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Cooling US inflation meets wary markets amid trade uncertainty
Headline CPI in the US rose less than expected in April, easing inflation concerns
US CPI rose 0.2% in April vs. 0.3% expected; annual inflation drops to 2.3%, a 3-year low.
Markets skeptical that the US-China deal will deliver short-term economic relief.
Global trade outlook remains murky, with fragmented talks and rising geopolitical risks.
Markets received a dose of relief Tuesday as US inflation came in cooler than expected, with both headline and core CPI rising just 0.2% month-over-month in April, undershooting the 0.3% consensus. On a yearly basis, headline inflation eased to 2.3%, the lowest since April 2021, while core inflation—excluding volatile food and energy—held steady at 2.8%, matching forecasts.
The softer inflation print reinforces the view that price pressures are moderating, giving the Federal Reserve more flexibility to stay on pause. Shelter costs rose 0.3% and accounted for more than half of the monthly increase, while energy prices ticked up by 0.7%, offset by a -0.1% decline in food prices. On an annual basis, energy prices fell -3.7%, while food prices rose 2.8%.
Despite the encouraging data, markets remain reluctant to fully embrace risk assets. That’s because optimism surrounding the US-China tariff truce is tempered by a more nuanced reality: any trade deal is likely to be partial, conditional, and slow to implement.
Market outlook: trade optimism fading into realism
Investors are now grappling with the likelihood that even a finalized deal with China will not restore pre-conflict trade conditions. Sources indicate that any agreement will likely feature layered provisions, performance-based clauses, and extended enforcement timelines. In other words, relief may come, but not quickly—and not comprehensively.
Elsewhere, trade discussions with the European Union remain stalled, with Brussels reportedly preparing retaliatory measures in case of a breakdown in talks. The lack of synchronized trade progress is leaving markets in a tactical holding pattern, as geopolitical and political risks mount ahead of critical summer meetings and elections.
That said, there are glimmers of progress elsewhere. Early-stage negotiations are reportedly advancing with India, Japan, and Switzerland, although these are expected to be framework agreements, similar to the recent UK pact—symbolic steps forward that could take months or even years to ratify.
Trump expected to unveil new deal soon
Adding to the anticipation, National Economic Council Director Kevin Hassett said that President Donald Trump is expected to announce a new trade deal following his return from the Middle East later this week. According to Hassett, at least 25 active negotiations are underway, with one deal reportedly nearing final confirmation.
Still, markets are adopting a “wait and verify” approach, wary of headline-driven rallies that may not be backed by enforceable or near-term outcomes. While the cooling inflation data supports risk sentiment, sustained upside will likely require concrete progress on trade, not just optimistic signals.
