Month: June 2025

CONSUMER WATCH

From BofA card data:

Credit and debit card spending per household increased 0.8% year-over-year (YoY) in May, compared to 1% YoY in April, according to Bank of America aggregated card data.

Seasonally adjusted (SA) spending per household declined 0.7% month-over-month (MoM), with the three-month seasonally adjusted annualized growth rate (SAAR) at -0.9% for May.

 

Bank of America card data shows that the decreases in both gasoline and retail (excluding gasoline and restaurants) spending offset the increase in spending on services. Payback from tariff buy ahead was clear in electronics, which saw a sharp pullback in May. A positive point for services was restaurants. And airline spending saw some improvement, although was still down nearly 11% YoY.

Some of the weakness in card spending may also be explained by the weather. While all regions saw a MoM decline in retail (excluding gas) spending, it was fairly weaker in the Midwest and Northeast, both of which experienced abnormally cold weather during the latter half of May, possibly subduing some consumer activity around the Memorial Day weekend. (…)

In Bank of America deposit data, YoY after-tax wage growth for Gen Z, Millennial, and Gen X higher-income households was around 3% YoY in May, but only 1% YoY for Baby Boomers and Traditionalists.

But despite their relatively stronger wage growth, when we look at credit and debit card spending the weakest cohort does appear to be Gen Z and Millennial households, particularly lower income, though Gen X households also look challenged. Older cohorts (Baby Boomers and Traditionalists), on the other hand, are showing faster card spending growth than other generations across income terciles. (…)

Rising housing costs will likely continue to be drains on the spending power of the young in coming months. At the same time, the resumption of student loan repayments may also crimp younger generations. The Department of Education has estimated that there could be up to 10 million people in default on their student loans in due course. In some cases, some delinquent loan holders may see wage garnishments later this summer, which would provide further headwinds to student loan borrowers’ spending.

While these factors are less important for Gen X, in our previous research on the Gen X cohort, we found that the need to save for approaching retirement is an additional constraint on this generation’s spending with their investments per household 40% higher than the overall population. (…)

At Walmart’s recently hosted 2025 Associates Week:

Consumers have not seen much of the impact from tariffs yet. The company has been surprised that most consumers do not appear to be anticipating this as they have not seen pre-buying behavior like they did in anticipation of the port strikes.

While some companies turned off receipts when China tariffs were at 145% but then quickly turned them back on when the tariff rate went to 30%, Walmart indicated they are seeing no evidence of a congested supply chain and product is flowing right now. (Goldman Sachs)

Trump Says China ‘Not Easy’ as Trade Talks to Resume Tuesday

Trade talks between the US and China will continue into a second day, according to a US official, as the two sides look to ease tensions over shipments of technology and rare earth elements. (…)

The US signaled a willingness to remove restrictions on some tech exports in exchange for assurances that China is easing limits on rare earth shipments, which are critical to a wide array of energy, defense and technology products, including smartphones, fighter jets and nuclear reactor rods. China accounts for almost 70% of the world’s production of rare earths.

Specifically, the Trump administration is prepared to remove a recent spate of measures targeting chip design software, jet engine parts, chemicals and nuclear materials, people familiar with the matter said. Many of those actions were taken in the past few weeks as tensions flared between the US and China. (…)

“China has been ripping off the United States for many years,” the US president said, while adding that “we want to open up China.”

The Trump administration expects that “after the handshake” in London, “any export controls from the US will be eased and the rare earths will be released in volume” by China, Kevin Hassett, head of the White House’s National Economic Council, told CNBC earlier in the day Monday.

Hassett’s comments from Washington were the clearest signal yet that the US is willing to offer such a concession, though he added that the US would stop short of including the most sophisticated chips made by Nvidia Corp. used to power artificial intelligence.

“The very, very high-end Nvidia stuff is not what I’m talking about,” Hassett said, adding that restrictions would not be lifted on the Nvidia H2O chips that are used to train AI services. “I’m talking about possible export controls on other semiconductors which are also very important to them.”

Huawei Technologies Co. founder Ren Zhengfei dismissed the impact of US export restrictions on China in a front-page People’s Daily article on Tuesday, telling the Communist Party’s official newspaper he wasn’t worried about Washington’s efforts to cut off the flow of US technology to China’s chip sector. Domestic firms could resort to means such as chip packaging or stacking to achieve results similar to that from advanced semiconductor technology, he said. (…)

Also in Bloomberg:

It’s still early. But as Jason Miller, a Michigan State University supply chains expert, pointed out last week, US trade data is already signaling alarming things. The US in April exported a fifth as many cars from Michigan to Canada as it did in a normal month in 2024, by his calculations. Which is not a good omen for Michigan autoworkers.

• Auto Sale Prices Surge as Tariffs Kick In Prices jumped 2.5% in April, the biggest monthly increase in 5 years.

Car buyers racing to get ahead of Trump’s tariffs face an uncomfortable truth — the trade war is already boosting US auto prices, often in ways nearly invisible to consumers. The sticker price on a particular make and model may not have changed, at least not yet. But automakers have been quietly cutting rebates and limiting cheap financing deals, adding hundreds of dollars to buyers’ monthly payments even as the companies say they’re holding the line on pricing.

• The Port of Los Angeles is experiencing a significant decrease in ships and cargo, with an average of five ships per day over the past seven days, compared to a normal dozen, due to President Trump’s trade war,
• How Trump’s approach plays out in the long term remains to be seen. For now, however, the constant shifting of his tariff strategy has “got people spooked,” said Andrew Anagnost, chief executive officer of Autodesk Inc., which sells software used by manufacturers to design factories and improve manufacturing processes.“The current operating mode is just the death to long-term investment,” Anagnost said. Construction work that was already underway or in the backlog is continuing but the uncertainty “is stalling future projects.”

Xi Urges South Korea’s Lee to Help Safeguard Free Trade

Chinese President Xi Jinping held his first phone conversation with South Korea’s newly elected President Lee Jae-myung and called for cooperation to safeguard multilateralism and free trade. (…)

“We should strengthen bilateral cooperation and multilateral coordination, jointly safeguard multilateralism and free trade, and ensure the stability and smoothness of global and regional industrial chains and supply chains,” Xi said, according to the CCTV report.

