London trade talks bear fruit... The latest 'good news' on inflation... Trump calls for rate cuts – and the Fed isn't having it... Why energy prices are down... Where oil goes from here...
A trade agreement with China is coming into focus...
Since Monday, delegations from the U.S. and China have been meeting in London. And we've heard little about how those talks were going – until this morning...
In a post on Truth Social, President Donald Trump announced that a trade deal with China was "done." Trump shared that, as part of the agreement, China will supply rare earths and magnets to the U.S.
These materials are important for technologies like cellphones, electric vehicles, and more. In short, they're crucial for the U.S. technology industry. But China has a near monopoly on refining these materials. So it can threaten to withhold those exports over trade disputes... and has done so.
Trump was light on the details of what China would be getting in return, just saying that the U.S. will "provide to China what was agreed to." That includes allowing Chinese students to attend U.S. colleges and universities.
The deal includes a steep tariff on Chinese goods...
Trump didn't keep the 145% import tax he'd threatened earlier this year. But Chinese goods will face a 55% tariff even under the new agreement.
In a CNBC interview later in the morning, Commerce Secretary Howard Lutnick said 55% represents the latest 30% tariff plus 25% in levies imposed earlier. He added that this 55% rate won't change, even if a full deal is agreed to.
The agreement is still subject to approval from both countries' leaders. So that, plus a hard floor on tariffs on Chinese goods, could provide a last-minute hiccup. But it seems like Trump is at least happy with the deal.
Moving on to the latest on inflation...
Today, the Bureau of Labor Statistics released its latest inflation report – consumer price index ("CPI") data for May.
The CPI increased 2.4% year over year – below the Wall Street estimate of a 2.5% increase. And on a core basis (stripping out energy and food costs), the CPI rose 2.8% versus an expected 2.9% increase.
While the headline inflation rate was up slightly from April's 2.3% reading, it's still way down from the 2022 peak of 9.1%. And since it's a lot closer to the Federal Reserve's 2% "target" – as well as cooler than the market expected – the report was exactly what investors wanted to see.
Stocks climbed in the morning after the double dose of good news before giving back those gains to close in the red.
What this means for next week's Fed meeting...
With tariffs becoming less uncertain, investors are now looking forward a week – to the June 18 Federal Reserve policy announcement.
We fully expect the Fed to remain in "wait and see" mode. And the market agrees – with traders pricing in a 99.9% chance of the Fed keeping interest rates steady, according to CME FedWatch.
As recently as yesterday, markets were pricing in a 3% chance of a rate cut. Now, they're seeing 0% chance of that – and even a 0.1% chance of a rate hike next week.
Looking out further, CME FedWatch shows that traders are still expecting two or three rate cuts over the rest of 2025, with the first one coming in September.
That may not be soon enough for some...
As we've noted in previous Digests, Trump has called for interest-rate cuts for months – even going as far as calling Fed Chair Jerome Powell "too late." And this morning, he was at it again...
In a post on Truth Social, the president called for a full percentage point of rate cuts. He's eager for the U.S. to pay less interest on its debt.
(The government spent a record $1.2 trillion on interest expense in the 2024 fiscal year, making it the third-largest expenditure behind Medicare/Medicaid and Social Security.)
Trump wasn't the only one making some noise this morning. Vice President JD Vance posted on X that the Fed was committing "monetary malpractice" by not cutting rates.
As much as the White House may want lower rates, it doesn't look like the Fed is going to give in just yet.
With inflation nearing its target, and the labor market not breaking down, the central bank wants to see how tariffs impact the economy before making changes. And based on futures traders' activity, everyone expects the Fed to keep watching.
Diving into one component of CPI...
Over the past 12 months, the energy component of CPI has declined 3.5%. That has gone a long way toward bringing down the overall inflation data.
Crude oil prices are down nearly 10% this year, sitting at around $67 per barrel. And they've recently been down as much as 50% since peaking at $120 per barrel in 2022.
The same is true for natural gas. Today, it costs around $3.60 per million British thermal units ("MMBtu"). That's more than 50% below its high above $9 per MMBtu in August 2022.
With energy prices that low, it's hard for companies to justify expensive new projects to increase production.
The U.S. Baker Hughes rig count, which measures the number of active drilling rigs, is a perfect example. In the latest weekly release, the U.S. had just 442 rigs in operation – the fewest since October 2021.
Back then, the economy was still feeling the effects of the COVID-19 shutdowns. But things were rebounding – oil had risen steadily from the 2020 lows and was sitting around $80 per barrel.
Today, with prices trending lower, companies are shutting down wells and waiting for prices to head higher before restarting production.
And that has folks bearish on oil...
As our colleague and True Wealth editor Brett Eversole explained in a DailyWealth essay yesterday...
Right now, traders are about the most negative they've been on oil in the past 12 years...
As oil prices fall, traders assume they'll keep falling. But eventually, sentiment gets overdone... And when there's no one left to sell, prices reverse.
Since those traders might have gotten overly pessimistic, they could be unprepared for what comes next. Just take a look at this chart Brett shared of how oil performs after these sentiment extremes:
Whether the rebound in prices is short or medium term, history shows that oil can't stay down forever.
Brett isn't alone...
Even with the offshore rig count hitting multiyear lows, U.S. oil production keeps hitting new all-time highs. As Commodity Supercycles editor Whitney Tilson and his team explained in their most recent issue...
Last year, the U.S. produced 13.2 million bpd of oil. That's a 164% increase from its 2008 lows of 5.0 million bpd.
That trend is still headed higher. According to the U.S. Energy Information Administration ("EIA"), U.S. oil production should rise again in 2025 to 13.4 million barrels per day ("bpd") – even in the face of lower prices.
But, like Brett pointed out, oil prices typically rebound after hitting these sentiment extremes. And we may already be seeing that play out...
Today, after the trade-deal announcement, oil prices jumped 4.5%. After all, avoiding a trade war is good for global growth. A strong economy means more demand for oil – which pushes prices higher.
Earlier this week, Whitney and his team unveiled their latest pick to take advantage of U.S. energy production.
And while we can't give away the name here in the Digest, the company is one of the largest producers in an oil-rich section of the U.S., so it's perfectly positioned for both higher prices and higher production. Whitney's Commodity Supercycles subscribers and our Stansberry Alliance members can read the issue right here.
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In today's mailbag, thoughts on the U.S. debt situation, which we wrote about (again) in yesterday's edition... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"The Federal Reserve, bankruptcy, bailouts, bail-ins, inflation, federal debt, trillions in interest payments, commercial office loans collapsing, riots and social degeneracy. What can the United States do?
"There is a simple answer, but it is almost an impossibility. Get rid of the Federal Reserve... Go to constitutional money. Yes, money minted or printed by the U.S. government, backed by gold and silver and oil and natural gas.
"The Federal Reserve creates money with a touch to a keyboard, then charges the taxpayers at full face value then throws interest in on top! It is called 'money out of thin air'..." – Subscriber Mark M.
All the best,
Nick Koziol
Baltimore, Maryland
June 11, 2025
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