• US-China trade optimism improved market sentiment, though US funds still saw outflows.
• Gold and precious metals experienced net sales after 12 weeks of inflows.
• The Federal Reserve is expected to hold rates steady, while UK rates may be cut.
• The US Dollar Index is poised for a potential technical breakout above 100.00.

Week In Review: Optimism On US-China Trade Deal Leads To Improved Sentiment

Wall Street stocks rose on Friday, marking the second week of gains, boosted by strong economic data and signs of easing U.S.-China trade tensions. The U.S. added 177,000 jobs in April, beating expectations, while unemployment stayed at 4.2%. This helped ease worries about an economic slowdown, despite a recent report showing the first contraction in GD P in three years, driven by a surge in imports due to tariffs.

Beijing announced on Friday that it is considering Washington’s proposal for talks about President Donald Trump’s 145% tariffs on Chinese imports. The ongoing tariff battle between the two biggest economies has unsettled investors, as neither side wants to appear to back down in a trade war that has shaken global markets.

Despite the improving sentiment, investors pulled money from U.S. funds for the third week in a row. European equity funds benefited the most, with investors adding $14.64 billion, the largest weekly inflow since mid-March 2024, according to LSEG Lipper data. Asian funds received $6.68 billion in investments.

Improving sentiment did however affect Gold and precious metals commodity funds which registered their first weekly net sales in 12 weeks, with investors pulling out a marginal $4.4 million.

Gold has surrendered its recent bullish run and is on course for a second successive week of losses, trading around the $3230/oz market at the time of writing. Is this a sign that the worst may be behind us on the tariff front?

WTI Oil prices dropped below $60 a barrel this week after Reuters reported that Saudi officials told allies and analysts they were fine with keeping oil prices low for a longer period. Last month, sources told Reuters that some group members were urging another fast rate hike for June.

Eight OPEC+ countries will meet on Saturday to decide whether to increase oil production faster for June or stick to the smaller hike they had planned, two sources told Reuters on Friday. The meeting was initially set for Monday, but it’s unclear why it was moved earlier. Any developments from the meeting could show that oil prices will face a volatile start next week.

On the FX front, the US dollar dropped on Friday but regained some ground against the euro and yen after data showed the U.S. added more jobs than expected last month, indicating a steady job market. Earlier in the week, the dollar had risen against both currencies.

The US Dollar recovery continues to be driven by tariff developments at this stage, with Federal Reserve interest rate expectations taking a back seat.

After the jobs data, the U.S. rate futures market lowered its expectations for a June rate cut by the Fed, reducing the probability to 35.6% from about 58% on Thursday. Overall, the market now predicts rate cuts totaling 80 basis points (bps), or roughly three 25-bps cuts, compared to the 100 bps of cuts expected earlier this week.

The Week Ahead: Fed On Deck As Trade Deals Grow Nearer. Will There Be Any Twists in the Tale Ahead?

The upcoming week will be a bit quieter but still busy nonetheless. Asia Pacific markets get a slight break while the market will shift focus to high-impact data from the US and UK, in particular, with tariff developments still being monitored closely.

Asia Pacific Markets

China’s April trade data, due Friday, will reveal the impact of rising tariffs on its trade. US-bound exports from China likely saw a sharp drop, potentially causing a double-digit decline in both exports and imports compared to last year. Since 14-15% of China’s exports go to the US, a lot of this trade might have slowed drastically in April. Import data shows a similar trend, with signs of a decline evident in purchasing managers’ index reports.

While some trade between the US and China may have shifted to other regions, the shift isn’t happening smoothly and won’t fully offset the losses. On Wednesday, China will also release foreign reserves data, which investors will analyze for signs of significant changes, like the possible selling of US Treasuries.

Europe + UK + US

The Federal Reserve is expected to keep interest rates unchanged next week despite pressure from the President. Fed Chair Jay Powell emphasized the need to maintain price stability and prevent temporary price hikes from becoming long-term inflation. Fed Governor Chris Waller also ruled out rate cuts in May or June, noting the pause on tariffs likely won’t influence data until after July.

Meanwhile, the ISM Services Index , out Monday, risks dipping into contraction, signaling a cooling economy and potential recession.

Europe gets a bit of a data breather this week with Retail Sales the only high-impact data release. Focus will shift to UK data next week.

The Bank of England is likely to cut rates by 25 basis points on Thursday but isn’t expected to adopt a significantly more cautious stance. Tariffs are less of an issue compared to other parts of Europe, but service inflation remains persistent. This could shift by summer, but for now, I expect the BoE to stick to its message that any future cuts will be "gradual."

Chart of the Week - US Dollar Index (DXY)

This week’s focus remains on the US Dollar Index.

The Dollar index is on course to close above the psychological 100.00 level for the first in four weeks in what could be a crucial close from a technical perspective.

The index continues to gain on the hopes that tariffs may not be as bad as first feared.

The weekly chart has also printed a Morning Star candlestick pattern which is a strong reversal signal and does hint at further upside.

If sentiment continues to improve, immediate resistance rests at 100.617 before 101.180 comes into focus. Beyond that markets will focus on the 102.16 handle and then potentially the descending trendline may come into focus.

If a pullback is to develop then immediate support may be found at 99.57 before the 99.00 handle comes into focus. A break of these levels will ring the recent lows into focus around the 97.90 handle.

US Dollar Index (DXY) Daily Chart - May 2, 2025

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