Xi said the two countries should promote their strategic partnership to a higher level and “inject more certainty” into the regional and international landscape, the reports said.

Lee asked China to play a constructive role to build peace on the Korean peninsula and said he hoped to promote bilateral ties in areas including economy, security and culture “under the spirit of mutual benefit and equality,” Lee’s spokesperson said. The South Korean president invited Xi to join the APEC summit in November, to be held in the southeastern city of Gyeongju. (…)

Lee has signaled a more cautious stance on taking sides between the US and China. That marks a shift from Yoon, who emphasized closer ties with Washington and a trilateral partnership with Japan. (…)

Xi’s comments underscore China’s efforts to project itself as one of the bulwarks of free trade and multilateral cooperation in contrast to US protectionism and bilateral deal-making.

China is still South Korea’s biggest trading partner and while the US has closed the gap as an export market, Seoul has long needed to tread a careful path between the two rival economies. Still, any efforts by Lee to balance the handling of relations may not be warmly welcomed by the US. (…)

Highlighting the tricky balancing act facing South Korea’s new leader, a White House official expressed concern over “Chinese interference and influence in democracies” after Lee’s victory, while saying South Korea’s election was free and fair.

Lee is set to fly to Canada to attend the Group of Seven summit next week. While South Korea is not a G-7 member, Lee was invited to participate, according to his office. The visit could give Lee a chance for his first in-person meeting with Trump following their initial phone call on Friday.

Lee has said that shielding South Korean exports from Trump’s tariff regime would be his top priority in bilateral discussions.

Beijing Woos US Influencers With Free Trip to Show ‘Real China’

China is inviting American influencers to join a 10-day, all-expense paid trip through the country this July, as part of Beijing’s efforts to boost people-to-people exchanges and showcase the “real China.”

The initiative, titled “China-Global Youth Influencer Exchange Program,” seeks to enlist young social media influencers with at least 300,000 followers to collaborate with Chinese content creators, according to recruitment posts by Chinese state-affiliated media outlets, including the China Youth Daily. (…)

The trip intends to take the participants across five Chinese cities — Suzhou, Shanghai, Shenzhen, Handan and Beijing, and will cover China’s e-commerce hubs, the headquarter of companies such as Xiaohongshu Technology Co. and BYD Co. (…)

• YouTube Star IShowSpeed Woos US Consumers With Futuristic China Tech

American streamer IShowSpeed’s visit to China has sparked widespread curiosity among fans about cutting-edge advancements in Chinese technology, as products from Huawei Technologies Co. and BYD Co. are put in the spotlight.

IShowSpeed, whose real name is Darren Watkins Jr., live-streams regularly to his 38.4 million YouTube subscribers, often for hours at a time. (…)

His unscripted manner appears authentic and relatable, helping to build trust among his audience that he’s genuinely wowed by the technology, said Barbara Duffek, assistant professor of marketing at Georgia State University. “It’s better than any official, scripted endorsement.”

In an almost six-hour livestream that was viewed 8 million times, Watkins rode a BYD Yangwang U8 luxury SUV that can float in water, screaming in fear at first as the vehicle was driven into a river.

“Oh my god, this car is not sinking, and we are in the car! China got it, these Chinese cars got it bro,” he shouted later while filming himself perching over the vehicle through its sunroof.

Later in the same stream, Watkins visited a Huawei store in Shenzhen and bought three Huawei Mate XTs, the world’s first commercial device that can fold twice from a tablet to a smartphone. (…)

“Yo nobody got these in the world, these only made in China? I’m about to bring these sh—t back to America,” he said in awe as he tested various models. “It’s a gaming PC in a phone format.”

Viewers online have commented on how Chinese technology is on “another level” and underrated, with some remarking how backward the US seems to be.

“The Western media made me dislike China. Speed opened my eyes to the truth. Now I hope to visit China in the future,” a comment on a video of Watkins doing a backflip in sync with a humanoid robot read. (…)

Elsewhere:

The sense of technology on the streets is also the focus of foreign bloggers. The efficient and convenient high-speed rail network, easy-to-use mobile payment, and shared bicycles that can be seen everywhere are deeply loved by some foreign bloggers. The driverless buses on the road, the smart service robots in the hotel, and the speeding maglev trains have made their experience “maximum”.

A Canadian travel blogger’s video with the highest number of views on overseas social platforms is a photo of new energy vehicles filling the streets of Shanghai. Tuo Yan’ai, associate professor at the School of Tourism and Service Engineering of Nankai University, believes that foreign tourists are surprised by China’s advanced infrastructure and high technology, and that high-tech elements have greatly enhanced the convenience and experience of travel.

In the titles of foreign bloggers’ videos, high-frequency words are usually “unexpected” or “never thought of”, or some exclamation words to express their sensory “shock”. For example, “We never thought China would be like this!” “Is this what China really looks like?” “It’s crazy! Unbelievable!” (Xinhua News Agency)

From Perplexity.ai:

For a firsthand, recent look at China’s high-tech advancements through the eyes of a tourist, the video “This Is Why China’s Innovation Leaves the Rest of the World Behind” by Rafa Goes Around (published April 27, 2025) stands out as a comprehensive and engaging. In this video, the creator shares his personal experiences living and traveling in China, highlighting the everyday technologies and futuristic innovations that are now commonplace in Chinese cities.

Also, several recent videos from 2025 offer fresh, in-depth looks at China’s high-tech advancements—many featuring direct tourist or visitor experiences.

1- “China’s New Tech Shocks the U.S. — The World Will Never Be the Same” (Top 10 Discoveries Official, May 22, 2025)

• Explores eight breakthrough technologies that are reshaping daily life in China, including:

  • Quantum computers outperforming U.S. supercomputers

  • Mass adoption of humanoid robots

  • Driverless taxis and flying cars (e.g., E-Hang 216S eVTOL aircraft now in commercial use)

  • Homegrown AI chips and brain-computer interfaces

2. “Made in China 2025: China’s Tech Shock Stuns Critics!” (RevoNow, May 16, 2025)

• Covers China’s rise as a global tech leader:

  • SMIC’s 5nm chip breakthrough, Huawei’s AI, and BYD’s EV dominance

  • The world’s largest 5G network and rapid infrastructure growth

3. “Made in China 2025: The Future of Tech Innovations Revealed!” (RevoNow, May 29, 2025)

• Deep dive into the “Made in China 2025” plan and its impact on global technology

• Highlights smart chip ecosystems, IoT, AI integration, and how these are embedded in devices and services tourists use daily.

