Easing Trade Tensions Fuel Risk-On Rally

New York Fed President John Williams warned that former President Trumps tariff policies continue to stoke inflationary pressures, while simultaneously pushing the unemployment rate higher — a combination that risks tipping the U.S. economy into stagflation. He emphasized that the Federal Reserve is caught in a dilemma, with limited policy flexibility as both inflation and growth risks remain elevated. Following the latest FOMC meeting, Fed Chair Jerome Powell also struck a hawkish tone, suggesting that rate cuts are unlikely before the July 8 expiration of the 90-day tariff moratorium — unless hard data shows deterioration aligned with softer survey data.

(Chart 1: U.S. Inflation vs. Output Price Index – Source: S&P Global)

Recent data from S&P Global shows that inflationary pressures are intensifying, driven by rising supplier prices, lingering supply chain concerns, and a weaker dollar. The services sector has seen its highest input price inflation in seven months, while the manufacturing sector posted the largest price gains in 29 months. April CPI and PPI reports, due later this week, may show further acceleration in prices. Meanwhile, business activity in services has sharply decelerated, marking the second-weakest pace of expansion in the past year. Manufacturing growth has nearly stalled, and this weeks retail sales and industrial production figures are likely to disappoint.

While U.S.–Japan trade talks have stalled, negotiations between the U.S. and China appear to have made meaningful progress. Although no detailed outcomes were released over the weekend, both sides indicated that substantive advances had been made. China further revealed that the two nations have initiated the establishment of an economic dialogue mechanism and will continue in-depth discussions going forward.

Looking back to April, the U.S. imposed a 145% tariff on Chinese imports, prompting China to retaliate with a 125% tariff on American goods. The recent de-escalation in tone between the two nations, combined with the U.K.–U.S. trade agreement reached last week, suggests the worst phase of the global trade conflict may be behind us. This shift has sparked a risk-on mood in global markets, lifting international crude oil prices while causing a sharp decline in safe-haven assets such as gold.

Gold Technical Outlook

On the 1-hour chart, gold is currently retesting support at $3,257 and is expected to consolidate within the $3,257–$3,292 range. A downside breakout below $3,257 could warrant a light short position, with $3,237 as the next key support and a stop-loss of $5–10. Conversely, a breakout above resistance at $3,292 could justify a light long position, with $3,320 as the next target and a similar stop-loss range.

Support Levels: $3,237, $3,257

Resistance Levels: $3,292, $3,320

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