Stories
US-China Trade Truce, Election Risks, and Rising Bond Yields: What Markets Are Watching
- •Todd Buchholz, a Fellow at Yale University and former Managing Director of Tiger Hedge Fund, believes US-China trade talks are linked to President Donald Trump’s political calculations ahead of the US midterm elections, as Trump seeks a visible win for American farmers.
- •Buchholz cautions that rising US bond yields could pressure equities, though part of the rise reflects stronger economic growth, not just negative market signals.
- •Heavy borrowing by governments, companies, and sectors like technology and aviation is contributing to upward pressure on interest rates.
- •The Republican Party faces a tough election in early November, with a narrow majority in both the Senate and House of Representatives, making the midterms perilous.
- •The US housing industry is already feeling the impact of higher interest rates, with stocks like Home Depot hitting lows, indicating certain equity market segments are being punished.
Key Questions Answered
The US-China trade talks remain tied to President Donald Trump's political goals ahead of the November midterm elections, with the trade truce expiration extended from November to January. The leaders met to discuss stability and look for commitments on items like agricultural goods, though major breakthroughs were not expected.
Rising US bond yields, with the 10-year yield hitting over 5%, have already penalized and weighed heavily on certain equities like the US housing industry and retailers such as Home Depot. While part of the rate increase creates downward pressure on shares, it also reflects stronger-than-expected real GDP growth and heavy borrowing by governments and tech and aviation sectors.
Republicans hold very narrow majorities of three to four seats in both the Senate and the House of Representatives, making it a difficult election environment. Current betting suggests that Democrats are likely to take at least the House of Representatives, prompting expectations that the Republican Party will need to look toward new candidates for the future.
