Trade Tensions Ease, Jobs Data Brighten Outlook for Markets

The stock market futures have rallied this week as investors digest two key developments: signs of cooling trade tensions between the U.S. and its major trading partners, and the anticipation of strong U.S. jobs data. With the Federal Reserve’s policy path hanging in the balance, these factors are shaping a cautiously optimistic outlook for equities.

Trade Tensions Easing Amidst Strategic Delays

Recent weeks have seen a pivotal shift in U.S. trade policy. After President Trump’s April 2 announcement of sweeping tariffs—initially set to include a 10% universal tax on imports—the administration delayed the most punitive reciprocal tariffs for 90 days (excluding China). This pause, aimed at negotiating exemptions with allies like the EU and Japan, has alleviated some market fears of an all-out trade war.

The delay aligns with a strategic pivot to avoid immediate retaliation from critical trading partners. For instance, the EU’s threat to impose tariffs on U.S. goods under its Anti-Coercion Instrument has been temporarily muted, while Japan and South Korea are actively negotiating sector-specific exemptions. However, China’s 125% retaliatory tariffs on U.S. goods remain in effect, underscoring lingering risks.

Jobs Data in Focus: Strength Amidst Underlying Concerns

The April jobs report, released on May 2, painted a mixed picture. While the U.S. added 177,000 jobs—beating expectations—the details revealed vulnerabilities. Wage growth slowed to 0.17% month-over-month, and long-term unemployment hit a pandemic-era high of 23.5%, signaling persistent labor market inefficiencies.

The report’s positive jobs count has buoyed investor confidence, with S&P 500 futures rising 1.2% this week. However, the Federal Reserve will monitor the 3.8% annual wage growth closely; any acceleration could reignite inflation fears and prolong rate-hike expectations.

Market Implications: Sector Winners and Losers

• Winners: Sectors tied to U.S. manufacturing, such as automotive and machinery, have rallied as tariffs on foreign competitors ease. Companies like General Motors (GM) and Caterpillar (CAT) could benefit from reduced input costs.
• Losers: Tech firms reliant on global supply chains, like Apple (AAPL), face headwinds if China’s tariffs on semiconductors remain.

The U.S. Treasury yield curve also reflects cautious optimism: the 10-year yield has dipped to 3.6%, signaling reduced inflation bets.

Risks to Consider

1. Tariff Resumption: The 90-day delay ends in July, and renewed hostilities could disrupt supply chains.
2. Geopolitical Spillover: The EU’s pending sanctions under its Anti-Coercion Instrument remain a wildcard.
3. Wage Growth Surge: If hourly earnings climb above 4%, the Fed may delay cutting rates, damping equity gains.

Conclusion: A Fragile Optimism

Markets are pricing in a scenario where trade tensions stabilize and jobs growth remains robust. The April jobs report’s 177,000 payroll gains and the delayed tariffs have provided a near-term tailwind. However, investors must remain vigilant: the WTO projects a 1.5% global trade contraction if protectionism intensifies, and China’s tariffs still threaten 80% of bilateral trade.

With the Employment Cost Index (Q1 2025) and CPI data due in the coming weeks, the focus will shift to whether wage and price pressures are ebbing. For now, the interplay of easing trade frictions and solid jobs data has created a favorable—but fragile—environment for risk assets.

The path forward hinges on diplomacy and data. A miscalculation in either could tip markets from optimism to volatility.