Tariff Delay Lifts Markets Amid Inflation Fears

U.S. financial markets are facing a tough situation as the week of May 26, 2025, kicks off. We're looking at a holiday-thinned trading environment – U.S. and UK markets are quiet for Memorial Day and the Spring Bank Holiday. Still, stock futures are inching higher. Why? A weekend bone thrown by President Trump: a delay on a new round of steep tariffs aimed at European Union goods.

Don't break out the champagne just yet. This sliver of good news comes after a brutal preceding week for the markets. Investors are still walking on eggshells, wrestling with ongoing trade war jitters, worries over domestic fiscal policy, inflation that just won't quit, and what the Federal Reserve plans to do next.

A packed schedule of economic data and critical corporate earnings, especially from AI darling Nvidia, means we're in for a bumpy ride this week.

Insights

• A presidential delay on 50% EU tariffs, pushing the deadline from June 1 to July 9, gave U.S. stock futures an initial, if temporary, lift.
• Last week was a bloodbath: the Dow shed 2.47% and the S&P 500 tumbled 2.61%, largely thanks to escalating trade fights and jitters about a new tax-cut bill's fiscal fallout.
• This week is make-or-break. The Fed's pet inflation gauge, the PCE (Personal Consumption Expenditures) index, and revised Q1 GDP numbers will offer key details on where the U.S. economy is really heading.
• Nvidia's earnings report on Tuesday isn't just about one company; it's a stress test for the entire AI-fueled tech sector and the market's mood.
• Investors and the Federal Reserve are caught in a high-stakes game: trying to cool down inflationary heat while navigating signs of an economic slowdown, all under the shadow of trade disputes and fiscal policy gambles.

The Pivotal Week: Relief vs. Reality

U.S. financial markets are at a crossroads. That temporary tariff delay? A welcome distraction, perhaps, but it might just be a Band-Aid on a bullet wound. Investors are trying to figure out if this little bit of relief can stand up to the barrage of headwinds threatening to blow any recovery off course.

The real fight is between this short-term trade truce and the more stubborn, structural problems. We're talking about the constant threat of a wider trade war, the fog around domestic fiscal policy – especially President Trump's grandly named "One Big Beautiful Bill" for tax cuts – inflation that’s digging in its heels, and the Fed’s next move on the policy chessboard.

This week matters. A lot. The flood of high-impact economic data and major corporate earnings will give us clearer signals about these clashing forces. The PCE inflation data will directly shape what everyone expects from the Fed. Revised GDP figures will give us a fresh, hopefully less grim, look at economic growth. And Nvidia? Their numbers will show if the tech rally has legs or if it’s running on fumes.

The broader implications are huge. The market's direction this week could set the stage for months to come. It will influence investment strategies and offer clues about whether the U.S. economy is aiming for a gentle slowdown, stuck in a stagflation swamp, or heading for something uglier.

Market Activity: Holiday Lull, Futures Pop, Trade War Shadows

Monday, May 26, sees U.S. markets – the New York Stock Exchange, Nasdaq, and bond markets (if you follow SIFMA’s advice) – closed for Memorial Day. Across the pond, UK markets are also dark for the Spring Bank Holiday. This usually means trading volumes globally take a nap, though the machines on platforms like Globex keep whirring.

Despite the holiday quiet, U.S. stock futures managed a little jump in early Asian trading. S&P 500 futures were up about 0.8% around 8:10 a.m. Tokyo time, and Nasdaq 100 futures followed suit. This flicker of optimism was a direct nod to President Trump's weekend announcement: he’s pushing back the deadline for slapping 50% tariffs on a slew of European Union goods. The new D-Day is July 9, moved from June 1.

But let's put this "pop" in perspective. It comes after a punishing prior week for stocks. For the week ending May 23, the Dow Jones Industrial Average tanked 2.47%, the S&P 500 slumped 2.61%, and the Nasdaq Composite wasn't spared, also falling 2.47%, according to Edward Jones data.

The ghost of trade tensions continues to haunt the market. Beyond the now-delayed EU tariffs, the administration has also been making noise about potential hefty tariffs on smartphones if big players like Apple and Samsung don’t bring more production stateside. These worries hit specific stocks hard; Apple shares, for example, cratered 7.57% last week.

Market analysts, while acknowledging the short-term sugar rush, aren't exactly doing cartwheels. Rodrigo Catril, a Senior Currency Strategist at National Australia Bank, had this to say about the tariff delay:

"While the tariff delay is good news on the day, the constant threats don't make for a good environment for investment and hiring decisions."

