Three fundamentals for the week: Investors eye trade talks and US inflation, consumer sentiment data

Were May Nonfarm Payrolls (NFP) figures reassuring or worrying? Investors have little time to digest the 139K increase in positions before new developments arise.

1) Will the world's largest economies reach common ground?

Chinese and American officials are meeting in London for another round of high-level talks, less than a month after convening in Geneva. The encounter in Switzerland yielded lower tariffs, but perceived violations of other topics have since angered Beijing, and Washington agreed. The biggest stumbling block is rare earths.

China has a chokehold on several minerals that are critical to electric vehicles and other products. White House officials accused Beijing of slow-walking the licensing process of rare-earth exports, while China has grievances of its own related to microchips.

In the lead-up to the London summit, tensions dropped, boosting sentiment. However, even if both sides reach new agreements, implementation is key.

In addition to the tussle between the world's two largest economies, the clock is ticking toward the July 9 deadline for implementing US President Donald Trump's reciprocal tariffs. Investors are watching talks with the EU, where the tone has improved, but both the US and the bloc are far from striking a deal.

In the background, there is ongoing uncertainty about the legality of those duties. The case is making its way through the courts, and America's counterparts have no incentive to compromise while there is no verdict.

2) US inflation may have risen due to duties

Wednesday, 12:30 GMT. Have Trump's tariffs reached the US consumer? Baseline levies of 10% on most goods were implemented in April, and some of the goods arriving in America may have caused companies to hike prices.

The relatively upbeat Nonfarm Payrolls have already lowered market expectations for a rate cut in September, and the Federal Reserve (Fed) may be further discouraged from lowering borrowing costs if inflation remains high.

The core Consumer Price Index (core CPI) is projected to have risen by 0.3% in May, up from 0.2% in April. The Fed watches underlying inflation more than headline price rises.

An increase of 0.4% or higher would boost the US Dollar (USD) while hurting Stocks and Gold, while a 0.2% outcome or lower in core CPI would do the opposite.

3) Will consumer sentiment bounce off the lows?

Friday, 14:00 GMT. The University of Michigan's Consumer Sentiment Index has been depressed in recent months, a result of growing uncertainty about the impact of tariffs.

While the sour mood evident in these surveys has not yet manifested in lower consumption, the downbeat data worries investors.

Economists expect the preliminary reading for June to be slightly higher than May's final print of 52.2. Apart from the headline, markets will be watching the inflation expectations. One-year estimates of price rises hit 6.6% in May, double the peak when inflation was rampant in 2022.

Final thoughts

Tariff-related headlines are set to rock markets and may come at unexpected moments. Trade with care.