SYDNEY: Wall Street stock futures rose, and the dollar strengthened against safe-haven currencies on Monday as advancements in U.S.-China trade discussions raised optimism that a global recession could be averted, even though details remained notably absent. Geopolitical tensions appeared to be subsiding, with a tenuous ceasefire maintained between India and Pakistan. Ukrainian President Volodymyr Zelenskiy expressed his willingness to meet Vladimir Putin in Turkey on Thursday for discussions. In Geneva, U.S. Treasury Secretary Scott Bessent highlighted "significant progress" in trade talks, while Chinese officials stated that the parties had achieved "key consensus" and decided to initiate yet another new economic dialogue forum.
A joint statement is anticipated later on Monday, but it is worth noting that neither party referred to tariff rates directly. "What appears to be in place is a general structure within which the two countries can continue discussions to achieve a wider trade agreement," stated Michael Brown, a senior research strategist at Pepperstone. "While it wasn't the worst possible outcome from this weekend's discussions, quite the contrary, it also doesn't represent a solid agreement," he remarked. "Does this advancement permit any tariffs to be suspended, diminished, or reverted, and if yes, for what duration?" Investors are optimistic that the White House will soon reduce the 145 per cent tariff on Chinese products, even if it only reverts to the 60 per cent initially indicated by President Donald Trump. Trump appears determined to maintain extensive tariffs regardless of the consequences, which will hinder economic growth and raise prices, although any advancements in trade could prevent a severe downturn.
Markets responded by increasing S&P 500 futures by 1.2 per cent, and Nasdaq futures climbed 1.4 per cent. EUROSTOXX 50 futures rose by 0.9 per cent, FTSE futures increased by 0.4 per cent, and DAX futures gained 0.7 per cent. Japan's Nikkei increased by 0.3 per cent, whereas South Korea rose by 0.4 per cent. Chinese blue chips strengthened by 0.8 per cent, despite data released over the weekend indicating that factory-gate prices experienced their largest decline in six months in April, while consumer prices decreased for the third consecutive month. The dollar increased by 0.4 per cent against the safe haven yen, climbing to 145.90, despite having fallen from an earlier five-week high of 146.31. The euro fell 0.2 per cent to $1.1224, while the dollar index increased 0.2 per cent to 100.60. The dollar fell 0.2 per cent against the offshore Chinese yuan to 7.2278, approaching last week's low of 7.1846.
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Trump's unpredictable trade policies have pressured the dollar in recent weeks, but it found some stability last week after the Federal Reserve indicated it wasn’t hurrying to lower interest rates again. Figures regarding U.S. consumer prices for April, expected this week, may provide an initial indication of how import tariffs are affecting inflation, while retail sales are anticipated to remain stable in April following a spike the previous month. Profits from retail behemoth Walmart on Thursday are expected to shed light on consumer demand and when shelves could begin to deplete of Chinese products. "Analysts at ANZ noted in a report that broad evidence of tariffs appearing in inflation data is not anticipated until the May CPI data is released." "In this context, we believe June is too soon for the Fed to lower rates and hold our stance that Q3, likely September, is a more feasible timeframe," they noted. "This would provide the chance to examine the effects of increased tariffs on the price level and the persistence of inflation."
On Monday, markets reduced their expectations for easing, with Fed fund futures dropping between 3 and 7 ticks. The likelihood of a rate cut in June is currently 17 per cent, decreased from over 60 per cent a month prior, while the chance for a July adjustment is estimated at 59 per cent. A number of Fed officials are scheduled to speak this week, with Chair Jerome Powell leading the discussions on Thursday. The overall rise in risk appetite negatively affected gold, which has seen significant gains lately as investors looked for safety in the tangible metal. Gold declined 1.7 per cent to $3,268 per ounce, falling short of the all-time high of $3,500 reached in April. Oil prices moved in the opposite direction due to optimism that advancements in trade negotiations could mitigate the threat of a significant economic slump, even as OPEC+ plans for increased supply continue to pose challenges. Brent increased by 29 cents to reach $64.20 a barrel, whereas U.S. crude climbed 30 cents to $61.32 per barrel.
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