Inflation Expectations Declined Across All Horizons, NY Fed Says

Consumers’ expectations for future price pressures improved across all horizons in May, and households’ pessimism about the labor market somewhat eased, according to monthly survey data released Monday by the Federal Reserve Bank of New York.

Median expectations for inflation one, three and five years ahead all decreased in May. The decline was most significant in projections for year-ahead price growth, which dropped to 3.2% from 3.6% in April. Expectations for inflation three years ahead fell to 3% from 3.2%, and forecasts for five years ahead edged down to 2.6%.

The responses came as President Donald Trump struck a deal that significantly — though temporarily — lowered tariffs on imports from China. They also fell in line with other household-based surveys pointing to a rebound in sentiment in the wake of the announcement. (…)

Americans’ views about their job prospects also improved slightly in May. The perceived probability of losing one’s job in the next year dropped 0.5 percentage point, while respondents’ likelihood of quitting voluntarily ticked up. The mean expectation that the unemployment rate will be higher one year from now decreased, though still remained well above its 12-month average.

Households’ perceptions of their own finances also improved, with the share of respondents saying they will be worse off in a year declining slightly. A smaller share of participants reported that it was harder to access credit. The average perceived probability of missing a minimum payment in the next three months dropped to the lowest since January.

The mean perceived probability that the US stock market will be higher 12 months from now increased.

Latest data from Indeed Job Postings (May 30th) show a resumption of the decline in postings in the last week of May:

The Canned-Food Aisle Is Getting Squeezed by Rising Steel Tariffs Steel used in cans is mostly imported—and subject to the Trump administration’s new 50% levy

Cans used for food require tin-coated, ultrathin sheet steel made from molten iron. Not much is produced in the U.S., where domestic producers have been scaling back production for years.

The Trump administration’s new 50% duty on imported steel could increase store prices for items in steel cans by 9% to 15%, according to the Consumer Brands Association, a trade group whose members include Campbell’s, Hormel Foods and Del Monte Foods. At that rate, the price of a can of vegetables costing $2 could increase by 18 cents to 30 cents. (…)

Tariffs are likely to drive up prices for domestic-made steel, too, as U.S. producers raise their own prices.

Can manufacturers say they will continue to buy lots of imported tin-coated steel, known as tin-plate—because there isn’t enough of it made in the U.S. to supply them. (…)

Can manufacturers estimate that about three-quarters of tin-plate consumed in the U.S. is foreign-made, with much of it coming from Europe and Canada.

Tin-plate is made with steel derived from molten iron, but most steel in the U.S. is now made from melted scrap, and that doesn’t measure up to the can industry’s exacting quality standards. (…)

• “Category growth rates in the U.S. have slowed from around 4% last calendar year to about 2%. We expect to reduce up to 7,000 non-manufacturing roads or approximately 15% of our current non-manufacturing workforce.” – Procter & Gamble ($PG ) CFO Andre Schulten

Retail Crowd Is Taking Bigger and Riskier Swings

Whether you look at record inflows into a Tesla ETF or Palantir’s meteoric rally, it’s clear that day traders are eager to speculate.

Investors poured $651 million into the Direxion Daily TSLA Bull 2X Shares (ticker TSLL), marking the largest weekly inflow since the fund’s 2022 debut, according to data compiled by Bloomberg. The biggest chunks came in Thursday and Friday.

And in the AI space, investors are hunting for the next Nvidia-like play as tech giants keep spending heavily on computing infrastructure. (Just look at Zuckerberg’s new effort to micromanage an new AI project that the company is doing alongside a planned multi-billion dollar investment in Scale AI.)

Palantir has soared 75% this year and now carries a valuation of 71 times estimated sales, making it the most expensive stock in the S&P 500. Coreweave, which rents cloud-computing capacity, has quadrupled since going public in March.

Then there’s Bitcoin, which has rallied back to around $110,000, meaning every purchase by Michael Saylor’s Strategy over the last four plus years is now profitable.

Strategy has made around 70 separate purchase announcements since Saylor began to invest cash from the enterprise software maker’s balance sheet into Bitcoin in the middle of 2020. That includes 15 purchases of $1 billion or more of Bitcoin, according to data compiled by Bloomberg. As the price of Bitcoin fluctuated over the years, many of the purchases were periodically under water.

FYI:

“Trump said yesterday that Iran is pressing to be allowed to enrich uranium, and expressed worry that Tehran was seeking too much. “They are good negotiators, but they’re tough,” the US president said.” (Axios)

Iran, China, Russia and many others seem to be “tougher negotiators” than expected…

Hiring Slowed in May, With 139,000 New Jobs Unemployment rate held steady at 4.2%. ‘The market is happy it’s not worse.’

(…) Revisions showed a jobs market that was much weaker earlier this year than originally thought. Employers added a combined 95,000 fewer jobs in March and April than previously estimated. The revised April jobs number was 147,000, down from the 177,000 reported a month ago. (…)

The May report further paints a picture of companies moving cautiously on head count while they navigate a stop-start trade war and a broad immigration crackdown. Many companies are reluctant to conduct mass layoffs, in part because they had to scramble to find employees after the pandemic. But many companies are also leaving jobs unfilled. In other words, workers who already have a job are in pretty good shape. But those who are looking for a job might have a tough time finding one. (…)

The steady unemployment rate masked a sharp, 696,000-person drop in employment in the survey of households that the measure is based on. That was because the labor force participation rate—the share of the working-age population that was either working or looking for work—slipped to 62.4% from 62.6%. Absent that decline, the unemployment rate would have risen.

The household survey’s sample size is much smaller than the survey of employers the main jobs number is taken for, and its measure of employment levels can be volatile as a result. Economists treat its employment readings cautiously, though some believe that, due to separate quirks in the employer survey, it can better capture turns in the labor market.

Federal-government employment shrank by 22,000 jobs, the fourth consecutive month of such declines. The federal government has now shed 59,000 jobs in four months.

