US Markets Wobble as Trade Talks with China Falter and Dollar Climbs

US equity-index futures declined on Tuesday, with S&P 500 and Nasdaq 100 contracts dropping 0.3%, following a late rally in the S&P 500 on Monday. Investors are on edge, awaiting developments in potential trade talks between President Donald Trump and Chinese President Xi Jinping, as tensions over a May trade agreement violation escalate.

The Bloomberg Dollar Spot Index rose 0.2%, recovering from near its 2023 low, while Asian markets showed mixed performance, with Hong Kong stocks gaining on stimulus expectations. Treasuries remained stable after strong demand for Japanese government bonds signaled cautious investor sentiment.

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Trade Tensions Drive Market Volatility

The prospect of a Trump-Xi call, anticipated by White House economic adviser Kevin Hassett for this week, has yet to be confirmed by China, which prefers negotiations through advisers.

The lack of direct dialogue, last occurring in January 2025, fuels uncertainty as both nations accuse each other of breaching trade agreements. George Maris, chief investment officer at Principal Asset Management, told Bloomberg TV that unresolved trade issues could have dramatic market impacts, describing them as the biggest challenge for 2025.

Real-time market data shows the offshore yuan strengthening slightly to 7.12 against the dollar, reflecting hopes for dialogue, while China’s manufacturing sector hit its worst slump since September 2022, adding pressure on trade negotiations.

Did You Know?
The Bloomberg Dollar Spot Index tracks the U.S. dollar against a basket of 10 major currencies, including the euro, yen, and pound, and influences global commodity pricing.

Domestic and Global Economic Pressures

Domestically, Trump is pushing a multi-trillion-dollar tax bill, which narrowly passed the House last month but faces Senate resistance from both moderate and conservative Republicans. With only three votes to spare, Trump’s social media appeals and phone calls to GOP holdouts underscore the bill’s precarious path.

Globally, oil prices climbed for a second day, supported by a weaker dollar and supply concerns from ongoing Russia-Ukraine tensions and Iran’s rejection of a U.S. nuclear deal. Gold, however, dipped 0.5% as investors shifted from haven assets.

Recent updates indicate S&P 500 futures at 5,320 points and heightened volatility, with the VIX index hovering near 18, reflecting market unease over trade and geopolitical risks.