ORLANDO, Florida (Reuters) – TRADING DAY
Cautious stability
World markets traded on a solid footing this week as the Trump administration struck what could be the first of “dozens” of trade deals in the coming weeks, and as investors cheered this weekend’s US-China trade talks in Switzerland.
The S&P 500 and Nasdaq are back where they were on April 2, recovering the 15% losses in the days immediately after ‘Liberation Day’ when Trump unveiled his reciprocal tariffs, Germany’s DAX is at new highs and Japanese stocks sealed their best weekly winning streak in over two years.
Sentiment was boosted by a sweeping raft of stimulus measures from China, including interest rate cuts and liquidity injections. The Bank of England also cut rates and the Bank of Japan looks to have put its tightening cycle on ice. While the U.S. Federal Reserve didn’t ease policy, markets know where they are with it – stability amid uncertainty can be reassuring too.
On the earnings side, 450 companies listed on the S&P 500 have reported first quarter results. Earnings growth is running at around 14%, although negative projections for the second quarter have outstripped positive forecasts by almost 50%, according to IBES/LSEG analysis.
Caution reigns though, at least in U.S. markets. Despite the wave of trade optimism, Wall Street and Treasury yields ended little-changed on the week. Investors were also reminded of how erratic and unpredictable the U.S. administration is – President Donald Trump and Vice President JD Vance renewed their attacks on Fed Chair Powell, and Trump said 80% tariffs on China “seemed right”, a figure the White House later said he “threw out there”.
Once the dust settles and deals are reached, tariffs will be lower than those proposed on April 2, perhaps significantly lower. But the fact is, they will be significantly higher than they were before Trump entered office.
As economist Phil Suttle notes, tariffs have yet to bite, but they will. He estimates the average effective U.S. tariff rate will settle around 22%, which would be a four-fold increase from when Trump took over. Goldman Sachs economists note that while the ‘hard’ data has been resilient, the economy is on the “precipice of an activity slowdown”.
So for investors, it depends on the starting point. Are you relatively bullish because tariffs won’t be as high as looked likely on April 2, or relatively bearish because they will be much higher than before Trump? With uncertainty so high and visibility so low, the current interregnum might be appropriate.
All eyes now turn to Geneva, where a U.S. delegation led by Treasury Secretary Scott Bessent will sit down for trade talks with a Chinese team led by economic tsar He Lifeng. Monday’s markets could be very interesting.
I’d love to hear from you, so please reach out to me with comments at . You can also follow me at @ReutersJamie and @reutersjamie.bsky.social.
This Week’s Key Market Moves
* Wall Street’s 3 main indices, the MSCI’s World and Asiaex-Japan benchmarks all close on Friday within 0.5% of wherethey were a week earlier. Stability on the surface maskingturbulence under the hood? * Germany’s DAX hits a record high. The index is up 18% thisyear and up 27% from its post-Liberation Day low on April 7. * Japanese stocks rise for a fourth week, supported by theweaker yen, their best run in over a year. * U.S. high yield credit spreads tighten for a fifth week, arun not seen in two years, and are back down to 350 bps. * Bitcoin rises nearly 10% back above $100,000 for the firsttime since February.
Chart of the Week
Remember Elon Musk and DOGE? The billionaire Tesla CEO and owner of social media platform ‘X’ was brought into the Trump administration in January to great fanfare, pledging to take a chainsaw to federal spending and get the budget deficit down. Eventual cuts of $2 trillion were touted.
It’s safe to say his initial efforts have fallen short of those lofty goals, and Musk has taken has taken a step back from the limelight. As Republicans prepare to complete Trump’s fiscal package next week, those aims are looking increasingly out of reach.
The early days of the Trump 2.0 administration suggest spending has not been reigned in at all. Indeed, it is higher than it was under the Biden administration.
Morgan Stanley economists this week said they expect the 2026 budget deficit to be 7.1% of GDP, up from 6.7% in 2025. That would be an increase of around $310 billion. Numbers like that could unnerve investors and put added downward pressure on long-dated Treasuries.
Here are some of the best things I read this week:Â
1. Why a Pact to Weaken the Dollar Makes No Sense 2. A Mar-a-Lago Accord Could Break the Dollar 3. The ‘Global South’ – A Strategic Approach to the World’sFourth Bloc 4. INSIGHT-In Trump’s circle, some expect high tariffs evenafter trade deals 5. Inside China’s decision to come to the table on Trumptariffs
What could move markets on Monday?
* Reaction to US-China trade talks in Geneva * Reaction to Chinese inflation data on Saturday * India inflation (April) * Japan trade, current account (March) * Bank of England’s Megan Greene, Clare Lombardelli,Catherine Mann and Alan Taylor speak at event in London
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Trading Day is also sent by email every weekday morning. Think your friend or colleague should know about us? Forward this newsletter to them. They can also sign up here.
(Writing by Jamie McGeever; Editing by Nia Williams and Deepa Babington)
By Jamie McGeever