President Trump has made slashing the federal workforce a centerpiece of his agenda, but only a fraction of those cuts were reflected in the May data. Many such workers remain on paid leave or are receiving severance pay, which means they don’t show up as unemployed. Lawsuits and court orders have also led to delays in federal job cuts.

Healthcare, a sector that tends to hold up no matter how the economy is doing, posted the strongest gains, with employment rising by 62,000 jobs from the previous month. Employment in leisure and hospitality and social assistance also climbed.

The tariff-sensitive manufacturing industry shed a relatively small number of jobs. Construction and transportation and warehousing, which are also sensitive to tariffs, added a relatively small number of jobs. (…)

Other important factoids:

• Job growth has averaged 124,000 a month YtD, a downshift from 168,000 in 2024.
• The 3-month average is 135k vs the 6-m of 157k.
• The diffusion index is down to 50, its lowest since July and right on the mark below which the US is normally in recession.
• Just two sectors Healthcare/Education and Travel/Leisure generated fully 96% of job growth in May, masking malaise elsewhere.
• Private education/health (87k) and Leisure and hospitality (48k) contributed 93% of the 145k new service sector jobs. Almost nothing elsewhere.
• Government employment was –1k in May. It hovered between 30-50k/m in 2024.
• Wage growth trends reaccelerated somewhat, odd amid a slowing labor market and rampant uncertainty. Are new pressures emerging as net immigration fades?
• Slower net migration means that very little job growth is needed to hold unemployment at low levels.
• Actually, “In the four months of Trump II, the immigrant population has shrunk by 773,000, or 193,000 a month”. (WSJ)
• The share of adults who were employed fell 0.3 pp to 59.7%, the lowest in more than three years. It was due to a whopping 625,000 fewer people in the labor force — neither working nor looking for work.
• The number of people who are working part time because they can’t find full time work rose by 125k people to the most since April 2019.
• There was a big drop in the ‘job leavers’ category, essentially a quits rate number. Job leavers were 9.8% of the unemployed, down from 11.8% and the lowest since May 2021.

In all, May’s hard data say that the US labor market is struggling, confirming others (JOLTS, Indeed) and “soft” data such as purchasing managers’ surveys, small business hiring plans and consumers’ assessment of job availability which have all deteriorated over the past few months.

KKR argues that “net job gains have continued as the policy uncertainty that has made firms cautious to hire has also made them cautious to let go of workers. But, the gradual increase in initial jobless claims over the past year and new challenges to the growth outlook suggest this steady-state is at risk.”

Better wage gains (+5.1% a.r.) helped offset slow employment (+1.1% in May, +0.9% YtD), keeping aggregate payrolls up 5.0% YoY in May, in line with the YtD average. Growth in nominal expenditures should thus hold around 5% for now.

Note however that the sharp acceleration in goods purchases since November, and particularly durables (dots) since February, seems to have been subsidized by slower outlays on services. Americans are in no mood to dissave.

Accelerating wages may be a blessing in a slowing economy, sustaining consumer spending, but it’s a problem for the Federal Reserve trying to keep inflation and inflation expectations subdued.

Another rather interesting consumer-related trend comes from the housing market. Active listings, which virtually disappeared during the pandemic, are now exploding …

… to the point where available homes now far exceed extremely weak demand as the WSJ illustrates:

Redfin reports that in April, 19.6% of homes for sale saw price drops, up from 15.6% one year ago, 11.9% 2 years ago and 7.5% 3 years ago.

This unlocking of the housing market is significant, particularly coming from the sell side where many owners are still enjoying very low mortgage rates.

Quote from Redfin agents confirm this is now a buyers market… with very few buyers:

• Spring is typically the busiest season for the housing market, and with the housing shortage easing and mortgage rates slightly lower than a year ago, one might expect home sales to be stronger. But Redfin agents report that homebuyers and sellers last month were particularly nervous about tariffs and the ongoing trade war.
• “A lot of people are selling their homes and downsizing because they’re worried about the economy,” said Meme Loggins, a Redfin Premier real estate agent in Portland, OR. “During the pandemic, everybody wanted more space for a home office or for their kids to run around, but now people are more focused on saving money. A lot of folks are getting rid of their investment properties, and I’m working with a couple of federal employees who are afraid of losing their jobs, so they’re selling their homes and thinking of moving into condos.”
• The typical home that went under contract in April was on the market for 40 days. That marks the slowest April since 2019,
• “I’ve written ridiculously low offers for buyers that have been accepted,” Loggins said. “I just had a buyer get nearly $50,000 under the asking price for a home listed at $849,000 even though similar homes have been selling for $830,000. You’d be surprised by what sellers are willing to take. I haven’t written a full-priced offer that didn’t request a concession in a long time.”
• New listings of U.S. homes for sale rose 8.4% year over year to their highest level in nearly three years during the four weeks ending May 18. But buyers aren’t biting
• Fewer Americans are buying homes because it’s more expensive to buy than it’s ever been, and economic unease is making people nervous about making such a big purchase. The median monthly housing payment hit an all-time high of $2,882
• Of the homes that are going under contract, roughly 14% of those deals are canceled, the highest share for this time of year since the housing market nearly ground to a halt at the start of the pandemic.

Hmmm…

GOP Senators’ Competing Demands Risk Pulling Trump Megabill Apart Lawmakers take differing stances on Medicaid cuts, green tax credits, business deductions

Senate Majority Leader John Thune (R., S.D.) is trying to release this week a revised version of President Trump’s “big, beautiful bill.”

But as he races to pass the legislation ahead of Republicans’ self-imposed July 4 deadline, he has got about as many problems as there are GOP senators, with lawmakers battling over the additional borrowing and spending cuts that will be used to finance tax relief, plus spending on the border and military. (…)

Republicans have a 53-47 majority in the Senate, and a similarly slim 220-212 edge in the House, meaning any small group of holdouts—working together or separately—can derail the bill. (…)

The many movable pieces of the more than 1,000-page legislation are forcing Republicans to think through difficult trade-offs. The House bill would add a net $2.4 trillion to the deficit over a decade, the Congressional Budget Office estimated—on top of the $21.4 trillion in deficits already forecast through 2034.

