Daily Newsletter 6/10/25
The NFIB Small Business Optimism Index for May 2025 demonstrated a notable improvement, reaching 98.8, which exceeded forecasts of 95.9 and represents a three-month high. This positive shift in small business sentiment may instill some short-term confidence in the market. However, in our assessment, this single data point is unlikely to drive a sustained change in the overall market direction in the medium term.
The likelihood of a significant escalation into a full-blown tariff war between the U.S. and China has diminished, particularly as President Xi Jinping has subtly reminded the Trump administration of China's strategic control over rare earth minerals. This control represents a critical leverage point in ongoing trade negotiations. Given China's dominance in this sector, any restrictions on rare earth exports could have far-reaching implications for numerous industries globally, influencing the dynamics of trade discussions and potentially averting more aggressive tariff measures. This is a key macro consideration.
China accounted for over two-thirds of global rare earth mine production and produce around 65% of the world’s rare earths.. More significantly, China dominates the processing and refining stage, handling about 90% or more of global rare earth output, which is where much of the strategic value lies.
We continue to anticipate a moderation in U.S. economic expansion.
The marginally improved outlook for global growth, coupled with modestly increased inflationary pressures, poses headwinds for fixed-income investments and diminishes the impetus for accommodative monetary policy adjustments by FED. This confluence of factors contributes to a reduction in overall market uncertainty, albeit with evolving implications for various asset classes.
The moderation of tail risks associated with China is expected to create a more favorable environment for commodities, with the potential to underpin both demand and price stability in these markets. As China's economic outlook stabilizes, reduced uncertainties could translate into increased consumption and investment, thereby bolstering commodity demand across various sectors. This development could mitigate volatility and offer a degree of support to commodity prices.