Markets Rally as Trade Winds Shift: U.S.–China Dialogue Rekindles
#Optimism After weeks of market anxiety, a cautious optimism is taking hold. The index has delivered an extraordinary nine-week rally, marking its longest winning streak in years. This historic bounce comes as the U.S. government begins to soften its trade stance, signaling potential re-engagement with China after months of icy silence.
Recent personnel changes in trade departments on both sides hint at a strategic reset. Beijing has acknowledged receiving messages from Washington that indicate a renewed willingness to talk—though, for now, China says it's still “evaluating” the overture.
Investors are starting to believe that the Trump administration may be reaching its “pain threshold,” as suggested in a recent Bloomberg survey. While rhetoric continues to frame current challenges as inherited from the previous administration, markets are betting on pragmatic adjustments to tariffs as economic pressures mount.
The renewed trade momentum coincides with a strong non-farm payroll report. April saw 177,000 new jobs added, keeping unemployment steady at 4.2%. This data helped ease fears of an imminent recession, and spurred a return of risk appetite in both equity and credit markets.
The bond market also flashed signs of stabilization. The yield curve has flattened back to February levels, pricing in only modest expectations—around a 30% chance—of a Fed rate cut in June, with just three cuts projected for all of 2025. Declining inflation data and steady demand for U.S. debt from foreign central banks are supporting this balance.
Meanwhile, the cryptocurrency space is moving sideways. Bitcoin briefly crossed $96,000 but encountered immediate selling pressure. With volatility falling to year-to-date lows, crypto appears caught in macro crosswinds, waiting for a decisive breakout—up or down.
In the short term, consolidation seems likely across risk assets, with moderate bullish leanings if macroeconomic data remains stable. ETF flows have returned to early Q1 levels, a quiet sign of improving sentiment.
Looking ahead, market watchers caution that while the rebound has been impressive, it now faces a critical test. SPX is nearing a technical resistance zone. Historically, recoveries in bear market territory are choppy and often deceptive—but the current rally is also sending bullish divergence signals that could take it back to January highs.
For now, the market’s message is clear: easing trade tensions and resilient job growth are fueling optimism. But the true test will come when the rhetoric turns into real policy—and when May and June data reveal whether this momentum is sustainable.
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