To limit deficit impacts while still making good on Trump’s promise to extend his 2017 tax cuts and add new plans such as “no tax on tips,” the proposal slashes federal support for health, food and education programs, shifting more of the burden to states. Democrats decry the cuts, and some Republicans have problems with them too. (…)

John Authers last Friday on now famous Section 899:

It’s a good bet that someone who drafted the One Big Beautiful Bill read The Power Broker. Section 899 alone would have made [Robert] Moses proud. Passed without discussion by the House, 899 gives the Treasury secretary the discretion to rule that other countries are levying “discriminatory” taxes against the US and slap a tax of up to 20% on their US investments. As foreign money currently in US stocks and bonds exceeds US foreign investments by $26 trillion, this could upend the world financial order. It’s a cudgel with which Trump can escalate a trade war into a capital war.

It will be difficult to remove now that it is in the bill. To quote Marko Papic, geopolitical strategist at BCA Research:

Even if the rule is watered down, the notion that foreigners owe the US is catching on with American lawmakers. And we can see some future Democratic administration — perhaps especially a future Democratic administration — fully endorsing a ‘tax the (rich) foreigners’ agenda enthusiastically.

Section 899 has dominated Wall Street this week as lawyers grapple with the implications. It will likely deter foreigners from investing in the US and, as Papic says, strengthen the case for an “exodus from the US.”

China Exports to US Fall Most Since 2020 Despite Trade Truce

Exports rose almost 5% from a year ago to $316 billion in May, slower than economists’ forecast of 6% growth. Despite that slowdown, record shipments so far this year provided much-needed support for an economy that is stuck in deflation and struggling with weak domestic demand. (…)

Underscoring the weak economy, imports dropped 3.4%, having fallen in four of the last five months. Cumulatively, the trade surplus soared to nearly half a trillion dollars from January to May, data released earlier in the day showed. (…)

China’s exports to the US fell 34.4%, according to Bloomberg News calculations, the most since February 2020, when the first wave of the pandemic shut down the Chinese economy.

That sharp decline more than offset a 11% rise in exports to other countries, showing the heft of the world’s largest economy even as Beijing reduced its reliance on direct shipments there after the trade war during Trump’s first term.

Shipments to Vietnam jumped 22%, rising above $17 billion for the third straight month as Chinese companies continued to ship through third countries to try to avoid US tariffs. However that flow is pushing up the US trade deficit with Vietnam and other nations, further complicating negotiations with the US about their own tariffs. (…)

Export volumes have grown faster than values every month since February 2023, indicating that prices are falling. While that makes Chinese goods more competitive globally, it also undercuts competitors in other countries and has caused an increasing number of nations to impose trade sanctions including tariffs on Chinese goods.

The US is threatening to raise tariffs on many countries from early July and on China from August. That could further slash demand for Chinese products destined directly for the US and also used as inputs into other nations’ manufactured goods.

Even if China and other nations are able to strike a deal with the Trump administration, demand from the US and elsewhere might still weaken as companies slow down their frantic purchasing aimed at beating the tariffs.

China Consumer Deflation Streak Persists as Price Wars Rage

China’s consumer deflation extended into a fourth month, as price wars intensified while a spending boost during two national holidays failed to offset the drag from weak domestic demand.

The consumer-price index fell 0.1% in May from a year earlier, the National Bureau of Statistics said Monday. Factory deflation persisted into a 32nd month, with producer prices falling the most in nearly two years. (…)

In the latest example of cutthroat competition, carmaker BYD Co. slashed prices by as much as 34% on almost a dozen of its electric and plug-in hybrid models, stoking concerns of another wave of discounting in the EV market. (…)

Dong Lijuan, chief statistician at the NBS, blamed the steep decline in producer prices on a high base last year and a drop in global prices for oil products and chemicals. Meanwhile, prices of coal and other raw materials at home declined because of ample inventory, further dragging down the index, she said in a statement accompanying the data release.

Trump Says Xi to Restart Rare Earth Flows, Sets Date for Talks

President Donald Trump said his Chinese counterpart Xi Jinping had agreed to restart the flow of rare-earth materials, as negotiators from the two nations prepare to resume trade talks on June 9 in London. (…)

US Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer are set to meet Monday “with Representatives of China, with reference to the Trade Deal,” Trump said Friday on social media. “The meeting should go very well.” (…)

Asked Friday if Xi had agreed to restart the flow of rare-earth minerals and magnets, Trump told reporters on Air Force One: “Yes he did.”

China also approved temporary export licenses to critical mineral suppliers to major US automakers, Reuters reported earlier. (…)

The inclusion of Lutnick in the new round of talks may signal that Trump is willing to reconsider some of the technology curbs that threaten to hobble China’s long-term growth ambitions.

China Says Progress Made With EU on Electric Vehicle Price Talks

China’s commerce ministry said talks with the European Union on setting minimum prices for Chinese-made electric vehicles have “entered final stages,” although more work is required to reach a deal. (…)

Both sides have instructed their working groups to step up efforts to resolve trade differences consistent with national laws and World Trade Organization rules, the statement said.

MARKET CALL: Meltup Again? (Do We Have Nothing To Fear But Nothing To Fear?)

Ed Yardeni:

The stock market has become tariff-scare-proof now that the S&P 500 is only 2.3% below its February 19 record high despite Trump’s Tariff Turmoil (TTT) since then. After Friday’s better-than-expected employment report, the stock market has also become recession-scare-proof. According to Polymarkets, the odds of a recession were back down to 27% on Friday from a recent peak of 66% on May 1.

The stock market might become inflation-scare-proof on Wednesday, if May’s CPI inflation rate turns out to be as subdued as estimated by the Cleveland Fed’s Inflation Nowcasting, i.e., 2.4% y/y. On May 19 we wrote, “So the odds of our Roaring 2020s scenario is back up to 75%. In this scenario, the S&P 500 rises to 6500 by the end of this year. It could keep going to 7000 in a meltup.”

So, do we have nothing to fear but nothing to fear? That would represent much to fear, as fearless investors create meltups, which then become meltdowns. But in fact, the stock market’s sentiment gauges are showing plenty of fear, which is bullish from a contrarian perspective.

