US Stocks Rise as Fed Hints at Rate Cut, Despite Additional China Tariffs Threat

June 6, 2019 Updated: June 7, 2019

U.S. stocks rose in June 6 trading after reports of a narrowing in the United States’ trade deficit and indications that the Federal Reserve may consider cutting interest rates.

The Dow Jones Industrial Average gained 181.09 points, or 0.71 percent, to 25,720.66, bringing its gain for the week to more than 900 points. The Standard and Poor 500 rose 0.61 percent to 2,843.49, while the Nasdaq Composite gained 0.53 percent to 7,615.55.

The markets appeared rattled in the morning after President Donald Trump said he’ll make a decision about imposing further tariffs on products from China after the G-20 summit in late June. Eventually, though, the market appeared to side with optimism.

The trade deficit decreased to $50.8 billion in April from $51.9 billion in March, as imports decreased more than exports, according to the Bureau of Economic Analysis and the Census Bureau.

Meanwhile, some Fed officials hinted that, given the trade clash with China and low inflation, the central bank may keep rates low longer or even cut them.

“We’ll be prepared to adjust policy to sustain the expansion,” Lael Brainard, a member of the Fed’s Board of Governors, said in an interview with Yahoo Finance on the sidelines of the Fed’s Chicago summit held June 4 and 5. “The U.S. economy, generally, is in the midst of a very lengthy expansion, the U.S. consumer remains confident, but trade policy is definitely a downside risk.”

Brainard’s remarks follow a pledge on June 4 by Fed Chairman Jerome Powell to react “as appropriate” to trade-war fallout. Other Fed officials struck a similarly cautious tone.

The China tariffs, as well as Trump’s recent announcement to impose tariffs on Mexico, have rattled investors, according to Matt Ruffalo, chartered financial analyst at Clarfeld Financial Advisors.

“But there has been somewhat of an overshadowing by earlier comments around the Fed,” he said.

Tariffs Escalation

Trump has put a 25 percent tariff on $250 billion of annual Chinese imports and, on June 6, doubled down on his previous comment that he’s willing to take it further.

“I can go up another at least $300 billion and I’ll do that at the right time. But I think China wants to make a deal badly,” he said before departing for ceremonies to commemorate the 75th anniversary of D-Day in France.

Later that day, he followed up: “I will make that decision, I would say, over the next few weeks, probably right after the G-20. … I’ll be meeting with [Chinese] President Xi [Jinping] and we will see what happens.”

The summit is scheduled for June 28 and 29 in Osaka, Japan.

Trump resorted to tariffs in response to China’s unfair trade practices, including the theft and forced transfer of intellectual property, dumping, and other violations of World Trade Organization rules.

The tariffs don’t appear to have severely affected the economy at large, despite Chinese retaliatory tariffs on U.S. products.

By May 1, Customs and Border Protection had assessed more than $16 billion in tariffs imposed on Chinese imports by Trump.

Trump has said he will use some of the tariff money to compensate U.S. farmers for losses incurred due to China’s retaliation.

Economy at Large

Economic indicators for May have been mixed so far. Private employment rose by 27,000 jobs in May, according to the ADP National Employment Report released June 5. That’s unusually low and in contrast with the data released June 5 by the Institute for Supply Management (ISM), which showed that services sector activity expanded at a brisk pace in May and industries hired more workers.

The ADP number may be a sign of labor shortages, but may also be an aberration, since job growth numbers that low are usually only a single-month occurrence, based on historical data, except as a part of an outright recession.

Job growth has averaged 218,000 a month during the 12 months ending April. About 100,000 additional jobs a month are needed for the economy to keep up with population growth.

The official job growth numbers are scheduled for release on June 7 by the Bureau of Labor Statistics.

The job market has so far been one of the most solid markers of the economy as the unemployment rate stood at 3.6 percent in April—the lowest in nearly half a century.

The country’s gross domestic product grew at a 3.1 percent annualized rate in the first quarter, driven by a surge in exports and inventories, quickening from the October–December period’s 2.2 percent pace.

Reuters contributed to this report.

Correction: A previous version of this article misquoted President Donald Trump. He said, “I can go up another at least $300 billion and I’ll do that at the right time.” The Epoch Times regrets the error.

Follow Petr on Twitter: @petrsvab
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