Markets rebounded this week as tariff tensions eased, with upbeat Fed remarks and hopes of U.S.-China trade progress lifting sentiment. Equities soared, gold dipped, and investors watched for signs of rate cuts. Mixed U.S. data and tariff impacts kept caution in play.

Markets Rebound as Tariff Rhetoric Softens, Global Sentiment Lifted

Global markets experienced a relief rally following U.S. President Donald Trump's conciliatory remarks towards China and his retraction of statements about removing Federal Reserve Chair Jerome Powell. These developments eased investor concerns and revived risk appetite. Concurrently, comments from some Federal Reserve officials suggesting the possibility of earlier-than-expected rate cuts further bolstered market optimism.

As sentiment improved, the U.S. dollar appreciated by approximately 0.35% against major currencies. The S&P 500 rose by 2%, while the Nasdaq Composite gained 2.8%. Following the Fed officials' remarks, bets on a potential rate cut as early as June increased, leading to a rally in Treasury bonds.

Optimism about the Trump administration reaching agreements with key trade partners also lifted global equities. The MSCI Asia-Pacific Index advanced for the fourth consecutive day, with South Korea's KOSPI up 1% and Japan's Nikkei 225 climbing nearly 2%.

China Denies Progress, Trump Insists Talks Are Underway

On Thursday, Chinese officials dismissed speculations about progress in trade negotiations with the U.S. and urged the Trump administration to unilaterally lift tariffs. However, just hours later, the Trump administration announced ongoing discussions with China regarding tariffs.

When asked about the participants in these talks, President Trump stated that their identities were unimportant, emphasizing that meetings had occurred earlier that day. No further details were provided.

President Trump had made several attempts to engage directly with Chinese President Xi Jinping, but Beijing had shown resistance. Chinese officials have indicated that before resuming negotiations, the U.S. must demonstrate greater respect and provide clearer diplomatic intentions.

The absence of a direct meeting between the leaders underscores the ongoing disconnect between Washington and Beijing. While Trump's hints at potential tariff reductions have not fully alleviated tensions, the situation appears more tempered compared to the previous week.

Reports Hint at Chinese Tariff Rollbacks on Critical Sectors

Adding to the relatively moderate atmosphere, reports emerged suggesting that the Chinese government is considering suspending its 125% tariffs on certain U.S. imports.

This move aims to alleviate the burden on industries heavily reliant on U.S. goods, such as medical equipment, specific industrial chemicals like ethane, and aircraft leasing.

China, being the world's largest producer of plastics, depends significantly on petrochemical feedstocks like ethane and liquefied petroleum gas, primarily imported from the U.S. Additionally, Chinese hospitals rely on medical equipment manufactured by American companies.

Furthermore, separate reports indicate that tariffs on at least eight semiconductor products, excluding memory chips, might also be lifted. China had implemented a similar exemption list during the 2018 trade war.

These considerations reflect both nations' awareness of their economic interdependence and the potential harm excessive tariffs could inflict on critical industries.

Chinese officials have yet to respond to requests for comment, leaving the implementation of such exemptions uncertain. Moreover, China's confirmation of the tariff discussions mentioned by President Trump remains pending.

Tariff Exemption for Automakers? Markets Eye Policy Clarity

In another sign of potential de-escalation, sources familiar with the matter reported that the Trump administration is contemplating reducing or exempting certain 25% tariffs targeting the automotive industry. This consideration follows significant lobbying from automakers concerned about rising costs, disrupted supply chains, and potential job losses.

Some sources indicated that the cumulative effect of the 25% tariffs on automobiles and parts, along with those on steel and aluminum, could be eased. Others suggested that the U.S. might scrap the planned levies on vehicles imported from Mexico and Canada based on the value of non-U.S. production content.

However, on Wednesday, when asked whether he was considering changes to auto tariffs, President Trump said he was not, and even hinted that tariffs on Canada’s auto sector could be increased.

No official statement has been released following these exemption reports. However, as Duhani Capital Research, we assess that if no negative announcements are made regarding tariffs in the coming days, the moderate optimism surrounding potential agreements or exemptions is likely to persist in the markets. Still, given Trump’s past erratic moves, investors are likely to remain cautious and hesitant to fully embrace risk.