Perhaps we need to fear the next three quarterly earnings seasons? Since the start of this year, industry analysts have been sharply cutting their S&P 500 earnings-per-share estimates for Q2 through Q4. That’s even though Q1 turned out much better than expected. They must have been spooked by the guidance issued by many company managements since early this year about the possible negative consequences of TTT.

Then again, the 2026 annual consensus S&P 500 earnings-per-share estimate seems to be bottoming around $300 per share. If so, then S&P 500 forward earnings should rise to new record highs in coming weeks following a slight dip in recent weeks. (…)

So what could possibly go wrong?

Valuation multiples are now almost as stretched as they were at the start of the year. Trump’s tariff war may not be over, especially with China. The war between Ukraine and Russia may be about to turn even more apocalyptic. Stock investors might start worrying about the Republicans losing their thin majorities in the House and the Senate during next year’s mid-term elections. Up for grabs are every House seat and 35 Senate seats. Elon Musk could be the wild card that Trump never saw coming. There could also be a debt crisis caused by Trump’s Big Beautiful Bill.

Hubert Marleau:

Last week, I wrote: “Trump’s tariff policies and the saga over the Big Beautiful Tax Bill will likely continue to be an important driver of stock sentiment, which is why I am not ready yet to raise my target for the S&P 500 above 6000 because a stagflationary patch during the summer months is a perceptible risk.

Yet I’m unwilling to exit the market and wired to buy dips, since many strategists have raised their target to as high as 7000 by June 2026. For example, Jim Paulsen, who has a highly-followed blog called the Paulsen Perspectives, has five key market supports that could become far more beneficial in the coming year, including a lower policy rate, a decrease in 10-year Treasury yields, an acceleration in the growth of the money supply, falling inflation, and rising consumer confidence.”

With the S&P 500 reclaiming its 6000 foothold, which incidentally is the target that I bank on, a new forecast is warranted. Big round numbers don’t mean much, but they do serve as reassessment points if they were used as a previously forecasted target.

Putting together another target isn’t easy to do with total conviction because the market keeps fighting back and forth on tariffication, dollarisation, adoption of AI, and cost of capital. This situation makes me nervous, because I really don’t know if I have sufficient information to expose myself to a new forecast. It’s damned if I do, damned if I don’t.

According to Paul Tudor, one of America’s most successful hedge fund managers, he is a believer that the market is in a “range expansion” where stocks either break above long-term resistance or violate multi-year support on the downside. Interestingly, at a meeting of an investment club that I chair, the consensus was neutral. That is why July 9 is a crucial date, when the 90-day pause on some of Trump’s tariffs is due to expire.

Rumours have it that the negotiators in the Administration want to get the tariff issue behind them and out of the headlines. Thus there is anticipation that many trade deals will be signed soon, hopefully in a relatively transparent, fair and justifiable manner. Should this be the case, some normalcy will return to the market, meaning that conjecturing will be determined more by harder economic variables.

In my judgement, we might bet on some stagflation over the short term.

• First, the strength of the labour market is fading as employment growth has slowed. Initial jobless claims have increased, job cuts have risen, job openings have slowed, and workers are not quitting their jobs.
• Second, tariffs have started to push up prices. However, these broad economic conditions are not expected to last for more than a quarter or two.
• Firstly, inflation expectations are now just tariff expectations, suggesting that the inflation boost could be temporary.
• Secondly, the lower exchange value of the dollar, the reduced cost of capital, the forthcoming easing of the monetary stance, the current run up in the money supply, the fast adoption of AI across many industries, and the expected decrease in taxes, are all ingredients that are likely to keep the economy resilient.

In this connection, I think that there is a 75% subjective chance the S&P 500 will reach 6600 by June 2026 versus only 25%, for a fall to 5500.

While on sentiment and “going-with-the-flow”, Callum Thomas:

• Foreign investors continue to cash out of US equities as the grass is no longer looking so green on the other side. Expensive valuations, heightened policy uncertainty/political risk, and improving prospects elsewhere have seen the consensus flipping as a big rotation (and potential US exceptionalism unwind) gets underway.

Source:  @KobeissiLetter

• U.S. government credit default swap spreads — which reflect the cost of protecting a loan against default — are trading at levels similar to Greece and Italy, according to new analysis by Torsten Sløk, chief economist at Apollo.

• Mag 7 Exceptionalism: here’s a look at mag 7 earnings vs the rest of the S&P500 (and global ex-US for comparison). This one is interesting because everyone knows how strong mag 7 earnings have been —and everyone expects more of the same… but the chart also shows also how mag 7 earnings are not bulletproof (e.g. the 2022-23 downturn in earnings).

Source:  @EggsWhite

AI CORNER

This Statista chart is most important, not only for the US AI drive, but also for US overall economic growth, increasingly dependent on AI.

Electricity generation in the USA has been essentially flat for 15 years at roughly 4,200twh. The 2024 number is only 3% above 2018 and 4.5% above 2010. That’s a +0.3% CAGR since 2010 and +0.5% since 2018.

Net electricity generation in the United States from 1990 to 2024

Rising renewables and, mainly, natural gas production have simply offset the declining use of coal. Trump policies will likely slow renewables and 80% of natural gas pipeline expansion is tied to LNG export projects.

Importantly, about 78% of total U.S. dry natural gas production comes from shale formations. This proportion has grown dramatically over the past two decades due to advances in horizontal drilling and hydraulic fracturing, which have unlocked vast shale resources and made shale the dominant source of U.S. natural gas.

It’s important to note that “shale formations” include both dedicated shale gas wells and associated gas produced from shale oil development—meaning much of the natural gas produced in the U.S. is a byproduct of oil extraction in shale plays. The largest shale gas-producing regions, such as the Permian Basin, Eagle Ford, and Bakken, are primarily oil-focused but yield substantial volumes of associated natural gas.

U.S. shale oil output appears to be peaking as oil prices have declined in the low $60s/bbl. Several smaller shale producers have already scaled back drilling as crude prices have fallen to multi-year lows, and high tariffs have increased construction and equipment costs.

Due to tariffs and rising costs for steel and equipment, the average breakeven price for new shale wells has risen. Many producers now require oil prices above $65 per barrel to justify new drilling, and some executives suggest $70/bbl is the new threshold for aggressive expansion. With current WTI prices hovering around $60–$63 per barrel, margins are tight and drilling activity is being curtailed.

