US-China Trade Talks Boost Market Sentiment, But Caution Remains

Date: May 12, 2025 | Marketsall

Global markets opened the week on a positive note following US-China trade talks held in Geneva over the weekend. Officials from both countries described the discussions as “constructive,” stating that substantial consensus was reached. Although the diplomatic tone lifted investor sentiment, the lack of concrete outcomes from the US-China trade talks has kept markets cautiously optimistic.

However, despite the optimistic tone, markets are reacting with a degree of restraint. That’s because concrete details—especially regarding tariffs, technology transfers, and enforcement mechanisms—remain elusive. Investors welcomed the tone, but they’re still waiting for substance.

Market Reaction to the US-China Trade Talks

Stock futures surged in early Monday trading. S&P 500 futures gained approximately 1.4%, while Nasdaq futures jumped 1.9%, signaling strong risk appetite. In Europe, the Euro Stoxx 50 futures rose by 0.8%, buoyed by global optimism.

The U.S. dollar also strengthened across the board, particularly against traditional safe-haven currencies like the Japanese yen and the Swiss franc. Meanwhile, U.S. Treasury yields climbed, reflecting a reduced expectation for near-term Federal Reserve rate cuts. Gold prices, often a safe-haven asset, fell over 1.4%, while oil prices ticked higher amid expectations of improving demand.

What Central Banks Are Signaling

Monetary policy outlooks are diverging between major economies. In the United States, markets are now pricing in only a 17% chance of a rate cut by the Federal Reserve in June. Traders expect a total of just 63 basis points in cuts by year-end—down significantly from earlier projections.

Meanwhile, in the Eurozone, European Central Bank (ECB) Executive Board Member Isabel Schnabel has stressed the importance of maintaining current interest rate levels for an extended period, citing persistent inflationary risks. This suggests the ECB may remain more hawkish than the Fed in the coming months.

Geopolitical Tensions Add Uncertainty to Trade Outlook

Beyond trade, geopolitical developments continue to influence investor behavior. India and Pakistan have agreed to a fragile ceasefire, while tensions in Eastern Europe remain elevated.

Ukrainian President Volodymyr Zelensky announced that he is open to meeting Russian President Vladimir Putin in Turkey later this week. If confirmed, the meeting could become a turning point in the ongoing conflict, though markets are taking a wait-and-see approach.

Key Economic Data to Watch After US-China Trade Talks

Markets are also gearing up for a flurry of key economic data. On Tuesday, the U.S. Consumer Price Index (CPI) report is expected to offer fresh insight into inflation trends. Analysts believe tariff-related costs may start to filter into consumer prices, potentially complicating the Fed’s rate path.

Retail sales and industrial production figures, due later this week, will help gauge the strength of U.S. consumer demand and manufacturing resilience. Flat or declining numbers could reignite fears of economic stagnation.

Final Take: Optimism With a Side of Caution

The outcome of the latest US-China trade talks has given markets a short-term boost, but the lack of tangible outcomes is limiting the rally’s momentum. For now, sentiment remains cautiously optimistic—but real progress will depend on whether the “constructive” dialogue translates into actionable policy shifts.

Investors should brace for potential volatility as upcoming economic releases and geopolitical headlines further shape the risk landscape.