Rodrigo Catril Senior Currency Strategist at National Australia Bank

His point nails a wider market fear: any rally built on tariff delays is standing on shaky ground as long as the big, ugly cloud of protectionism hangs overhead.

This constant "will they or won't they" tariff drama creates an atmosphere of uncertainty that makes businesses think twice about long-term capital spending and hiring. Currency markets reflected this mixed mood – a bit of cautious optimism sprinkled with a healthy dose of underlying anxiety.

The U.S. dollar wobbled after hitting its lowest point since December 2023 on Friday, May 23. In early Monday trading, the Japanese yen softened a touch, down 0.2% to 142.82 per dollar, while the Euro nudged up 0.1% to $1.1376.

Deep Dive: Last Week's Market Rout and What's Under the Hood

The market beatdown in the week ending May 23 was no joke. The Dow Jones Industrial Average coughed up nearly 2.5%, closing at 41,603. The S&P 500 tumbled 2.6%, ending the week at 5,803. The Nasdaq Composite mirrored this pain with a similar 2.5% drop, closing at 18,737.

Other market tea leaves also pointed to a "risk-off" mood. The yield on the benchmark 10-year U.S. Treasury note climbed to 4.51% as investors scurried from riskier bets and fretted about inflation. Oil prices also took a hit, with West Texas Intermediate crude settling around $61.73 per barrel, partly because of worries that trade squabbles would choke off global economic growth.

What fueled this fire sale? Two main culprits: growing unease over the U.S. fiscal picture and those ever-present, escalating trade tensions.

A big development on the fiscal front was President Trump's proposed "One Big Beautiful Bill" – a sweeping tax-cut package that reportedly sailed through the House and is now knocking on the Senate's door. While the devil is always in the details, the idea of another massive, unfunded tax cut has set off alarm bells for economists and budget watchers. The main worry? Its potential to wreck an "already challenging fiscal situation."

Budget analysts generally agree: large tax cuts, without serious spending cuts or some miracle of economic growth far beyond what anyone expects, tend to blow up the national debt and budget deficit. This can mean higher borrowing costs for Uncle Sam down the line. That, in turn, could squeeze out private investment and nudge interest rates higher.

The Congressional Budget Office (CBO), when looking at similar past ideas, usually flags these risks. What this new bill will actually do depends on its final shape, but the market's initial queasiness suggests it’s worried about more fiscal fuel on an already smoldering inflation fire, especially with government debt already sky-high.

The broader theme of trade wars heating up, as we've discussed, also played a starring role in last week's market dive, casting a long shadow of uncertainty over everything else.

Economic Calendar: Data Bombshells for the Week Ahead (May 27-30)

This week is absolutely crammed with economic releases that will mold market sentiment and could very well nudge the Federal Reserve's policy compass.

Inflation Under the Microscope: Personal Consumption Expenditures (PCE) Price Index (Friday, May 30)

All eyes will be glued to the April PCE Price Index, which is the Federal Reserve's favorite way to measure inflation. The street expects the headline PCE to show a 2.7% year-over-year increase, same as March, and a 0.3% month-over-month rise, a bit hotter than the previous 0.2%. The core PCE, which strips out the wild swings of food and energy prices, is tipped to hold steady at 2.8% year-over-year.

Recent signals from S&P Global's Purchasing Managers' Index (PMI) surveys showed price pressures in the U.S. economy heating up, marking the biggest jump since November 2022. This trend went against what we saw in other G4 economies and has sparked worries that U.S. Consumer Price Index (CPI) inflation could also spike "sharply higher" soon. If the PCE comes in hotter than expected, it’ll pour cold water on hopes for Fed rate cuts anytime soon and could really spook the markets.

Growth Check-Up: Revised Q1 Gross Domestic Product (GDP) (Thursday, May 29)

Thursday brings the second guess for Q1 U.S. GDP. The first estimate was a shocker, showing a 0.3% annualized contraction. Most economists, however, are betting on a big upward revision in this second release. The consensus forecast is for 1.4% annualized growth for the first quarter.

While a revision into positive territory would be a relief, recent flash PMI data for May hinted that Q2 GDP growth might be chugging along at a more sluggish 1% annualized rate. How the revised Q1 number plays against these forward-looking tea leaves will be key in figuring out if the U.S. economy is staring down a recession or might just manage a soft landing.

