Three Things Moving Markets This Week

There's a lot going on in the world economy right now, American jobs, Chinese trade and British stock index .

The big event this week is the US jobs report coming out on Friday. 

The Federal Reserve just held a meeting and decided not to change rates. That part wasn't surprising. New Fed chair, Kevin Warsh, giving his first press conference on the job didn't offer much clarity about what the Fed plans to do next, and that vagueness made investors nervous. Borrowing costs jumped and markets got choppy, because when the Fed doesn't tell you where it's headed, everyone starts guessing and guessing makes markets jumpy.

That is why Friday jobs report matters so much. Economists think the US only added around 90,000 jobs in July, which would be a continuation of the slow hiring we saw in June. A weak number like that would actually be good news for anyone hoping interest rates stay low, because it would support the idea that the job market is cooling off rather than overheating. 

Also unemployment is expected to tick up to around 4.3%, but nobody is totally sure how reliable that number is right now. Trump's immigration crackdown has been changing who is in the workforce and who is counted as looking for work, which muddies the picture. Later this year, as the school year starts and more caregivers come back into the job market looking for work, unemployment could climb even further, possibly past 4.5%.

Is China’s giant trade surplus shrinking?

China releases its July trade numbers on Friday too, and they'll help answer a question economists have been arguing about: has China's trade surplus peaked?
Both imports and exports have been growing fast, and it's largely because of AI. The global AI boom has countries buying huge amounts of Chinese made electronics, which pushes up Chinese exports. At the same time, China's importing more too, partly because AI demand has driven up prices for  memory chips, which China buys a lot of.

Some analysts think the surplus has already peaked, it was slightly smaller in the first half of this year than in the same period last year. But others push back on that. Researchers at the Council on Foreign Relations pointed out that a lot of this year's shift is due to China buying tons of gold. Strip the gold out, and China's trade surplus actually grew by $80 billion in the first half of the year.
The bigger question is whether China's government will actually do something to boost spending at home. Weak demand inside China has been pushing prices down and pushing companies to sell more overseas instead, which is part of why the surplus stays so large. Chinese officials said this week they plan to ramp up spending in the second half of the year, which could start to shift that balance if it actually happens.

Meanwhile, the FTSE 100 just hit a string of record highs. That's a little surprising given everything else going on, and it says less about Britain's economy doing great and more about what kind of companies are in that index.

The FTSE doesn't have much tech in it, which turned out to be a good thing during a rough month for tech stocks elsewhere. Instead, it's loaded with energy and financial companies, and both of those have been benefiting from rising European interest rates and oil prices spiking again as tensions in Iran flare back up. FTSE happens to be made up of the right mix of sectors at the right time. 

The bottom line

All three stories are really about the same underlying tension: inflation pressure, partly from the Iran conflict pushing up oil prices versus signs of a cooling economy: a slowing US job market, questions about Chinese demand. How that tension resolves starting with Friday's data will shape where interest rates, trade flows, and stock markets go from here.