Two major economic storylines are converging this week: a high-stakes diplomatic trip to China and fresh U.S. inflation data that could shape how the Federal Reserve moves next.

Trump's China Visit

President Donald Trump is traveling to China, making it one of the most closely watched diplomatic engagements of his term. Trade is the central issue. The U.S. and China remain locked in a tariff standoff that has raised costs for American importers and disrupted supply chains across multiple sectors. Any signal of a deal, a pause, or even a softened tone could move markets quickly, particularly in manufacturing, retail, and agriculture, where China exposure is highest.

Investors will be watching not just the outcome but the framing. A joint statement, a handshake deal on specific goods, or a commitment to resume structured talks would each carry different weight for equity and currency markets. Silence or a breakdown would likely push risk assets lower and strengthen safe-haven positions.

U.S. Inflation Data Due

Also due this week is a key U.S. inflation report. The Federal Reserve has held rates steady while waiting for evidence that price pressures are sustainably cooling. If this week's data shows inflation is still elevated, it pushes back the timeline for rate cuts. If it comes in softer than expected, it revives the case for easing later this year.

The stakes are high for bond markets, where yields have been volatile, and for borrowers, anyone holding variable-rate debt, from small businesses to homeowners with adjustable mortgages, is directly affected by when and how much the Fed eventually cuts.

The two stories are also connected. Tariffs on Chinese goods feed directly into import prices, which show up in inflation data. If the China trip produces new trade friction, it could complicate the Fed's path even further by keeping goods prices elevated.

What to watch: any specific trade commitments from the China meetings, the headline and core inflation readings in the U.S. data release, and any Fed official commentary in response. Together, these could set the tone for markets through the rest of the month.