Fed Officials Divided on Tariff Impact and Timing of Rate Cuts

In recent weeks, a clear majority of Federal Reserve officials—including Chair Jerome Powell—have emphasized the inflationary risks posed by tariffs and stressed the need to prevent their potentially temporary effects from becoming entrenched. Officials have also reiterated that they are in no rush to adjust interest rates until the economic impact of tariffs becomes more evident.

In contrast, Fed Governor Christopher Waller and Cleveland Fed President Beth Hammack diverged from their more cautious colleagues in separate remarks on Thursday.

Waller stated that he would not overreact to any tariff-induced increase in inflation, but if the aggressive tariffs—currently on hold for 90 days—are reinstated and lead to a sharp rise in unemployment, the Fed’s dual mandate would require prioritizing employment. He indicated that if labor market conditions deteriorate significantly, he would support earlier and more aggressive rate cuts.

Hammack, on the other hand, suggested that if the central bank has clear and compelling data by June, the committee could act as early as that month.

These comments stood in contrast to the broader wait-and-see approach among policymakers. In particular, Hammack’s reference to a possible June cut slightly boosted market bets on an earlier move. For the upcoming June 17–18 FOMC meeting, the probability of a rate cut is now priced above 60%, with more than 84 basis points in total cuts expected by year-end—equivalent to over three quarter-point reductions.

The Fed’s next policy meeting is scheduled for May 6–7. No rate action is anticipated at that meeting, as officials are unlikely to have sufficient data to justify a move. However, the meeting minutes to be released later could offer insights into how policymakers are weighing the possibility of cutting rates as early as June.

Meanwhile, upcoming labor market data may provide the first signs of how tariffs are impacting employment. Weekly jobless claims released Thursday rose slightly by 6,000 to 222,000—broadly in line with expectations and near the 12-month average, signaling continued labor market stability. As long as employment remains strong, the Fed may find little justification to ease rates in the current environment of heightened uncertainty.

Mixed Signals, Mounting Risks: U.S. Economy Faces Tariff Headwinds

Other recent economic data presented a mixed picture: manufacturing activity increased, while services declined; new home sales rose, but existing home sales experienced the largest drop since 2022; and orders for business equipment, excluding aircraft and defense, showed little to no growth.

Some of the upticks in production and consumption are attributed to pre-tariff stockpiling, but clearer signs are emerging that investment spending is being postponed due to tariff-related uncertainties. This supports economists' view that, without meaningful tariff relief, U.S. economic growth could slow further in the coming months.

Economists also continue to argue that tariffs are making everyday items more expensive. An analysis by the Institute on Taxation and Economic Policy found that if existing tariffs remain in place, American households earning less than $28,600 annually will face additional costs equivalent to 6.2% of their income. For those earning between $55,100 and $94,100, the burden is about 5%, while the wealthiest Americans would pay roughly 1.7%.

In short, the study concludes that tariffs disproportionately harm low-income households—a key factor contributing to the ongoing erosion in consumer sentiment.

Later in the day, the University of Michigan’s April surveys will offer a snapshot of consumer sentiment and inflation expectations. Preliminary data showed long-term inflation expectations reaching their highest level in decades. For the Fed, well-anchored long-term inflation expectations are a key catalyst for monetary policy decisions.

Risk Appetite Returns: Equities Rally, Gold Pulls Back

Last week, gold surged to a record high of $3,500 per ounce, driven by growing doubts over the safe-haven status of U.S. assets and deepening turmoil in equity markets. However, a subsequent pullback began as technical indicators signaled overbought conditions and profit-taking set in—further fueled by renewed risk appetite driven by optimism around tariffs. Gold is now fluctuating below the $3,300 mark.

Still, the lack of concrete progress in U.S.-China trade talks is likely to keep investors cautious and prevent them from fully abandoning the yellow metal. While the relatively calmer tone in markets may continue to weigh on gold in the short term, deeper losses would likely require markets to be convinced that the tariff threat has meaningfully receded.

While gold ended the week lower, “the poor man’s gold” held its ground:

• Gold fell 1.04%

• Silver rose 2.30%

The biggest winners of the week were equity markets:

• U.S.: S&P 500 gained 3.83%, Nasdaq 100 jumped 5.24%

• Europe: Euro Stoxx 50 rose 4.24%

• Asia: Nikkei 225 climbed 2.85%, CSI 300 added 0.38%

Looking ahead, developments related to tariff negotiations are expected to remain the key driver of market sentiment in the coming week.