Investor sentiment rebounded to end the week, with risk appetite resurfacing after a string of dovish signals from U.S. Federal Reserve officials and signs of potential de-escalation in the U.S.-China trade standoff. The dollar firmed against major peers, while gold tumbled 1.4% as demand for havens receded.
The narrative shift is being driven by growing market confidence that the Fed is ready to intervene earlier than expected should trade tensions darken the economic outlook. At the same time, China is weighing a partial rollback of its 125% retaliatory tariffs on select U.S. goods a potential opening move in what remains a complex and drawn-out negotiation process.
SARACEN MARKETS VIEW: While sentiment has improved, traders must stay disciplined. These are fragile gains built on policy signals, not policy actions.
Fed Opens the Door to a June Rate Cut
Remarks from Fed Governor Christopher Waller and Cleveland Fed President Beth Hammack helped turn the tide. Waller stated explicitly that rate reductions would be warranted if steep tariffs begin to hit employment. Hammack went further, suggesting that the central bank could act as soon as June—if economic indicators deteriorate further.
These comments were interpreted as a safety net for markets increasingly uneasy about prolonged trade disputes. The 10-year U.S. Treasury yield remains a crucial watchpoint. Currently holding below the psychologically critical 4.5% level, a break above could quickly reignite volatility and force further clarity from the White House.
China Sends a Signal, But No Grand Gesture Yet
In a tentative move toward reconciliation, Chinese authorities are reportedly considering the suspension of extra tariffs on targeted U.S. imports, including medical equipment and industrial chemicals like ethane. While far from a broad-scale rollback, it’s a meaningful signal that Beijing may be preparing to dial back retaliation amid mounting economic pressure.
The Chinese government has also begun drafting contingency plans for a potential surge in external shocks underscoring that officials are not betting on a quick fix to the trade war.
SARACEN STRATEGY NOTE: These moves are micro-targeted and symbolic but they show that both sides now have incentive to de-escalate, even if only incrementally.
Markets Stabilizing, but No Green Light for Full Risk-On
Equities in Asia tracked the positive momentum from U.S. markets, and the yen weakened to 143.39 per dollar in response to the more constructive tone out of Beijing. The broader market tone has shifted from outright fear to guarded optimism.
Still, uncertainty surrounding the Trump administration’s approach to tariffs continues to cloud the outlook for global supply chains and corporate planning. Until there’s material progress—especially on structural trade issues the outlook remains highly binary.
Traders should think of this as Act Two in a longer negotiation drama. Act Three true clarity and resolution remains quarters away, not weeks.
Key SARACEN MARKET TAKEAWAYS FOR TRADERS:
- Position for a Data-Dependent Fed
Markets are pricing in Fed flexibility keep an eye on labor market softness and CPI revisions to guide your rate expectations. - Dollar Strength = Tactical Trades
The greenback may stay supported as yields remain elevated and trade optimism returns. Consider USD long strategies vs. low-beta FX until trend clarity improves. - Gold Pullback = Buying Opportunity?
The dip in gold may be short-lived. If talks stall or yields spike above 4.5%, haven demand could quickly reignite. - China’s Micro-Easing = Sector-Specific Plays
Monitor industrial chemical and medical equipment sectors for rebound plays if Beijing formalizes its tariff relief. - Watch the 10-Year Yield Like a Hawk
4.5% remains a danger zone. A break above will likely pressure equities and accelerate policy response from both the Fed and the White House.
BOTTOM LINE:
The market may be catching its breath but this is not the time for complacency. Traders must stay hyper-focused on macro signals and remain nimble. Trade talks may be thawing, and monetary policy could soon pivot, but this environment still demands precision, discipline, and conviction.
→ SARACEN MARKETS will continue to cut through the noise—ensuring your trades are grounded in actionable macro intelligence.