US-China Truce Fuels Optimism, Rate Cuts On The Horizon

(220704) -- BEIJING, July 4, 2022 (Xinhua) -- A staff member walks past the Shenzhen Stock Exchange in Shenzhen, south China's Guangdong Province, Sept. 21, 2020. (Xinhua/Mao Siqian)
A potential soft landing for the global economy is now the base case scenario, with a 50% probability, according to Standard Chartered's latest macro outlook, led by Rajat Bharatcharya, Senior Strategic Analyst. The easing of US-China trade tensions and expected policy responses in major economies are supporting this view, although both downside and upside risks remain on the radar.
Soft Landing Scenario (50% probability): Truce Fuels Optimism, Rate Cuts on the Horizon
The report highlights that the recent US-China tariff truce has significantly lowered the risk of a hard landing for the US economy. Though tariffs remain high and could still hamper growth while stoking inflation, the shift in focus towards trade deals, tax cuts, and deregulation is expected to lift consumer and business sentiment.
'As the job market cools, we expect the US Federal Reserve to cut rates by 75 basis points over the next 12 months, beginning in the second half of the year,' said Bharatcharya. 'Fiscal and monetary stimulus in China and Europe, particularly Germany, will also help broaden the global growth base beyond the US.'
Downside Risk (25% probability): Trade Shocks May Still Trigger Recession
Despite the optimism, the risk of a mild recession in the US remains if consumer and business confidence deteriorates, especially in the event of renewed trade friction. Bharatcharya warned that even accelerated rate cuts may not be enough to prevent a downturn if real activity data turns south.
Another downside threat: a surge in US bond yields if tax cuts are unfunded, potentially triggering a sell-off in the US dollar and hurting sentiment globally.
Upside Risk (25% probability): Deregulation and 'Grand Bargain' Could Ignite Global Growth
On the flip side, there's also a 25% chance of a 'no-landing' scenario where the US economy avoids a slowdown entirely. This would require strong private sector momentum spurred by deregulation, tax cuts, and strategic trade agreements – including a potential 'grand bargain' with China.
'This would lift domestic consumption in China, spur European investment, and lead to a more balanced global economy,' Bharatcharya noted.
Market Focus Shifts to Hard Data
While the US-China truce has helped ease global trade uncertainty, investors are now watching closely for incoming US labour and activity data to assess the underlying strength of the economy.
'The spotlight is now firmly on 'hard' data, especially job openings and unemployment rates, to gauge if policy actions have helped or further weakened the labour market,' Bharatcharya said.
Macro Policy Themes
US Tax Cuts and Tariffs:
Despite tariff rollbacks, the average US tariff remains elevated at 16.4%, the highest since 1937, according to Yale's Budget Lab. This is projected to trim US GDP by 0.7% and push inflation up by 1.7%, adding urgency to implement tax cuts and deregulation. A moderate fiscal stimulus is anticipated, constrained by bond market sensitivities.
Germany's Fiscal Push and the ECB:
Europe's growth trajectory hinges on Germany's EUR 500 billion infrastructure plan, recently approved by parliament. While Eurozone service sector activity slowed in May, the German fiscal package and improving trade relations are expected to reduce pressure on the European Central Bank (ECB) to cut rates. Standard Chartered anticipates one more 25bps rate cut in June, followed by a pause.
China Stimulus to Continue:
Despite the trade truce, China remains under deflationary strain and faces headwinds from persistent US tariffs. Beijing is expected to maintain accommodative policies, including further cuts in bank deposit rates, to meet its 5% GDP growth target.
Standard Chartered's macro outlook reflects cautious optimism amid evolving trade dynamics. 'The US-China truce removes the immediate threat of a global trade war,' said Bharatcharya. 'But policymakers must now focus on delivering structural reforms and targeted stimulus to sustain growth.'
As markets brace for upcoming economic data, central bank moves, and geopolitical developments, the path forward remains finely balanced between soft landing hopes and potential macro shocks. Related

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

The Star

9 minutes ago

• The Star

Accelerating the China-Asean Green Corridor: A pathway to sustainable prosperity?

