Investor sentiment recovered slightly towards the end of the week, supported by comments from US Federal Reserve officials and early signals from China that it may ease some of its retaliatory tariffs on the US.
Riskier assets posted modest gains, with the US dollar strengthening on expectations of higher interest rates, while gold prices fell 1.4% as demand for safe havens began to ease.
However, despite the change in market tone, macroeconomic uncertainty remains high. Markets are now moving more based on sentiment and headlines than on concrete policy decisions.
Policymakers in the US and China appear to be increasingly sensitive to market pressures, but no major policy changes have been implemented, all of which are conditional and tactical.
SARACEN’s view: Investors need to distinguish between temporary relief and real structural changes. As long as there is no solid data or formal policy commitment, this recovery remains fragile.
1. Fed Signals Flexibility, Potential June Rate Cut
Some Fed officials have now begun to signal that they are open to adjusting interest rates if trade tensions take a more serious toll on the economy. Statements by Governor Christopher Waller and Cleveland Fed President Beth Hammack are seen as clear indications that policy easing may be in the cards.
Key Signals:
Waller said labor market weakness due to tariffs could be a reason for an early rate cut.
Hammack has also openly said that policy action in June is being considered if risks increase.
Market Impact: US 10-year bond yields remain under control below 4.5%, a key psychological level in determining the direction of financial markets.
SARACEN’s View: If the 10-year yield breaks 4.5%, this could be seen as a signal of tightening monetary policy and could force the Fed to act more hawkishly. For now, the Fed remains data-dependent, but quite sensitive to market sentiment.
2. China Signals Tariff Relaxation: Tactical, Not Strategic Move
China is reportedly considering suspending some of its retaliatory tariffs on US goods, particularly in the medical and industrial chemicals sectors.
Although limited in scope, the move is seen as a symbolic effort to ease trade tensions as domestic economic pressures mount.
Beijing’s approach:
It is not a blanket waiver, but targeted easing.
Contingency planning remains in place in preparation for prolonged global economic challenges.
SARACEN’s take: While this move is positive, it is not yet enough to trigger a major shift in investor risk appetite. However, it does indicate a shared goal to gradually ease pressure, especially as both economies are increasingly feeling the effects.
3. Risk Assets Recover, But Recovery Still Limited
US stocks returned to stability while Asian indices also rose. The Japanese yen also weakened to 143.39 against the US dollar, reflecting investors’ shift from safe-haven assets back to equity markets.
However, this optimism remains cautious. Corporate investor outlook remains clouded by uncertainty over US policy and trade direction.
Market Outlook:
Equities: Still dependent on current sentiment. Volatility could rise sharply.
Currencies: Dollar strength reflects policy divergence and capital flows.
Gold: 1.4% decline could be temporary if macro disruptions persist.
SARACEN OUTLOOK: This recovery is more a reaction to current geopolitical sentiment, not due to strong investor confidence. An “all-in” strategy is still premature.
Market Strategic Focus
Areas of FocusSARACEN’s Outlook
Fed Policy Direction Markets are now starting to price in a potential rate cut in June. Watch labor, CPI and financial stress indices.
US Dollar Position The dollar is expected to remain strong against low-risk currencies. Stay long USD for the time being.
Gold Price Drops Look for buying opportunities at low prices. Risk remains tilted to safe-haven flows.
China Tariff Related Sectors Watch the medical equipment and industrial chemicals sectors. Impacts will only be significant if policy is officially announced.
US 10-Year Bond Yield at 4.5% is an important benchmark. If broken, it could reignite uncertainty and change monetary-fiscal policy.
Market Asset Performance
Market Asset Performance
AssetMovementSARACEN Comment
US Dollar Index (DXY) ▲ +0.3% Dollar strengthens on changing sentiment on Fed policy and trade narrative
Gold (XAU/USD) ▼ -1.4% Temporary decline; potential for recovery if bond yields rise or talks falter
US 10-Year Bond Yield ≈ 4.48% 4.5% level is the market’s watchword; key benchmark for market direction
USD/JPY ▲ 143.39 Yen weakens as geopolitical tensions ease and stock markets stabilize
Asia Pacific Equities ▲ Broad gains Sentiment recovers; still vulnerable to policy changes and uncertainty
Conclusion: Markets Still in Stabilization Mode, Not Full Recovery
Currently, the market is in a phase of stabilization while not a full recovery. Sentiment is recovering, but this confidence is only dependent on dovish tone from policymakers and diplomatic signals that have yet to translate into actual action.
With the global trade landscape still uncertain and monetary policy increasingly reactive, investors need to continue to strategize cautiously, based on data rather than expectations.
Discipline, precision, and macro sensitivity remain key to navigating a market full of false signals and sudden changes.
