Global financial markets are showing signs of a cautious recovery as trade tensions between the United States (US) and China appear to be easing.
While tensions peaked after President Donald Trump raised tariffs on April 2, investors are now awaiting another key determinant, the US monthly jobs report, which will be released today.
China has also given cautious signals of returning to the negotiating table, but with certain strict conditions.
Meanwhile, Japan is seen adjusting its strategy ahead of bilateral talks with the US, while Trump unveiled a new budget plan for fiscal year 2026.
All these developments open the door to greater policy uncertainty in the coming months.
Trade Tensions: Easing, But Not Recovering
The latest statement from China's Ministry of Commerce indicates that Beijing is ready to resume talks with the US, a development that is seen as the beginning of a reduction in tensions sparked by Washington's action to raise import tariffs.
China's Conditions: The US must roll back punitive tariffs and correct what it considers "unfair practices".
US Approach: Trump has insisted that President Xi Jinping must first initiate talks. Treasury Secretary Scott Bessent has also said this is a key and non-negotiable condition.
Market Impact: While short-term sentiment may have begun to recover, a long-term solution still depends on political will at the highest levels.
US Domestic Policy: Focus on Military, Cut Social Spending
President Trump is expected to announce his initial FY2026 budget proposal today, curbing public spending on non-military agencies while increasing defense spending.
Budget Priorities:
Defense spending increased
Budget cuts for civilian government agencies
Impact on Investors: This fiscal adjustment could weigh on defense stocks and the direction of long-term Treasury bonds, especially if the funding source is not spelled out in detail.
Japan’s Role in Trade Talks Becomes More Prominent
Japan has emerged as a second-largest player in US trade diplomacy. Japanese Finance Minister Katsunobu Kato hinted that Japan’s holdings of US Treasury bonds could be used as a ‘bargaining tool’ in upcoming talks. Japan is also aiming to reach a deal by June, with the next round of talks scheduled to begin in mid-May.
Geopolitical Signal: Japan’s move shows how complex the US-Asia trade relationship is now, and is no longer solely focused on China.
Markets Await US Jobs Report
The Non-Farm Payrolls (NFP) report for April, due out today, is expected to be a key determinant of market direction this week. It will provide important clues about the health of the US labor market, especially amid uncertainty over trade and fiscal policy.
Market Estimates:
Jobs Added: 130,000
Unemployment Rate Remains: 4.2%
Market Focus:
Wage Growth and Labor Force Participation Rate, as Both Will Influence Fed’s Decision on Future Monetary Policy.
Possible Scenarios:
If NFP Is Stronger Than Expected: Expectations of a Rate Cut May Diminish, Strengthening the US Dollar.
If NFP Is Weaker Than Expected: Markets Will Increase Expectations that the Fed May Act Early to Lower Rates, Supporting Riskier Assets and Gold.
MARKETS Strategic View
Strategy Theme
Risk Appetite Neutral for Now; Still Needs Geopolitical Clarity Before Moving to Riskier Assets.
FX Strategy US Dollar Expected to Move Following NFP Data; Japanese Yen and Chinese Yuan Remain Sensitive to Trade Talk Developments.
Bond Yields Remain Range-Blocked; Dovish Expectations Limit Potential Yield Gains.
Stocks Maintain Defensive Exposure; only switch to cyclical sectors after confirmation of easing policy tensions.
Conclusion
While there are indications that the trade war may be entering a less aggressive phase, the main risks are still unresolved. Today's US jobs report will be the next big test, and its outcome is expected to determine the direction of the market in the near term.
For now, investors are advised to remain cautious, flexible and always be sensitive to current data and developments because in times of uncertainty like this, a smart strategy is better than blind confidence.
