Market heat drops, risk sentiment turns cold: Trade negotiations and expectations of interest rate cuts dominate market sentiment this week

At the beginning of this week, global financial markets showed positive momentum driven by the brief trade ceasefire between China and the United States, but by Friday (May 16th), market enthusiasm had significantly cooled down. Traders generally believe that the stock market's upward trend may have deviated from economic fundamentals, and are concerned that trade disputes will continue to recur in the future, with reservations about the sustainability of the "risk appetite" market.

The major stock markets in the Asia Pacific region are experiencing mixed ups and downs. The Hang Seng Index in Hong Kong fell 0.8%, and Alibaba's financial report did not meet market expectations, causing a significant pullback of over 5%, dragging down overall market performance; The Australian stock market remained relatively strong, recording a 0.7% increase. At the same time, major stock index futures in the United States and Europe experienced limited intraday volatility and remained stable overall.

Although the trade situation is not fully clear, the market trend once showed a trend of 'the tariff war has been digested'. The MSCI Asia Pacific Index outside of Japan is still oscillating near a seven month high; The China CSI 300 Index has fully recovered from all the declines since Trump announced the imposition of "equivalent tariffs" in early April. Although the measure is currently suspended, the market response is relatively optimistic.

In the bond market, the lower than expected US Producer Price Index in April, coupled with weak core retail sales data, has raised investors' expectations for the Federal Reserve's interest rate cuts this year. According to the latest pricing, the expected cumulative interest rate cuts for the whole year have been raised from 49 basis points to 56 basis points. As a result, the 10-year US Treasury yield fell another 3 basis points to 4.424% on Friday, after a 7 basis point drop in the previous trading day, indicating a return of funds to safe haven assets.

On the other hand, US President Trump has recently made frequent statements on Middle East affairs, claiming that diplomatic agreements, including the Iran nuclear deal, are "close to being reached," which triggered a 2% drop in international crude oil prices on Thursday. However, the market's focus remains on the progress of Sino US trade negotiations and closely monitors whether the United States will further expand its foreign trade cooperation after the US UK agreement.

It is worth noting that since the Trump administration launched the "trade reform" process, the overall tariff burden in the United States has significantly increased, reaching its highest level since the 1930s. Wal Mart, a global retail giant, said that due to the rise in tariff costs, the company will raise the price of some goods later this month, which indicates that American consumers may face higher living costs.

Although recent inflation data in the United States has remained moderate, analysts generally believe that the medium - to long-term impact of tariffs will eventually be reflected in the "hard data" that the Federal Reserve is concerned about, such as consumer spending and price indices, which will in turn affect the direction of its monetary policy.

This week, major economic data from the United States and Europe are relatively scarce. Investors will focus on the April Import Price Index and University of Michigan Consumer Confidence Index, which will be released on Friday, to more accurately assess the actual impact of trade policy changes on US household confidence and consumption willingness.