Finimize - 👀 China's in trouble

What’s going on here?

China was under the spotlight for “overcapacity”, as major economies threatened tariffs on its exports.

What does this mean?

China’s been shipping huge numbers of everything eco-conscious – from steel to EVs and solar panels – across the world, desperate to sell its factories’ wares despite waning local demand. And this week, European Union bigwigs joined the chorus of grumbles against that hyper-production. Now, China’s reply is that its clean-energy hustle is all about driving innovation rather than giving handouts to failing companies. And despite the global scrutiny, the country’s not about to stop flogging the fruits of its labor. So, determined to claw back a fighting chance at selling their own stuff in a sea of cheap Chinese prices, major economies are contemplating stamping tariffs on China’s exports.

Why should I care?

Zooming out: Double-pronged.

The problem is twofold. China’s massive investments mean factories have been making more stuff. At the same time, a lack of demand in the housing market means construction companies aren’t spending like before – and neither are everyday folk. So in order for China to keep its economy moving, it needs to sell that surplus somewhere. One possible fix might involve setting up shop abroad: that would cleverly sidestep trade barriers by allowing Chinese companies to operate locally, while also keeping those overseas grumblers happy.

The bigger picture: Everything must go.

China’s overcapacity is the discount sale that keeps on giving, with prices being slashed on everything from tees to toys at the fastest pace in over a decade. Tariffs could narrow the price gap between Chinese and Western brands, but it’s a tricky balance: some global companies with stores in China are sweating possible trade tariffs, worried that they’ll be caught in the crossfire. But hey, at least China’s cheap prices are taking some of the wind out of global inflation, giving cash-strapped shoppers a chance to nab a rare bargain.

What’s going on here?

The Bank of England (BoE) held interest rates steady at 5.25% for the sixth time running.

What does this mean?

Interest rates may be stuck at their 16-year high for now, but the UK might just be edging toward a rate cut. The vote was seven-to-two for the hold during this round, with one more policymaker looking to lower rates than on the last vote. That’s partly because the BoE is now predicting that inflation will land at 2.5% later this year – down from 2.75% as expected – and just 1.5% by the end of next year. Traders are betting with near certainty on a rate cut by August now, while odds for an early trim in June are 50/50.

Why should I care?

For markets: A solid prospect.

The UK’s FTSE 100 has been doing well lately, helped along by the global economy’s recovery. It’s packed with global giants operating in “old economy” sectors like financials, energy, and materials, see – and they’re less vulnerable to inflation and interest rate hikes. It’s cheap too, attracting bargain-hunting investors. But not everyone’s convinced. Many are sticking with AI-driven US stocks, while others argue that British stocks could falter if economic outlooks take a turn. Still, the FTSE 100 could complement US stocks in your long-term investment strategy: the index could thrive if inflation and interest rates tick up alongside the global economic recovery.

The bigger picture: Down but not out.

Despite a strong economy and signs of accelerating inflation, the Federal Reserve said there are no rate hikes in sight. And if the world’s hottest economy isn’t sniffing at rate hikes, there’s only one way for interest rates in weaker economies to go: down. Sweden and Switzerland have already trimmed their rates, after all. And if US inflation checks in next week without any ugly surprises, markets might retire their “higher-for-longer” worries – at least until their focus shifts toward the prospect of slower economic growth.