soon as the mid-June Federal Open Market Committee meeting.” The article claims this would be “the most significant reshaping of the central bank’s role at the heart of the US economy in decades.” But hold the phone. This possible change would just amount to fewer words, words, words—useless to begin with—from the Fed. We don’t think its “guidance” has ever been anything to go by, as members frequently say one thing only to do another. As the new Fed chair has pointed out, “the forecasts lead officials to cling to their views on the economy long after reality has shifted, resulting in policy errors.” Central bankers may change their minds based on new information, but without any rhyme or reason anyone can pin down, it is anyone’s guess how they end up voting. Since investors are best served ignoring Fed guidance anyway, we daresay its rollback if not removal altogether would be far less consequential than suggested here. As always, assess Fed moves as they come—their effects manifest at long and variable lags—and spare yourself the futility of getting twisted into knots reading tea leaves.

MarketMinder’s View: As this short article notes, “The RatingDog China General Services Purchasing Managers’ Index [PMI], compiled by S&P Global, rose to 54.4 in May from 52.6 in April, staying above the 50-mark that separates expansion from contraction.” That means a greater share of Chinese companies’ business activity is expanding, though by how much remains unclear (since PMIs cover the breadth, not magnitude, of firms’ growth). The piece also hints China’s official services PMI—with more coverage of state-owned enterprises versus the titular PMI’s private-sector emphasis—returned to expansion in May. So with China’s official and private manufacturing PMIs above 50 in May, Middle Kingdom growth looks broadly expansionary. Moreover, this looks set to continue: “New business grew at the fastest pace in three months, supported by improved demand, business innovation and new client acquisitions. New export business returned to growth after contracting in April.” The world’s second-largest economy keeps chugging along, contributing to global growth—and defying the long-awaited reckoning skeptics warn is around the corner.

MarketMinder’s View: After last month’s summit between US President Donald Trump and Chinese President Xi Jinping, “they agreed to create a Board of Trade and a Board of Investment to help ease tensions between the world’s two largest economies.” What does that entail? It isn’t exactly clear with both still works in progress, and the titular “public comment” period suggests the actual process remains open to debate. But the high-level goal is a pair of forums to manage US-China trade and investment, with US Trade Representative Jamieson Greer hinting that the Board of Trade “would seek to reduce tariffs on at least $30 billion in ‘non-sensitive goods’ between the countries.” With tariff stories seemingly picking up after a lull, we think this is a good reminder for investors of ongoing efforts to improve relations with key trading partners aimed at increasing commerce. The specifics will, of course, matter. But the direction of travel in this respect isn’t uniformly protectionist.