Markets Mixed as Inflation Cools, Trump Slams China Over Trade Deal

By: Bithi

Published on: May 31, 2025

U.S. stocks finished Friday on a mixed note as Wall Street processed a blend of fresh economic data, geopolitical tensions, and comments from former President Donald Trump regarding China. As inflation continues to show signs of cooling and Treasury yields decline, markets remain cautiously optimistic yet reactive to policy and global trade signals.

The Dow Jones Industrial Average edged higher by 0.1%, reversing modest early losses. Meanwhile, the S&P 500 slipped by 0.1%, and the Nasdaq 100 retreated 0.3%, both managing to trim larger intraday declines.

Treasury Yields Decline as Fed’s Inflation Gauge Hits 4-Year Low

Investor sentiment turned slightly positive following the release of the core Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge. The data showed a 0.1% increase in April, in line with expectations, while core PCE inflation slowed to 2.5% year-over-year — the lowest level since March 2021.

The overall PCE price index also ticked up 0.1%, reflecting a broader easing in inflationary pressures. With inflation falling back toward the Fed’s 2% target, traders are now speculating on a more dovish monetary stance heading into the second half of 2025.

This helped drive the 10-year Treasury yield down to 4.4%, a slight decline from Thursday’s close at 4.42% after a 5.5 basis point drop. Lower yields indicate reduced expectations for further interest rate hikes, offering some relief to rate-sensitive sectors like technology and real estate.

Oil Prices Fall Again on OPEC+ Rumors

Crude oil futures dropped 1% Friday morning, extending Thursday’s 1.5% slide that took prices down to $60.94 per barrel, their lowest in over a month. The pullback follows reports that OPEC+ may consider increasing production quotas in the face of weakening global demand and rising non-OPEC output.

Energy stocks followed suit, with several major oil producers and service companies posting moderate losses. Analysts believe any sustained downward pressure on oil prices could relieve inflation concerns globally, but may also signal softening economic activity in China and other key markets.

Trump Attacks China: ‘Totally Violated’ Trade Agreement

Former President Donald Trump stirred global markets again Friday morning by posting an aggressive statement on Truth Social, accusing China of breaking a temporary trade deal finalized earlier this month.

"I made a FAST DEAL with China in order to save them from what I thought was going to be a very bad situation... everybody was happy. The bad news is that China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!"

Trump did not specify how China had violated the agreement, creating further uncertainty. Just weeks ago, he announced a 90-day tariff reduction, cutting duties on Chinese imports from 145% to 30%, while Beijing agreed to reduce its tariffs on U.S. goods from 125% to 10%.

The temporary tariff truce was intended to pave the way for a more comprehensive and lasting trade deal. However, Treasury Secretary Scott Bessent told Fox News Thursday that talks with China were “a bit stalled”, reinforcing the sense that U.S.–China tensions may be re-escalating.

Consumer Sentiment Edges Up, Long-Term Inflation Expectations Fall

The University of Michigan’s consumer sentiment index showed a modest increase in May, reflecting cautious optimism among American households. While consumer confidence rose slightly more than expected, long-term inflation expectations also receded.

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  1-year inflation expectations fell to 6.6%, down from an earlier reading of 7.3%.

  
  


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  5–10 year expectations declined to 4.2%, revised from the preliminary 4.6%, which had marked a long-term high.

  
  

This softening in expectations could further support the Fed’s case to pause or even cut interest rates later this year — a key development that could spark renewed buying interest in both equities and bonds.

Market Outlook: Volatility Ahead Amid Mixed Signals

The mixed performance in equities reflects ongoing uncertainty around U.S. economic growth, inflation, and global trade dynamics. While cooling inflation provides some breathing room for the Fed, lingering concerns over geopolitical tensions, particularly involving China, could continue to weigh on investor sentiment.

Key Takeaways:

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  Inflation easing could lead to a more dovish Fed stance.

  
  


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  Falling Treasury yields support equities, especially growth stocks.

  
  


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  Oil weakness signals both reduced inflation pressure and possible economic softness.

  
  


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  Trump’s China remarks add new uncertainty to trade relations.

  
  


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  Consumer sentiment improving may boost discretionary spending.

  
  

What Should Traders and Investors Watch Now?

With the Fed signaling it’s closely watching inflation and labor market data, the next few months will be critical in determining interest rate policy.

Watch List:

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  Upcoming Fed meeting minutes and speeches from officials

  
  


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  Nonfarm payrolls and unemployment rate in June

  
  


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  Retail sales and consumer spending trends

  
  


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  Further developments in U.S.–China trade relations

  
  


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  OPEC+ decisions on oil production quotas

  
  

Conclusion: A Market at the Crossroads

As May ends, investors are grappling with a complex set of signals. Inflation is cooling, consumer sentiment is improving, and bond yields are declining — all generally positive. But geopolitical flashpoints like Trump’s renewed criticism of China and ongoing uncertainty in oil markets are injecting volatility.

The S&P 500 and Nasdaq 100 may remain under pressure until clearer direction emerges, while the Dow Jones has shown signs of resilience thanks to defensive stocks and industrial strength.

This summer may be pivotal for defining the trajectory of global markets — and the actions of policymakers, central banks, and political leaders will shape sentiment in the weeks ahead.