Markets Steady as Traders Await Clarity on US-China Trade Developments | Weekly Market Analysis

Key events this week:

Tuesday, May 13, 2025

• USA - Core CPI (MoM) (Apr)
• USA - CPI (YoY) (Apr)
• USA - CPI (MoM) (Apr)

Wednesday, May 14, 2025

• USA - Crude Oil Inventories

Thursday, May 15, 2025

• UK - GDP (YoY) (Q1)
• UK - GDP (MoM) (Mar)
• UK - GDP (QoQ) (Q1)
• USA - Core Retail Sales (MoM) (Apr)
• USA - Initial Jobless Claims
• USA - Philadelphia Fed Manufacturing Index (May)
• USA - PPI (MoM) (Apr)
• USA - Retail Sales (MoM) (Apr)
• USA - Fed Chair Powell Speaks        

Friday, May 16, 2025

• Japan - GDP (QoQ) (Q1)

Wall Street ended Friday’s session with modest losses, wrapping up the week on a slightly negative note as investors exercised caution ahead of a pivotal round of trade discussions between the United States and China. The Dow Jones Industrial Average slipped by 119 points, or 0.3%, while the S&P 500 edged down 0.1%. The tech-heavy NASDAQ Composite, on the other hand, closed essentially flat, reflecting a hesitant market mood with few willing to take large positions before seeing how talks between the two economic giants would unfold.

Over the weekend, the White House issued a vague announcement regarding a “trade deal” with China. While specific terms were notably absent, the statement followed several days of negotiations between US officials and their Chinese counterparts in Geneva. Treasury Secretary Scott Bessent characterized the meetings as “productive,” indicating that both sides made significant progress. However, he stopped short of disclosing any concrete outcomes, promising more detailed updates during a Monday morning briefing.

The lack of immediate clarity surrounding the agreement has left traders searching for direction. Still, any signs of de-escalation in the long-standing trade conflict could inject some optimism into global markets, which have been under pressure since President Trump’s initial announcement of tariffs in early April. The trade war has cast a long shadow over international commerce, slowing economic growth in multiple regions and prompting central banks to reevaluate monetary policies.

Gold prices responded swiftly to the tentative trade truce. On Monday, XAU/USD came under heavy selling pressure, falling to a one-week low in the $3,253-3,252 range during the Asian session. The precious metal’s appeal diminished amid hopes for a thaw in US-China relations, reducing demand for traditional safe-haven assets. Also weighing on gold was the recent hawkish tone from the Federal Reserve, which chose to maintain current interest rates while signaling that further tightening remains on the table should inflation persist. This hawkish pause helped the US Dollar remain near multi-week highs, further eroding gold’s attractiveness.

Despite the sell-off, gold bears are showing some hesitation. Many investors appear to be holding off on more aggressive positions until further details emerge about the supposed trade deal. The reluctance underscores a broader theme in markets: uncertainty remains high, and optimism can turn quickly if real progress fails to materialize.

Elsewhere in the currency markets, the Australian Dollar is seeing renewed strength, extending gains against its US counterpart for the second consecutive session. The AUD/USD pair is being buoyed by optimism over the trade developments, which have a particularly strong impact on Australia due to its close economic ties with China. Any positive shift in China’s outlook tends to reverberate throughout the Australian economy. Traders are now awaiting key domestic data releases, including May’s Westpac Consumer Confidence index and April’s NAB Business Conditions report, both due on Tuesday. These indicators could offer more insights into Australia’s economic trajectory and add fuel to the Aussie’s momentum.

The Japanese Yen, typically a beneficiary of global risk aversion, continued to weaken against the US Dollar in the early hours of Monday’s Asian session. The USD/JPY pair was supported by improved sentiment following the trade discussions, as well as lingering concerns over Japan’s own economic outlook. Recent US tariffs have raised doubts about Japan’s export-driven growth model. Meanwhile, the US Dollar is being bolstered by stable macroeconomic indicators and the Fed’s recent signaling, which combined to keep the greenback well supported.

Japan’s latest Household Spending data, released on Friday, showed stronger-than-expected results and lent some support to the Yen by reinforcing expectations that the Bank of Japan might begin taking steps toward policy normalization. Still, investors remain cautious, preferring to wait for more details on the US-China deal before making aggressive moves. The USD/JPY pair is finding resistance near the 146.00 level, and without a convincing breakout, further upside could remain limited.

Meanwhile, the USD/CAD currency pair continues to hover near the 1.3940 mark, maintaining its footing for a fourth consecutive session. Strength in the US Dollar is underpinning the pair, as traders respond to diverging economic signals from Canada. Although Canada reported a net employment gain of 7,400 jobs in April - surpassing expectations - the uptick in the unemployment rate to 6.9% has sparked concerns. The rise in joblessness, particularly in sectors vulnerable to global trade disruptions, is weighing on the Canadian Dollar. Market participants are now recalibrating their expectations regarding the Bank of Canada’s next policy moves, which remains a key driver for the Loonie.

Across the Atlantic, the British Pound is also on the defensive to start the week. The GBP/USD pair has reversed some of Friday’s modest gains and is trading slightly lower near the 1.3275 area during Asian hours. The strength of the US Dollar continues to act as a headwind. Last week’s limited trade agreement between the US and the UK did little to change the broader sentiment around the Pound. At the same time, the Bank of England’s cautious stance - emphasizing that interest rates will remain restrictive until inflation risks have clearly diminished - has contributed to the pair’s range-bound behavior. From a technical standpoint, GBP/USD has remained locked in a narrow channel for the past three weeks, suggesting traders are looking for a decisive catalyst before committing to a directional move.

Looking ahead, all eyes are now on this week’s US inflation data, which is expected to shed light on how persistent price pressures remain. These numbers could directly influence future Federal Reserve decisions, and by extension, the trajectory of the US Dollar. In addition to inflation figures, Fed Chair Jerome Powell is scheduled to speak on Thursday, and his remarks could provide further clues about the central bank’s outlook. Also on the radar is Japan’s first-quarter Gross Domestic Product report, set to be released Friday. This data could significantly impact USD/JPY positioning, especially if it reinforces or challenges the current narrative surrounding Japan’s economic resilience.

Overall, while markets are reacting favorably to hints of progress in US-China trade relations, the lack of concrete details has kept investor enthusiasm in check. With multiple macroeconomic events on the horizon, traders are likely to remain cautious, balancing optimism with the reality that headline-driven volatility remains a defining feature of today’s global financial landscape.