AS GLOBAL leaders increasingly prioritise sustainable growth and economic resilience, South-East Asia is uniquely positioned to capitalise on strategic international partnerships to advance its development agenda. Central to this vision is the ambitious China-Asean Green Corridor initiative, aimed at integrating economic prosperity with environmental sustainability. This transformative framework holds immense potential to reshape the region's economic trajectory and solidify Asean's position as a global leader in sustainability. Billed as RM9.73 for the 1st month then RM13.90 thereafters. RM12.33/month RM8.63/month Billed as RM103.60 for the 1st year then RM148 thereafters. Free Trial For new subscribers only

New Straits Times

20 minutes ago

• New Straits Times

From rivalry to realignment, China shifts to seek better fortunes amid trade friction with US

BEIJING: Rather than being fixated on its trade dispute with the United States (US), China is refocusing its efforts towards bolstering ties with non-confrontational partners, including developing nations, to boost trade and investments. Clearly, Beijing is exploring all options to find new markets and export opportunities to mitigate the fallout from the continuing tariff war with Washington, hedging against downside risks by forging links with Southeast and Central Asia, the Gulf, Africa, Australia, New Zealand and Latin America. China's renewed zest to reach out far and wide was not lost on some 119 journalists from all over the world who joined the three-month China International Press Communication Centre (CIPCC) programme in the Chinese capital. It was difficult for them not to notice that Chinese authorities -- deeply concerned over the welfare of the nation's 1.4 billion citizens -- realise the need to intensify efforts to reap more economic opportunities. This was clearly evident after China ramped up its presence in high-level summits, forums and trade expos to woo investments and explore trade opportunities as well as alternative markets after the US tariffs announcement in April. A busy calendar for economic diplomacy The list of engagements includes the Central Conference on Work Related to Neighbours, which set the tone for stronger regional engagement; the Hainan Free Trade Port Investment Conference; and the China-ASEAN Media Forum in Luoyang. Beijing also hosted the China-CELAC Ministerial Forum in May to deepen ties with Latin America, followed by the China-Africa Economic and Trade Expo in Changsha in June. From another perspective, such an evolving strategy opens up new space for ASEAN and the 15-member Regional Comprehensive Economic Partnership (RCEP), including Malaysia, to play a bigger role in global trade. After US President Donald Trump imposed sweeping and record-high tariffs on China, Beijing began distancing itself from Washington, turning instead to multilateral platforms, trade corridors, and South-South partnerships From courting Southeast Asia and the Gulf Cooperation Council (GCC) countries, to Africa, Central Asia and Latin America, China is actively expanding its global reach. More recently, it also sought closer ties with New Zealand, which will implement on a trial basis a visa waiver in November for Chinese travellers from Australia holding valid visas The ASEAN Advantage The ASEAN Summit in Kuala Lumpur last month, the RCEP Local Government Forum in Anhui and outreach to oil-rich Gulf countries via ASEAN platforms further underscored this new orientation. In this changing global environment, ASEAN and RCEP find themselves in a favourable and complementary position, more so with China's trade with ASEAN already surpassing its trade with the US in recent years. Now, with RCEP in full force, there's even greater momentum for bolstering intra-Asian trade. The Manila-based Asian Development Bank (ADB) estimates RCEP could boost regional incomes by over a staggering US$240 billion annually by 2030. China has signalled its commitment to the ASEAN-led framework, praising the bloc's neutrality and centrality in regional affairs. Chinese investments in ports, tech infrastructure, semiconductors and clean energy across Southeast Asia reflect this shift. Looking beyond the West What makes this shift momentous is not just China's pivot but also the opportunity for developing regions to balance superpower rivalry with multilateral gains. By engaging with Latin America through the CELAC (Community of Latin American and Caribbean States) forum and consolidating economic partnerships with Africa and ASEAN, China is expanding the Global South's role in shaping trade flows. While the US imposes new tariffs, restricts chip technology and limits access to rare earths, China appears increasingly justified in managing its risks by working with partners more focused on mutual gains. A Foreign Ministry official here aptly quoted a Chinese proverb: "A single win is not good, but a shared win is better." It also reflects China's success in galvanising its human resource of more than 700 million workers through sheer tenacity and industriousness – traits which have entrenched its prowess in manufacturing as a global benchmark. Malaysia's role in a shifting trade landscape Closer to home, for Malaysia, China's shifting tides offer both opportunities and responsibilities. With its strategic location, diverse economy and mature trade infrastructure, Malaysia is well-placed to benefit from redirected Chinese investments and supply chain shifts. The recent ASEAN-Gulf Cooperation Council (GCC) countries-China summit in Kuala Lumpur, alongside Prime Minister Datuk Seri Anwar Ibrahim's engagements with China and Gulf leaders, marked a turning point, reinforcing Malaysia's role as a regional connector. Malaysia can attract more manufacturing and tech investments, and as the ASEAN chair, Malaysia also carries the duty to promote unity and openness within the bloc. Nevertheless, rising US-China trade tensions still pose risks to regional stability and global trade flows. Markets did rally after the constructive June 5 phone call between Trump and Chinese President Xi Jinping, offering temporary relief amid heightened tension. Both countries had earlier agreed on a 90-day tariff rollback deal on May 12. Trump signalled interest in visiting Beijing, while Xi emphasised mutual respect. Observers believe this 'trade chill' offers a brief pause. China's pivot toward ASEAN, RCEP and the Global South, upholding their win-win policy or 'Shuāngyíng', will continue unabated. For Malaysia, this moment is a strategic opening—not only to benefit from trade shifts but also to help shape a more balanced and inclusive regional order.

