Macro Briefing: 18 February 2025

China’s trade surplus in goods continues to rise and now dwarfs the heights for Germany and Japan during their exporting heydays in the 1990s. “Over the past six years, China’s imports of such goods increased by an average of only $15 billion a year, essentially no change at all when inflation is taken into account,” writes Brad Setser, a senior fellow at the Council on Foreign Relations. “Its manufactured exports, on the other hand, have grown more than 10 times as fast, by over $150 billion a year. When it comes to manufactured goods, trade with China is virtually a one-way street.”

US and Russia begin talks on ending the war in Ukraine. The meeting between US Secretary of State Marco Rubio and Russian Foreign Minister Sergei Lavrov in Saudi Arabia is the first formal sit-down meeting between diplomats of the two countries since January 2022.

An influential Fed governor is optimistic that Trump’s tariffs will not derail the central bank’s plans to lower interest rates. “My baseline view is that any imposition of tariffs will only modestly increase prices and in a nonpersistent manner,” says Christopher Waller. “So I favor looking through these effects when setting monetary policy to the best of our ability.”

Japan’s economy grew faster than expected in 2024’s fourth quarter. The world’s fourth largest economy grew 0.7% in Q4 vs. the previous quarter — the third straight quarter of growth.

Goldman Sachs lifts its gold price forecast to $3,100 an ounce (the metral closed at roughly $2,924 this morning). The bank says “structurally higher” central bank demand will add 9% to the price of gold by year’s end, supported by purchases of ETF holdings. “However, if policy uncertainty — including tariff fears — stays high, higher speculative positioning for longer could push gold prices as high as $3,300 an ounce by year-end,” Goldman strategist Lina Thomas wrote in a note to clients.

If sticky inflation persists, the positive correlation between stock and bond returns may again turn negative, advises a note from TMC Research, a unit of The Milwaukee Company, a wealth manager. “The market appears to be picking up on this assumption. For example, the iShares TIPS Bond ETF (TIP) is outperforming its near-equivalent Treasuries counterpart (IEF) so far this year through Feb. 14: 1.9% vs. 1.3%.”