Trump and Xi’s High-Stakes Trade Call: Can It Ease Global Market Tensions?

Global markets are on edge as U.S. President Donald Trump and Chinese President Xi Jinping prepare for a critical phone call this week to address escalating trade tensions. The announcement follows a weekend of sharp exchanges between Washington and Beijing, with the U.S. doubling steel tariffs to 50% on April 2, prompting fears of a deepening trade war. The dollar and U.S.

Treasuries stabilized Tuesday after a volatile start to the week, but U.S. stock futures dipped, reflecting investor unease over tariff impacts and weakening factory activity. The anticipated call, potentially including German Chancellor Friedrich Merz during his Washington visit on Thursday, could shape trade negotiations among the world’s top economies, with a 90-day tariff pause deadline looming.

Trade War Hits Manufacturing and Global Growth

Global manufacturing is suffering due to the U.S.-China trade dispute. U.S. factory activity contracted for a third consecutive month in May, with the ISM Manufacturing PMI dropping to 47.2, its lowest in six months, missing forecasts of 48.5.

Supplier delivery times hit a three-year high, signaling potential shortages driven by tariff fears. In China, a private-sector survey revealed factory activity shrank in May for the first time in eight months, with the Caixin PMI falling to 49.8, directly linked to U.S. tariffs.

The Organisation for Economic Cooperation and Development (OECD) now projects global economic growth at 2.9% for 2025, down from 3.1% forecasted in February, citing trade disruptions as a key factor.

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Market Reactions and Economic Indicators

Despite manufacturing woes, the U.S. dollar index (.DXY) rose 0.3% to 103.45, recovering from Monday’s six-week low, bolstered by softer-than-expected eurozone inflation data.

Eurozone headline inflation fell to 1.9% in May from 2.2% in April, below the European Central Bank’s 2% target, increasing expectations for a rate cut this week. U.S. Treasury 30-year yields dipped below 5% to 4.92%, reflecting cautious investor sentiment.

Crude oil prices held steady at $74.20 per barrel after OPEC+ agreed to modest output increases, less aggressive than anticipated. Meanwhile, Taiwan’s TSMC reported resilience amid tariff pressures, citing robust demand for AI chips.

Did You Know?
The U.S.-China trade war, reignited in 2025, has already reduced global trade volumes by an estimated 1.5% since tariffs escalated in April, according to OECD data.

Geopolitical and Economic Events to Watch

Investors are closely monitoring upcoming U.S. economic data, including April JOLTS job openings, expected to decline to 8.1 million from 8.5 million, and factory goods orders, both due today.

Federal Reserve officials, including Governor Lisa Cook and Dallas Fed President Lorie Logan, are scheduled to speak, potentially offering insights into monetary policy.

In Europe, political shifts add uncertainty, with the collapse of the Dutch coalition government led by Geert Wilders’ PVV party signaling potential elections. The OECD Ministerial Council Meeting in Paris and a meeting between Italy’s Giorgia Meloni and France’s Emmanuel Macron in Rome could further influence market dynamics.