Malay Mail

an hour ago

• Malay Mail

China's CRRC Dalian to ship ECRL trains to Malaysia in October, set for 2027 launch

DALIAN (China), June 23 — The first two sets of Electric Multiple Unit (EMU) trains, along with two electric locomotives for cargo transportation under the East Coast Rail Link (ECRL) project, are expected to be shipped out from Dalian, China to Malaysia in October this year. The first batch of ECRL trains will be shipped by the manufacturer, CRRC Dalian Locomotive & Rolling Stock Co., Ltd (CRRC Dalian), a wholly-owned subsidiary of CRRC Corp, and the shipment is expected to take around one month to reach Malaysia. CRRC Dalian vice-president Zhang Jian said the company will provide a 'full life cycle service' for the ECRL fleet, covering the entire process — from product research and development, production and operation, to final maintenance and servicing. 'For the ECRL project, we can continue cooperating across the full life cycle in the future to ensure reliable operation of the trains on Malaysia's railway lines,' he told the Malaysian media delegation at CRRC Dalian's headquarters, here. Dalian is a coastal city in northeastern China's Liaoning Province, located about 800 km southeast of Beijing, known for its major port and strong manufacturing industry. In August 2022, CRRC Dalian signed a supply contract with China Communications Construction (ECRL) Sdn Bhd (CCCECRL), the main contractor of the ECRL project, to deliver 11 train sets of EMUs and 12 electric locomotives. Zhang said the trains will have completed factory commissioning in Dalian prior to shipment. 'Upon arrival, they will undergo testing on-site. The first EMU needs to undergo 8,000 km of testing, while the subsequent batch requires 5,000 km of testing,' he said. The EMUs are designed to carry passengers at speeds of up to 160 km per hour (km/h), while the electric locomotives, operating at 120 km/h, will be used for cargo transportation. Technical experts from CRRC Dalian will also be deployed to Malaysia to provide on-site servicing and training. 'There are two groups; one group will be responsible for the repair and maintenance of the EMUs and locomotives, and the other group will provide technical training to local personnel, helping them acquire maintenance skills,' he noted. He said the company will also provide two-year warranty services for the EMUs and electric locomotives. The arrival of the first trains by end-2025 will ensure readiness for the ECRL's scheduled launch in 2027. As of October 2020, CRRC Dalian has produced 12,800 locomotives across more than 70 diesel and 13 electric models, accounting for half of China's total locomotive fleet. Since its first export of mainline locomotives to Myanmar in 1993, CRRC Dalian has supplied rail vehicles to 27 countries, including Malaysia, South Africa, New Zealand, Argentina, Uzbekistan, India, Nigeria and Hong Kong. — Bernama