Summits, sticky inflation and power plays
How is the U.S.-China summit going?
U.S. President Donald Trump and China’s General Secretary Xi Jinping met in Beijing and discussed the full menu: trade, Taiwan, agriculture, oil, market access, fentanyl and the Strait of Hormuz. Early messaging was constructive, but that is usually the easy part. The harder question is whether this is the start of a genuine, comprehensive deal. In the near term, the most interesting piece is Hormuz. Trump and Xi agreed that it should stay open, while Iran announced safe passage for roughly 30 Chinese tankers. That puts China, the U.S., Iran, oil flows and leverage all inside the same trade. China seems to be doing what great powers do when the world gets messy: securing supply on its own terms. If Beijing can work with Tehran to keep crude moving, U.S. leverage is not quite what it looks like on paper. The twist is that China may also buy more U.S. oil to reduce reliance on Hormuz.
There was reason to worry about the meeting, especially after a few erratic late-night posts from Trump on Truth Social. But in the end, nobody seemed eager to pick a fight, and markets liked the message out of Beijing.
Who’s the new U.S. Federal Reserve chair and what is he up against?
Kevin Warsh is now officially the U.S. Federal Reserve (the Fed) chair, confirmed by the narrowest vote in the history of the job. It was great timing for him: the 30-year Treasury yield just hit 5% for the first time since 2007, while inflation pressure is being pushed way higher by the Iran War. Scott Bessent, the U.S. treasury secretary, says that Kevin Warsh will bring disinflation; Trump wants him to bring lower rates. Something doesn’t compute there.
For U.S. stocks, at the index level things look wonderful. The S&P 500 is up nearly 10% over one month. On Thursday the Dow rose above 50,000 once more. But underneath, the story is murkier. Thirty S&P 500 stocks just made new 52-week lows, while the index overall is still strong. That is not exactly what broad market health looks like. Weakness is showing up in financials, consumer discretionary, industrials and some tech names facing AI disruption. The index — and earnings — suggest that all is well, but there are some pockets of weakness. It may not be a huge deal, but this is the kind of divergence worth watching, especially with long-term government bonds giving warning signs that investors are demanding higher yields. For more details on the U.S. market and its recent incredible earnings results, check out last week’s podcast on this topic.
What is Canada’s electricity strategy?
Prime Minister Mark Carney’s electricity strategy is being sold as clean power, but the more important word is competitiveness. Electricity is no longer just a utility issue. It’s the input behind AI, data centres, mining, manufacturing, electrification, liquefied natural gas and energy security. If demand is going to double by 2050, grid capacity has to do the same; that’s just math.
The more interesting part is the realism creeping back into the conversation. The strategy still talks about clean electricity, but it also admits reliability may require more flexibility around existing natural gas power. This is good, as investors don’t fund theoretical energy systems. They fund projects that can actually turn the lights on. Canada doesn’t have a shortage of elegant policy language; it has a shortage of investment, infrastructure and execution. A bigger, more connected grid is one of the public policy areas that could actually improve the country’s productive capacity.
What will the markets be watching out for next week?
Next week, focus shifts back to macro and inflation. Markets will be watching data on the U.S. consumer price index, retail sales, Fed speakers and consumer sentiment to see whether the recent inflation spike is stabilizing or still being pushed higher by energy.
Listen to the latest podcast from the IG Investment Strategy Team for further insights.
