Could positive trade talks and peace initiatives spark a Wall Street rally this week?

Mixed market reactions ahead of trade talks

United States (US) equity markets concluded last week on a subdued note as uncertainty loomed ahead of the weekend's US-China trade discussions. For the week, the US 500 (S&P 500) finished 0.5% lower, the US Tech 100 (Nasdaq) slipped about 0.2%, and the Wall Street (Dow Jones) dropped by 0.2%.

Anticipation ahead of the US-China talks was dampened by President Trump's comment on Friday night that an 80% tariff on Chinese imports "seems right." Although it is lower than the existing 145% rate on many Chinese imports, an 80% tariff rate would still result in a 15-20% effective tariff rate on all US imports, posing a significant threat to US growth prospects.

Trade negotiations show positive momentum

Following the first day of talks in Switzerland, President Trump said on social media that negotiators had achieved a "total reset" and "great progress", indirectly referring to mending the damage inflicted by the White House's heavy-handed approach to rebalancing global trade.

This has been followed up by reports this morning that, after a second day of negotiations, US-China trade talks achieved "substantial progress" with a commitment to ongoing negotiations and a trade consultation mechanism, but no immediate tariff reductions were confirmed.

The White House, Bessent, and Greer have promised a full briefing later today, outlining the specifics that have been agreed upon. This could include a framework for phased tariff reductions (e.g., from 145% to 80% on the US side, as Trump previously suggested) or exemptions for certain goods, as China reportedly compiled a list of US products to exclude from its 125% tariffs.

Global peace initiatives boost market sentiment

This news, along with India and Pakistan agreeing to a ceasefire and reports that Russian President Putin and the President of Ukraine, Volodymyr Zelensky, will meet this week in Turkey for direct peace talks, has boosted US equity futures on the reopening, with US 500 futures trading 1.16% higher at 5745.

Key economic data and earnings ahead

Looking ahead, attention will focus on the consumer price index (CPI) (previewed below), PPI, Retail Sales and Consumer Sentiment data, and speeches from Federal Reserve (Fed) officials, including Fed Chair Powell. Companies including Cisco, Tencent, Alibaba, Walmart, and Target are set to report their earnings.

CPI

Date: Tuesday, 13 May at 10.30pm AEST

Last month (March), the Headline inflation rate fell -0.1% month-on-month (MoM), which saw the annual rate of Headline inflation ease to 2.4% year-on-year (YoY) from 2.8% prior and below forecasts of 2.6%. Meanwhile, Core inflation rose 0.1% MoM, which allowed the annual rate to ease to 2.8% from 3.1% prior, the lowest since March 2021 and below forecasts of 3%.

At the week's Federal Open Market Committee (FOMC) meeting, the Fed kept the Fed Funds rate on hold at 4.25%–4.50%. In the press conference, the Fed Chair noted that the economic outlook had increased risks to both sides of the dual mandate: "The risks of higher unemployment and higher inflation have risen."

The Fed Chair also highlighted the need for patience due to the uncertain economic outlook. He reiterated his cautious stance on inflation, emphasising the importance of maintaining well-anchored long-term inflation expectations and preventing a temporary price increase from "becoming an ongoing inflation problem."

This month (April), the expectation is for Headline inflation to rise by 0.3% and the annual rate to remain at 2.4%. The Core inflation rate is expected to rise by 0.2% MoM which would see the annual rate remain at 2.8%.

The rates market begins this week, pricing a 70% chance of a 25 basis point (bp) Fed rate cut in July, with a cumulative 69bp of rate cuts priced between now and year-end.

US Core inflation rate chart

US Tech 100 technical analysis

The rally from the 16,542 low of 7 April to last week's 20,249 high has at this stage unfolded in three waves (ABC). This follows a three-wave decline from the 22,222 record high to the 16,542 low, which leaves the picture somewhat messy when viewed through an Elliott Wave (EW) lens.

With the jury out from an EW perspective, we continue to lean against the 200-day moving average (MA) at 21,181. Specifically, while the US Tech 100 cash remains below the 200-day moving average (closing basis as always), medium-term downside risks remain, and we hold a bearish bias looking for a retest of the April 16,542 low.

Aware that if the US Tech 100 cash were to see a sustained break above the 200-day MA, it would indicate that the decline from the 22,222 record high to the 16,542 low is complete and that the uptrend has likely resumed.

US Tech 100 daily chart

US 500 technical analysis

The rally from the 4835 low of 7 April to Friday night's 5700 high has at this stage unfolded in three waves (ABC). This follows a three-wave decline from the 6147 record high to the 4835 low, which leaves the picture somewhat messy when viewed through an Elliott Wave lens.

With the jury out from an EW perspective, we will continue to lean against the 200-day moving average at 5748, which the US 500 fell narrowly short of last week. 

Specifically, while the US 500 remains below the 200-day moving average, medium-term downside risks remain, including a retest of the April 4835 low. Aware that if the US 500 sees a sustained break above the 200-day MA, it would indicate that the decline from the 6147 record high to the 4835 low is complete and that the uptrend has likely resumed.

US 500 daily chart

• ^{Source: TradingView. The figures stated are as of 12 May 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}