Other Key U.S. Economic Releases:

Several other data points will add more color to the U.S. economic picture:

• FOMC Meeting Minutes (Wednesday, May 28): Notes from the Federal Open Market Committee's last policy huddle will be dissected for clues about the Fed's thinking on inflation, economic growth, and its overall game plan. Traders will be hunting for any hints about what might make the Fed consider rate changes.
• Consumer Pulse: The U.S. Conference Board Consumer Confidence Index for May (Tuesday, May 27) is expected to dip a bit to 96.0 from 97.0. On Friday, May 30, Personal Income is predicted to have risen by 0.3% month-over-month in April, with Personal Spending expected to climb by 0.4%. These numbers will tell us how resilient consumers are feeling with inflation and higher interest rates biting.
• Manufacturing and Trade: The U.S. Richmond Fed Manufacturing Index for May (Wednesday, May 28) is expected to show a slight improvement to -9 from -10. U.S. Goods Trade Data and Retail Inventories for April will also drop, giving more details on trade flows and business stockpiles.

Fed Speakers on Deck:

A lineup of Federal Reserve officials is set to hit the speaking circuit this week, including Governor Christopher Waller, New York Fed President John Williams, and Minneapolis Fed President Neel Kashkari. Their words will be watched like a hawk for any signals about how the Fed is reacting to the incoming data storm and how it might affect the chances and timing of any future interest rate moves.

Market's Rate Cut Bets:

Right now, the market isn't holding its breath for Fed rate cuts in the very near future. S&P Global Market Intelligence, for one, has penciled in the Fed keeping rates steady until its December meeting. Data from the CME FedWatch Tool, which tracks fed funds futures contracts, gives a live read on how the market is pricing in rate moves.

Market expectations for rate cuts change often and will likely adjust based on this week's key data, especially that PCE inflation report, and any smoke signals from Fed officials.

Corporate Earnings Spotlight: Nvidia and the Tech Thermometer

The corporate earnings calendar is also a big deal this week, with AI chip behemoth Nvidia (NVDA) slated to unveil its quarterly results after the market closes on Tuesday, May 27.

Nvidia (NVDA) Quarterly Earnings (Tuesday, May 27, After-Market):

Nvidia's earnings might just be the most watched event of the week. The company has become the poster child for the artificial intelligence gold rush and its ripple effects across the market. Investors will be zeroed in on several things: revenue growth, how much money they're making, and, critically, what they say about the future. Any comments from management about AI chip demand, supply chain headaches, or potential fallout from geopolitical games or trade spats will be put under a microscope.

Tech stocks have been a mixed bag lately. Last Thursday, for example, most big-name tech stocks lost ground in premarket trading, with Alphabet being a rare exception. The big question on everyone's mind: can Nvidia's results breathe new life into the tech sector and give the broader market a boost? Or could any sign that its explosive growth is slowing down trigger a nasty sell-off?

Other Notable Earnings Reports This Week:

Beyond Nvidia, several other important companies are on deck to report:

• Tuesday (Post-Market): Salesforce (CRM), a giant in cloud-based software, will give us a read on business spending. AI-focused C3.ai (AI), cybersecurity firm Okta (OKTA), and PC and printer maker HP Inc. (HPQ) will also open their books.
• Wednesday (Post-Market): Retail titan Costco (COST) will offer a peek into consumer spending habits. Dell Technologies (DELL) and Marvell Technology (MRVL) will add more flavor to the tech hardware story.
• Pre-Market Highlights: E-commerce platform PDD Holdings (PDD) and auto parts retailer AutoZone (AZO) report on Tuesday morning. Dick’s Sporting Goods (DKS) reports Wednesday morning, followed by electronics retailer Best Buy (BBY) on Thursday morning. These reports, especially from companies that sell directly to consumers, will be watched for signs of consumer strength or weakness.

Global Economic Chessboard: International Data and Events

While U.S. data will grab most of the headlines for domestic investors, several key international releases this week could sway global risk appetite and currency markets.

Key International Releases This Week:

• Australia: The monthly Consumer Price Index (CPI) indicator for April is out on Wednesday. Any surprises here could seriously shift expectations for the Reserve Bank of Australia's (RBA) next move and jolt the Australian dollar (AUD).
• Canada: Our northern neighbors have a busy data week with Wholesale Sales (Tuesday), Q1 Current Account data (Thursday), and, most importantly, monthly and Q1 GDP figures (Friday). These releases will be vital for the Bank of Canada's (BoC) policy outlook and the Canadian dollar (CAD).
• United Kingdom: The Nationwide House Price Index for May (Friday) will give an update on the UK housing scene.

