Global Markets Remain Optimistic As US-China Trade Talks Offer Renewed Hope
Investor sentiment received a boost on Monday as indications of progress in trade negotiations between the US and China offered a glimmer of hope that a global economic slump might be averted. Though concrete outcomes remain elusive, upbeat signals from both sides drove gains in equities and strengthened the dollar against traditional safe-haven currencies.
In Geneva, US Treasury Secretary Scott Bessent expressed optimism, noting “substantial progress” in discussions. Chinese authorities echoed this sentiment, stating both sides reached an “important consensus” and agreed to initiate a new platform for economic dialogue, reported Reuters.
However, absent from their statements was any reference to tariff rates, a critical issue for markets.
“What we seem to have here, then, is a broad framework under which the two nations can conduct further talks, with the aim of reaching a broader trade agreement,” said Michael Brown, senior research strategist at Pepperstone. He cautioned that, “Not the worst case outcome that was possible from this weekend’s talks, far from it, but not a concrete deal either.”
Despite the lack of clarity on tariffs, hopes remain high that the US could reconsider the 145 per cent tariff currently levied on Chinese imports, possibly returning to the earlier 60 per cent level introduced by President Donald Trump. Nonetheless, Trump’s continued support for widespread tariffs is seen as a drag on growth and a contributor to rising consumer prices.
Market Reactions and Currency Movements
Global markets responded positively to the perceived progress. Futures for the S&P 500 rose 1.2 per cent, while the Nasdaq advanced 1.4 per cent. European futures also edged higher, with EUROSTOXX 50 gaining 0.9 per cent, FTSE up 0.4 per cent, and DAX climbing 0.7 per cent. In Asia, Japan’s Nikkei ticked up 0.3 per cent, and South Korea’s market added 0.4 per cent. Chinese blue-chip stocks improved by 0.8 per cent, despite weekend data revealing the steepest decline in factory-gate prices in six months and a continued drop in consumer prices.
On the currency front, the US dollar gained 0.4 per cent against the yen to reach 145.90, although it retreated slightly from an earlier five-week high of 146.31. The euro declined 0.2 per cent to $1.1224, while the dollar index edged higher by 0.2 per cent to 100.60. The greenback also dipped 0.2 per cent versus the offshore Chinese yuan, landing at 7.2278, closer to the prior week’s low of 7.1846.
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Focus Shifts to the Fed and Economic Data
The dollar’s recent rebound comes despite ongoing pressure from erratic trade policy, buoyed last week by signals from the Federal Reserve that it is not rushing to cut interest rates. Analysts are now watching closely for upcoming inflation data. US consumer price figures for April, set to be released this week, could offer early insight into the effects of tariffs on inflation. Retail sales, however, are expected to remain flat after a surge in March ahead of the new levies.
Walmart’s earnings report on Thursday is likely to shed light on consumer demand trends and the pace at which Chinese imports are moving off store shelves. “We expect it will not be until the May CPI data are out before we see broad evidence of tariffs showing up in inflation data,” analysts at ANZ noted. “In this regard, we think June is too early for the Fed to cut rates and maintain our view that Q3, and most probably September, is a more realistic time frame.”
As of Monday, markets scaled back expectations for near-term rate cuts. Fed fund futures dropped by 3 to 7 ticks, reducing the likelihood of a June cut to 17 per cent—a sharp decline from over 60 per cent just a month earlier. A rate move in July is seen as moderately more likely at 59 per cent. Investors will be closely following speeches by several Fed officials this week, especially Chair Jerome Powell’s appearance on Thursday.
Commodities React to Risk Sentiment
Improved risk appetite weighed on gold prices, which have rallied recently amid global uncertainty. The metal slipped 1.7 per cent to $3,268 an ounce, falling short of its record high of $3,500 reached in April. In contrast, oil prices edged higher on the belief that a trade breakthrough could bolster economic growth. Brent crude rose 29 cents to $64.20 a barrel, while US crude increased by 30 cents to $61.32. Still, plans by OPEC+ to raise output may limit further gains.
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