Global financial markets traded more positively and cautiously earlier this week after the United States (US) and China reached an initial framework towards implementing the Geneva trade agreement.
While the full details of the agreement have yet to be revealed, both sides confirmed that key issues have begun to be addressed, particularly regarding exports of rare earth minerals and magnets, which are now considered strategic weapons in the technological competition between the two world powers.
However, the agreement is not yet final. Further negotiations are expected to continue to draft a truly strong and binding agreement, thus making investors remain cautious of any new developments that could have a major impact on the market.
For many economists, these trade tensions are among the main contributors to the global economic slowdown, including the pressure impact on the US manufacturing sector (PMI) and industries sensitive to international trade.
Market Reaction Still Mixed
Shares of rare earth and magnet producers in China surged as investors expected exports to stabilize, while the US stock market opened flat due to various macroeconomic uncertainties.
Meanwhile, a US federal appeals court ruling that re-upheld Trump-era global tariff policies added another layer of policy uncertainty. This continues to maintain the perception that the direction of US trade policy is difficult to predict and could change at any time.
US Inflation Data in Focus
Investors are now focused on the US inflation report due tonight. The Consumer Price Index (CPI) for May is expected to increase by 0.3% compared to the previous month, up from 0.2% in April. This suggests that the costs stemming from tariffs are starting to affect the price of imported goods.
More importantly, the core CPI, which excludes food and energy, is expected to jump to 2.9% annually, the first increase in 2025 and the highest since November last year.
The data comes as the US central bank, the Federal Reserve (Fed), enters a “BLACK-OUT” period ahead of its interest rate-setting meeting on June 18.
For now, the market still expects only one rate cut this year, but this expectation is very fragile. If inflation is higher than expected, it is likely that the Fed will continue to “stop and assess” before taking any policy easing measures.
Fed Leadership in Focus
The monetary policy situation has also become more complicated as speculation mounts over who will replace Fed Chairman Jerome Powell after his term ends in May 2026. US Treasury Secretary Scott Bessent is seen as the leading candidate, who has received good support from both US political parties in an atmosphere increasingly demanding a change in the monetary policy approach.
Focus for Traders
The initial US-China agreement has provided some relief, but is not yet fully solidified. The risk of renewed tensions remains.
Rare earths and the technology supply chain remain key geopolitical issues that could affect the market.
US CPI inflation data for May tonight is very important, if it is too high, it could influence the Fed's interest rate decision.
Uncertainty over who will lead the Fed after 2026 adds further complexity to the future monetary policy horizon.
Investors are advised to remain cautious and wait for confirmation of the Fed's policy direction.
In an environment that remains unstable, investment and trading strategies need to be based on current data and developments. Failure to understand the larger context such as inflation, tariff policy and geopolitics can expose investors to greater market volatility.