These international data points can send ripples across the globe. For instance, signs of stubborn inflation or slowing growth in major economies can dampen global investors' hunger for risk and lead to shifts in currency values.

Quick Peek Ahead: Key Data Next Week (June 2-6)

Looking just a bit further out, the first week of June will keep the barrage of important economic indicators coming. In the U.S., this includes the ISM Manufacturing and Services PMIs, JOLTS Job Openings, ADP Employment Report, and the all-important Nonfarm Payrolls report. Canada will see a Bank of Canada interest rate decision. This just shows the ongoing flood of critical information that markets will have to swallow and digest.

Analysis

So, you're an investor dealing with a very uncertain situation. It's like trying to play chess on a ship in a hurricane. On one side, you've got these little glimmers of hope, like the tariff delay on EU goods. On the other, a whole arsenal of medium-term risks: trade wars flaring up again, inflation that acts like a stubborn mule, the wild card of domestic fiscal policy, and an increasingly creaky global economy.

What's the smart money doing? Forget the generic advice about "diversification" and "quality companies." That's table stakes. The real game now is about identifying who gets gored and who finds an angle in this chaos. Are we looking at a genuine de-escalation of trade tensions, or is this just a pause before the next salvo? If it's the latter, which sectors have already priced in the pain, and which are still vulnerable?

The Federal Reserve? They're not walking a tightrope; they're trying to defuse a bomb with one hand while juggling flaming torches with the other. Vice Chair Philip Jefferson says their policy stance is in a "very good place."

"The Federal Reserve's policy stance is in a very good place, with a moderately restrictive effect on the economy, but we must ensure price increases from policy changes don't become persistent."

Philip Jefferson Vice Chair of the Federal Reserve

With all due respect, "very good place" sounds a bit like a captain telling passengers the Titanic is "experiencing minor technical difficulties." Their main job is to crush inflation without sinking the economy. But then you have things like Trump's "One Big Beautiful Bill" potentially throwing more fiscal fuel on the fire. If that happens, the Fed might have to get even tougher, which won't be pretty for markets or growth.

And what about the consumer? Atlanta Fed President Raphael Bostic hit the nail on the head:

"It is unclear if consumers today can take on the full cost of tariffs given the state of household balance sheets and recent inflation."

Raphael Bostic President of the Federal Reserve Bank of Atlanta

If consumers are tapped out, all those rosy earnings forecasts start to look like wishful thinking. The Fed's options are limited: keep rates high and hope for the best, signal cuts if things really go south (and inflation behaves), or maybe even hike again if inflation gets uglier or fiscal policy goes off the rails. No easy answers, and economists are all over the map, which tells you just how murky the water is.

This week's thin holiday trading early on can make any market ripple look like a tsunami. Then comes the data deluge and Nvidia's numbers. Any big surprises – good or bad – could send markets lurching. Add in the constant hum of geopolitical noise and the threat of new trade pronouncements, and you've got a recipe for serious volatility.

This isn't a market for the faint of heart. It's a market for those who can see through the noise, understand the underlying pressures, and position themselves for a range of outcomes, not just the one they hope for.

Final Thoughts

U.S. financial markets are jumpy, like a cat on a hot tin roof, as this holiday-shortened week gets underway. Every twitch in trade headlines, every new economic number, every whisper from the Fed sends shivers through the system. It's all happening against a backdrop of serious economic and geopolitical fog.

For investors, the immediate hurdles are this week's U.S. PCE inflation numbers, the revised Q1 GDP figures, and, of course, Nvidia's report card. These are the tripwires that could set the market's tone for the next few weeks. But don't get lost in the short-term static. The bigger questions are still out there, casting long shadows:

Is this EU tariff truce a genuine olive branch, or just a time-out before the next round of trade boxing? Can the Fed actually get inflation back in its cage without strangling the economy into a recession? How will those proposed new tax cuts mess with inflation, interest rates, and ultimately, the Fed's game plan? And what's the real strength of the U.S. and global economies once you strip away all the noise from daily data and policy grandstanding?

Handling this complicated situation means more than just watching the ticker. It demands sharp analysis, a solid grip on fundamentals, and an acceptance that wild swings are probably going to be part of the scenery for a while. Keep your powder dry, and your thinking clear.

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