Tariffs on steel (50%) and other imported equipment have raised well costs by more than 10%, further squeezing profitability and leading to fewer wells being drilled for the same investment.

It’s easy to say “Drill, baby, drill” but things are not so simple, are they?

I researched the above after David sent me this chart on electricity production. I initially could not believe the flat US line. But that’s the reality:

As of February 2025, China has total cumulative installed power capacity of 3,402GW, +14.5% yoy. Solar and wind power capacity totalled 1,456GW, surpassing thermal power capacity for the first time, and together renewables comprised 43% of total capacity.

In January-February 2025, solar and wind power generation combined totalled 354TWh, up 13% yoy, and comprised a 22% share of total power generation for the two-month period, while thermal power generation at 996TWh dropped 2.7% yoy. Thermal power generation as a proportion of total energy generation was 62% in the same period, down 3 percentage points yoy, while solar and wind generation combined rose 3 percentage points yoy.

Thermal generation still dwarfs wind and solar generation, but as Ember’s co-founder Dave Jones points out, new zero emissions capacity is broadly meeting electricity demand growth, stemming further growth in thermal generation. (Climate Energy Finance)

Energy has become a key ingredient in AI investments, themselves key factors in overall economic growth. The US economy is clearly facing energy bottlenecks ahead while China has been aggressively investing in its energy production infrastructure while reducing dependance on coal.

Two related articles last weekend:

• Power CEO Says US to Lose AI Race to China Without New Lines

The question of whether or not the US wins the race with China to develop artificial intelligence will hinge on Washington backing the construction of power superhighways to move large quantities of electricity, according to one of the country’s biggest energy developers.

Invenergy LLC Chief Executive Officer Michael Polsky is pushing the idea of establishing a national transmission authority to build high-voltage lines in the spirit of the highway system. Such a move could offer regulatory reform and speed up the process, said Polsky.

The Trump administration has issued executive orders indicating there’s an energy emergency, and “I do believe it’s an emergency” because of how difficult it is to build things, Polsky said. “We don’t have decades to figure this out. We have years.”

The AI boom has supercharged the need for electricity, while America ability’s to meet that need is stymied by an aging and balkanized power grid. Building big power projects can take a decade or much longer — and uncertainty sowed by US President Donald Trump’s policies threatens to make it harder by running up costs through tariffs and squashing renewables, which currently are some of the fastest resources to build. (…)

The administration and Congress need to send clear signals of support and ensure developers can be adequately compensated for making those investments, he said. Last month, the Trump administration said it was canceling some $3.7 billion in government support for certain clean energy projects.

Hanging in the balance is Invenergy’s $11 billion Grain Belt Express project, which would move 5 gigawatts of power — the equivalent of five nuclear reactors — over 800 miles in four states, connecting three regional grids.

The project, aiming to break ground next year, received a conditional commitment for a loan guarantee from the Energy Department of as much as $4.9 billion under the Biden administration in November, and now it’s uncertain if those funds will materialize as Trump guts programs.

Polsky, who has been in the industry for 45 years after migrating from Ukraine, and Invenergy President Jim Murphy say they are optimistic the loan will come through. “This is a national project of a national concern,” Polsky said.

• Meta’s Nuclear Deal Underscores the Looming Gap for AI’s Power Needs

(…) Data-center demand is rapidly disrupting the power grid as tech companies clamor for electricity to run artificial intelligence. That’s revealing a fundamental mismatch with the energy industry, which typically requires years or decades to plan and build new power plants. Even with a few recent high-profile nuclear deals, it’s becoming clear that the existing fleet of reactors will be unable to meet the surging demands from this first wave of the AI boom.

(…) And while there’s talk of restarting a few shuttered plants and upgrades at ones that are already in operation, that’s still not going to be enough to generate the amount of power that AI will demand. In fact, it’s not clear if any power source will be adequate, according to Adam Stein, director of the Breakthrough Institute’s nuclear energy innovation program.

“There’s not going to be enough electricity, in general, to make the tech industry happy in the next few years,” Stein said. Building out new nuclear is possible with “enough pre-planning and a supply chain in place. Unfortunately, at this moment, we don’t have that,” he said.

(…) dozens of companies are developing new reactor designs that are expected to be faster and cheaper to build, but they are years away from commercial availability.

Power demand in the US is expected to soar as much as 15% in some regions by the end of the decade, and data centers are a key driver. Texas alone has said it will need the equivalent of 30 conventional nuclear reactors to meet the growing demand from AI. That will easily outstrip the capacity of the grid.

“The acceleration of AI is pushing our energy infrastructure to the limit,” said Syed Bahauddin Alam, an assistant professor of nuclear, plasma and radiological engineering at the University of Illinois Urbana-Champaign.

What’s happening now is the first wave of AI, according to Alam. Algorithms that were developed in the early 2020s are being deployed now, with the goal of testing and perfecting the models’ ability to think and solve problems. That may run through 2030 to 2035, and will require vast amounts of energy. More nuclear may be available, but not until “the tail end of the first wave,” Alam said.

The great poaching: America’s brain drain begins

U.S. researchers’ fears are coming true. America’s science pipeline is drying up, and countries like China are seizing the opportunity to surge ahead.

“This is such a race for being the science powerhouse that you never fully recover,” says Marcia McNutt, president of the National Academy of Sciences. “You might accelerate back up to 60, but you can’t make up for those years when you were at a standstill while the competition was racing ahead.”

The National Science Foundation, which funds much of America’s fundamental science research, is already doling out grants at its slowest pace in 35 years, The New York Times reports. More cuts to science could come with the “big, beautiful bill.”

Universities are also watching with bated breath as the administration tries to limit the number of foreign students studying in the U.S..

While American universities are rescinding offers to incoming PhD students, other countries are recruiting heavily from U.S. labs.

• The journal Nature analyzed data from its jobs platform to track where scientists are looking for work. In the first few months of the Trump administration, there were jumps in the the number of U.S. applicants looking for jobs in Canada (+41%), Europe (+32%), China (+20%) and other Asian countries (+39%), compared to the same period in 2024.
• U.S. jobs saw fewer applications from candidates in Canada (–13%) and Europe (–41%).

