Global Sentiment Stabilizes as Trade Talks Resume (12-16 May)

The dollar index slipped to 100 on Friday but remained up 0.6% for the week, heading for a third weekly gain. Trump’s US-China and US-UK trade signals, along with the Fed’s steady rates and cautious tone, supported sentiment.

The euro held at $1.13 with dollar weakness, while markets expect the ECB to cut rates to 1.6% by year-end. The pound hovered near $1.33 after a limited US-UK trade deal.

The yen weakened past 145 as global trade sentiment improved. Japan’s personal spending rose, but real wages fell.

Gold traded around $3,320, easing on trade optimism but still up for the week. Silver also edged higher ahead of US-China talks.

Brent crude neared $63 on trade hopes, though OPEC+ supply plans capped gains.

Bond yields climbed: U.S. 10-year to 4.38%, Japan to 1.37%, and Germany to 2.58%.

S&P Global Services PMI (Apr)

April’s S&P Global US Services PMI was revised down to 50.8 from the 51.4 flash estimate, signaling the slowest growth in nearly 18 months. Business activity and new orders lost momentum amid ongoing uncertainty around federal trade policy. Input costs rose sharply due to tariffs, pushing selling prices up at the fastest pace since January. Foreign demand dropped at the steepest rate since November 2022, while sentiment hit a 2.5-year low.

ISM Non-Manufacturing PMI (Apr)

The ISM Services PMI rose to 51.6 in April from 50.8, beating expectations of 50.6. New orders (52.3) and inventories (53.4) improved, and business activity stayed positive at 53.7. Employment declined more slowly (49), while supplier delays increased (51.3). Prices surged to 65.1, the highest since February 2023. ISM’s Steve Miller noted tariff-related price increases as the main concern, though overall conditions showed signs of improvement.

Fed Interest Rate Decision (May)

The Fed kept rates steady at 4.25%–4.50% in May for a third straight meeting, citing rising risks of both inflation and unemployment due to Trump’s tariffs. Chair Powell said it’s too soon to predict whether inflation or joblessness will be the bigger threat and emphasized a patient, data-dependent approach. The Fed acknowledged swings in trade flows but said economic activity still shows solid expansion.

BoE Interest Rate Decision (May)

The BoE cut its Bank Rate by 25 bps to 4.25% in a split 5–4 vote. Two members supported a deeper cut, while two preferred holding steady. The decision reflects slowing growth and softening labor markets. March CPI fell to 2.6%, but a temporary Q3 rebound to 3.5% is expected due to past energy costs. The MPC reaffirmed its commitment to bringing inflation back to target while adopting a cautious, data-led policy stance.

Initial Jobless Claims (May 3)

Initial claims fell by 13,000 to 228,000, slightly below the 230,000 forecast. Continuing claims dropped by 29,000 to 1.879 million, easing from a three-year high in mid-April.

Currencies

The dollar index dipped to 100 after a two-day rise but is still up 0.6% for the week, supported by the Fed’s steady rate decision and cautious tone. Trump’s comments ahead of US-China talks and a limited US-UK trade deal helped calm markets.

The euro held near $1.13 amid dollar softness and ECB rate cut expectations, despite sticky inflation. Markets now price the deposit rate at 1.6% by year-end.

The pound stabilized around $1.33 after the US-UK deal, which maintained a 10% tariff but opened some procurement channels. The BoE’s 25 bps cut also weighed on the currency.

The yen weakened past 145, pressured by dollar strength and improved trade sentiment. Japan’s personal spending rose, but real wages continued to fall. Powell’s rejection of early Fed cuts further boosted the dollar.

Commodities

Gold hovered around $3,320, tracking weekly gains despite pressure from improving trade outlooks. Hopes for progress in US-China talks and a US-UK trade deal softened safe-haven demand. Powell warned of inflation and job risks, dismissing early rate cut calls.

Silver also looked set for weekly gains as investors awaited the US-China meeting in Switzerland. Trade optimism and cautious Fed messaging helped keep sentiment balanced.

Brent crude rose toward $63 on US-China trade hopes, but gains were limited by OPEC+ supply plans. Still, output declines from Libya, Iraq, and Venezuela, along with a large US inventory draw, supported prices.

Equities

U.S. indices ended the week with modest gains as easing geopolitical tensions provided some support, though a hawkish Fed stance limited upside momentum. The Nasdaq and Dow posted slight increases, while the S&P 500 finished the week relatively flat.

Among the standout performers, Nvidia rose 5%, Microsoft gained 1.5%, and Meta added 1%, offering some lift in an otherwise muted market. Meanwhile, Apple declined 5.5% and Google dropped 3.85%, dragging down overall sentiment.

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