US stocks set for more gains today as Trump signals reassurance on trade war

Written by Samer Hasn, Senior Market Analyst at XS.com

S&P 500 E-mini futures are up about 0.17% in early morning trading Friday. Dow Jones and Nasdaq 100 futures are also up by a similar amount.

The gains in US indices come amid relief over the potential de-escalation of trade and geopolitical tensions, with signals coming out of the White House.

In the trade war, investors may feel reassured that the conflict could be de-escalating even before it escalates further after Donald Trump backed down from imposing reciprocal tariffs on those imposed on the US, instead asking to study the next steps in this regard. This could also open the way for negotiations with the countries at the center of the escalation, most notably those that impose the highest tariffs on American goods, such as India, Brazil, Vietnam and Argentina, according to The Wall Street Journal.

This move comes after the suspension of 25% tariffs on imports from Canada and Mexico and the imposition of tariffs on China that are less than the 60% he previously threatened. This repeated hesitation from Trump is likely to ease broader concerns about inflation and supply chain disruptions mainly.

Increasing inflationary pressures due to the broader trade war will turn the problem of rising prices into “Trump inflation,” which would be a failure to achieve the goal for which he was originally elected. This in turn will lead to a longer and longer cycle of monetary tightening, which we have seen more clearly this week after inflation accelerated and returned to the 3% mark.

With the inflation data we have seen this week combined with the labor market numbers from last week, it is unlikely that we will even see a rate cut in June according to the CME FedWatch Tool, which will also be a challenge for Trump who has promised to cut.

Upward risk of inflation, prolonged monetary tightening, and the damage to American companies as they are targeted by Chinese authorities will make Trump more committed to de-escalation – something other countries want, too.

On the geopolitical side, this week we have seen unprecedented signs of a push for peace in Ukraine and a halt to the war, with Trump and his administration mediating and refraining from the escalatory provocations we saw under Joe Biden. Vice President J.D. Vance said yesterday that a deal could come out that would shock many people, in an interview with The Journal. Ending this devastating war would also boost positive sentiment in the US and global markets.

On the other hand, there is no absolute certainty on any of these issues, and trade negotiations could fail and we could see rounds of higher tariffs. Peace negotiations in Ukraine will never be easy and could take months, contrary to what Trump talked about during his election campaign, as experts have previously said, including Thomas Friedman in an opinion piece in The New York Times last November. This could leave the market vulnerable to continued hight volatility in the coming weeks.