France’s Aix-Marseille University, which made headlines for earmarking millions of dollars for U.S. scientists, closed its application window after receiving a flood of apps.

• After American Nobel laureate Ardem Patapoutian’s federal grant was frozen, he got an email from China offering 20 years of funding if he relocates his lab, The New York Times’ Kate Zernike writes. He declined.
• “This is a once-in-a-century brain gain opportunity,” the Australian Strategic Policy Institute wrote in a brief.

President Trump has suggested that spots freed up by rejecting international students could be filled by American applicants.

• But professors say this isn’t entirely realistic.
• “In hard sciences, in astronomy and physics and computer science, for example, there’s no way you would fill that hole with local applicants of comparable quality,” says Chris Impey, an astronomer at the University of Arizona.

“The optimistic part of all of us thinks science is strong enough to outlast one administration, and for a while I thought that, but the hit to young people is at the center of the whole enterprise,” Impey says. “It’s like pulling the rug out from under the whole thing.”

• It’s not just brain drain of existing talent, he says. Students who are in high school and college now and thinking about a career in research might reconsider. “There’s plenty of things smart kids can do. They don’t have to go into science.”
• At the same time, McNutt says she tells students: “If you went into graduate school in the fall of this year, by the time you get your PhD, this madness may be over. You come out with your new PhD ready to fill the gap.”

FYI (from Perplexity.ai)

Math:

• On the 2022 Programme for International Student Assessment (PISA), U.S. students scored 465 in math, which is below the OECD average and ranks them behind top-performing countries like Singapore (575), China (552), Japan (536), Taiwan (547), and South Korea (527).

• The 2022 PISA math score for U.S. students was “among the lowest ever measured by PISA in mathematics” for the U.S., reflecting a 13-point drop from 20182.

• Other assessments, like the 2023 Trends in International Mathematics and Science Study (TIMSS), confirm this trend: U.S. fourth graders saw an 18-point drop, and eighth graders a 27-point drop in math since 2019—a decline equivalent to nearly a year of learning.

• While the U.S. still scores above the international average on TIMSS, it is now outperformed by countries such as Singapore, Chinese Taipei, South Korea, Japan, Hong Kong, and several European nations including Britain, Poland, and Ireland.

Science:

• In science, U.S. students scored 499 on PISA 2022, which is slightly above the OECD average but still behind the top-performing countries.

• The decline in science scores was less severe than in math, with a three-point drop from 2018, but the trend remains downward.

• On TIMSS, American students continue to score above the international average, but more countries are now surpassing the U.S. in science achievement, including several in Europe and Asia.

Countries that previously lagged behind the U.S., such as Poland, Sweden, and Australia, have now surpassed the U.S. in some subjects and grade levels.

The U.S. continues to have a higher proportion of socio-economically advantaged students, yet this has not translated into higher overall international rankings.

International students make up a significant portion of U.S. graduate enrollments in STEM:

• 59.3% of graduate students in mathematics and computer sciences are international.

• 50.3% of graduate students in engineering are international.

Of the approximately 1,500 grants the National Science Foundation recently terminated, at least 750 came from the NSF’s education directorate, according to Grant Watch, an independent website that tracks terminated NSF grants. And that’s not the only shake-up happening at the NSF, which Congress created in 1950 to “promote the progress of science; advance the national health, prosperity and welfare; and secure the national defense.” The Trump administration has also laid off staff and proposed slashing the agency’s budget.

Additionally, NSF announced new priorities that include not funding projects aimed at recruiting more Americans from underrepresented backgrounds to the STEM workforce—a key focus for the agency historically.

Researchers and policy experts are worried that the major cuts to STEM education programs will jeopardize the long-term future of the STEM workforce and leave the nation with a deficit of scientists and other skilled workers who are capable of carrying out Trump’s vision of winning “the technological race with our geopolitical adversaries.”

According to the Bureau of Labor Statistics, employment in STEM occupations is expected to grow 10.4 percent between 2023 and 2033, more than double the projections for non-STEM careers. But decimating the NSF’s education directorate—which funds many projects focused on researching how to improve STEM education outcomes starting in K-12—will make it harder to cultivate the robust STEM workforce Trump says he wants, Ortega said.

Trump’s budget bill proposed cutting the NSF’s 2026 budget by 55 percent, which includes cutting $3.5 billion from the agency’s general education and research budget, $1.1 billion from the Broadening Participation programs and $93 million for agency operations and awards management.

Meanwhile:

China has rapidly expanded its STEM (science, technology, engineering, and mathematics) education pipeline over the past two decades, outpacing the United States and most other countries in both absolute numbers and as a share of total graduates.

As of the mid-2020s, over 40% of China’s college graduates earn STEM degrees, compared to about 20% in the U.S..

Annually, China now produces over 4.7 million STEM graduates—a figure that dwarfs U.S. output and is more than the entire population of some countries.

Chinese universities have aggressively increased undergraduate enrollment in STEM fields, especially in strategic areas like AI, engineering, and information science37.

• For example, top universities such as Peking, Renmin, and Shanghai Jiao Tong are expanding undergraduate spots specifically for AI, integrated circuits, biomedicine, and new energy.

• This expansion is part of a national strategy to boost technological capacity and innovation, with a government action plan targeting educational efficiency and STEM talent development through 2035.

At the doctoral level, China has consistently produced more STEM PhDs than the U.S. since the mid-2000s.

• By 2025, China is projected to graduate over 77,000 STEM PhDs per year, compared to about 40,000 in the U.S.—and if international students are excluded from the U.S. count, the gap is even wider.

• Much of this growth comes from elite universities, with about 45% of Chinese STEM PhDs graduating from the country’s top-tier “Double First Class” institutions.

China’s R&D expenditure reached $450 billion by 2023, and the country now leads in global scientific output, patent filings, and high-impact research papers.

• The surge of STEM graduates has fueled the rise of world-class tech companies and rapid innovation cycles, particularly in fields like AI, renewable energy, and advanced manufacturing.

The current surge in STEM enrollments in China is expected to continue for another two decades, given the large cohorts already in the education system.

FYI: