Have the U.S. and China Cancelled Recession? No So Fast: Macro Week Ahead
Have the U.S. and China Cancelled Recession? No So Fast: Macro Week Ahead
By:Ilya Spivak
Markets applaud as the U.S. and China try to walk back the trade war, but recession risk remains
- Stock markets surge as the U.S. and China leap to de-escalate the trade war.
- Beyond exuberant headlines, consumers still face sharply higher tariff rates.
- All eyes now turn to U.S. inflation, retail sales, and consumer confidence data.
Stock markets stalled last week. The bellwether S&P 500 and the tech-tilted Nasdaq 100 tested the highest levels in nearly two months but failed to sustain momentum, closing down 0.5% and 0.3% respectively. Bonds continued to leak modestly lower, with two- and ten-year Treasury yields inching higher. The U.S. dollar followed suit.
This cautious calm was shattered at the start of this week amid would-be signs of rapid de-escalation of the U.S.-China trade war. A series of weekend meetings between Treasury Secretary Scott Bessent, Trade Representative Jamieson Greer, and a senior Chinese delegation produced what President Trump hailed as a “total reset” of trade relations.
Stock markets surge as the U.S. and China wind back tariffs
The meatiest part of the outcome was a 90-day pause of reciprocal tariffs above 10% by both sides. A carve-out for the so-called “fentanyl” tariffs left them in place on the U.S. side, translating into a swing in the duty rate from 145% to 30%. On China’s side, levies came down from 125% to 10%.
The markets roared with approval. The S&P 500 is on pace for its best single-day performance since April 9, when President Trump issued the first 90-day reprieve from “Liberation Day” tariffs above 10% for countries excluding China. Treasury yields have moved higher across maturities, and the U.S. dollar is up close to 1% against the major currencies.
The key question now is whether this enthusiasm survives beyond traders’ initial exuberance. If the moderation with China sticks beyond the 90-day negotiation window and last week’s agreement with the U.K. are indicative, then there is indeed a 10% floor on U.S. tariff rates. That is a five-fold increase from an average of 2% before this year.
Are U.S. consumers ready to cancel the onset of recession?
This means that – in the best case scenario – consumers will still face sharply higher prices. While importers will probably rush to grow inventories for another quarter to front-run the possibility that the 90-day reprieve is not extended, it is less clear whether shoppers will absorb extra costs and keep buying as usual.
Indeed, tariff distortions aside, U.S. gross domestic product (GDP) data showed the slowest consumption growth slowed to the weakest in almost two years in the first quarter of this year. That part of the equation accounts for 68.5% of overall economic growth. If it remains soggy, the march toward recession is likely to continue.
With that in mind, incoming U.S. inflation, retail sales, and consumer confidence data will be closely watched. Optimism at the weekly open may struggle for follow-through if price growth dynamics reveal rising pressure on the goods side while weakening demand is a cooling agent on the services side, all as sales stall and sentiment darkens further.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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