"Shanghai Awakens"

MONETARY

• In the Federal Reserve’s most recent Beige Book publication, it was observed that overall economic growth continued to be positive at a slight to modest pace⁴
  • Other observations included a slowing of some consumer spending in the Retail sector as consumers shifted purchasing habits in response to higher prices⁴
  • Some slowing in the Residential Real Estate sector was noted and primarily attributed to a combination of higher home prices, as well as higher interest rates. U.S. Manufacturing growth remained strong⁴
  • Employment levels continued to growth at a moderate pace across a wide variety of industries. Additionally, worker shortages were seen as continuing to improve from prior periods, however some contacts remain more acutely effected than others. The pace of wage growth was seen as slowing, with many contacts expecting wages to continue to grow over the next year at a slower rate than the prior year’s elevated pace⁴
  • Regarding Inflation, the Fed noted that overall inflationary pressures remained high, but that some districts reported price increases for goods and services moderated somewhat. Higher input prices were generally translated into higher consumer-facing prices, however consumers did exhibit a noticeable amount of goods and services substitution in response to continued elevated prices. Some expectations for future inflationary pressures have edged down over the past two quarters⁴

 

FISCAL

• President Biden and Federal Reserve Chairman Jerome Powell meet at the White House to discuss steps the Fed is taking to combat inflation, as well as the current state of the U.S. and global economies²
  • Regarding the meeting, President Biden stated a strong desire to maintain the Federal Reserve’s independence²
    • (Biden) “I’m not going to interfere with their critically important work”²
    • (Biden) “They have a laser focus on addressing inflation, just like I am.”²
  • In a prior interview, Fed Chairman Jerome Powell referenced that inflation has remained high for longer than expected due, in large part, to recent geopolitical events such as the Russia-Ukraine conflict, and China lockdowns²
    • (Powell) “It is going to be a challenging task, and it’s been made more challenging in the last couple of months because of global events”²

 

GEOPOLITICS

• In response to the ongoing Russia-Ukraine conflict, President Biden agrees to send Ukraine advanced precision missile systems, capable of striking targets at long range¹
  • Move comes as part of a $700M weapons package, designed to provide additional artillery and munitions to Ukrainian troops¹
  • As part of the deal, Ukraine gave assurances that the newly acquired missile systems will not be used to strike targets inside of the physical borders of Russia¹
  • Denmark has also previously contributed to the Ukrainian effort by supplying Ukrainian forces with anti-ship missiles¹
• S. Deputy Treasury Secretary Wally Adeyemo states that the Biden Administration is currently considering easing some of the current tariffs placed on China in an effort to potentially ease inflationary pressures³
  • (Adeyemo) “We’re actively considering what we do with regard to those (Chinese) tariffs”³
  • Current tariffs were originally set in place by the Trump Administration at the onset of the ongoing U.S.-China trade conflict³
  • Treasury Secretary Janet Yellen has advocated to easing of some “non-strategic” tariffs on consumer goods, while U.S. Trade Representative Katherine Tai argued that tariffs should be part of an overall strategy to make China meet its trade commitments and cease unfair economic practices³
  • Biden Administration weighing tradeoffs between potentially improving inflationary pressures in the short-run versus the long-term benefits of addressing unfair economic practices through tariffs³

 

MISCELLANEOUS

• China eases lockdown restrictions in the city of Shanghai, allowing the majority of the city’s 25 million residents to return to work and daily life⁵
  • Areas deemed high-risk will still be subject to some lockdown restrictions, however this represents a smaller subset of the entire city⁵
  • The city of Shanghai was originally put into lockdown status roughly 2 months ago⁵
  • Additionally, the city of Beijing has started to ease some of its COVID-19 restrictions as well⁵
  • Restrictions in both cities were seen as contributing to recent pressures on global supply chains, with the international flow of various goods significantly impacted by the restriction measures⁵

 

[See Below for Disclosures & Annotations]

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

 

ANNOTATIONS

1. Reuters. “Biden agrees to provide Ukraine with longer range missiles”. May 31, 2022
2. The Wall Street Journal. “President Biden, Fed Chairman Jerome Powell Meet With Inflation at Its Highest in 40 Years”. May 31, 2022
3. Reuters. “Biden considering move on Chinese goods tariffs-Treasury’s Adeyemo”. May 31, 2022
4. Federal Reserve. “The Beige Book: Summary of Commentary on Current Economic Conditions”. June 1, 2022.
5. The Wall Street Journal. “Shanghai Ready to Exit Lockdown as Covid Cases Drop”. May 31, 2022.