(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Mike Dolan

LONDON, May 16 (Reuters) - What matters in U.S. and

global markets today

By Mike Dolan, Editor-At-Large, Financial Industry and Financial

Markets

Wall Street stocks look set to sustain this week's gains, fueled

by trade de-escalation hopes and soft April inflation readings.

But investors will no doubt be conscious of the still-febrile

state of the economy and policymaking.

I'll dive into all the details below and be back with more

columns and reading suggestions next week.

Today's Market Minute

* Russian and Ukrainian negotiators met in Istanbul on Friday

for their first peace talks in more than three years as both

sides come under pressure from U.S. President Donald Trump to

end Europe's deadliest conflict since World War Two.

* Trump on Thursday announced deals totaling more than $200

billion between the United States and the United Arab Emirates,

including a $14.5 billion commitment between Boeing, GE

Aerospace and Etihad Airways.

* India is considering plans to dramatically increase the water

it draws from a major river that feeds Pakistani farms

downstream, as part of retaliatory action for a deadly April

attack on tourists that New Delhi blames on Islamabad.

* The steady, gradual decline in U.S. inflation has recently

come with an unwelcome side effect: rising 'real' borrowing

costs. With the Federal Reserve's official policy rate on hold

and the benchmark 10-year Treasury yield edging higher,

inflation-adjusted interest rates are rising, effectively

tightening monetary policy and financial conditions. Read

Reuters columnist Jamie McGeever's latest analysis.

* China has focused on expanding its export markets across the

'Global South', particularly in Southeast Asia. But this is

creating a new 'China shock' as the region's manufacturers

struggle to compete. Check out the column from Manishi

Raychaudhuri, the founder of Emmer Capital Partners Ltd.

Trade and inflation relief

The S&P 500 is back in positive territory for the

year for the first time since February, and futures point

to modest further gains on Friday. The VIX "fear index" of

equity volatility has fallen to its lowest point since March, as

has the Treasury market equivalent.

U.S. tech and aircraft firms got a boost this week following

the announcement of new orders from Middle East countries that

Trump has visited this past week.

Meanwhile, a surprise drop in April U.S. producer prices

helped Treasuries rally on Thursday. Ten-year Treasury yields

tumbled back to as low as 4.40% on Friday, down 15

basis points from Thursday's intraday peak. The dollar

was on the back foot as a result.

The release of March data on foreign holdings of U.S.

Treasuries later on Friday will be watched closely for any

evidence of overseas wariness about U.S. debt, although the

numbers will pre-date the April chaos.

Overall, the state of play for the markets and the economy

remains pretty fluid, with U.S. bilateral trade negotiations

still in the midst of a 90-day pause and many price and activity

readings still unreliable given the seismic trade distortions

afoot.

While the S&P 500 is back to where it was at the start of

the year, it's still underperforming Germany's DAX by

more than 25% in dollar terms. It's also lagging behind euro

zone benchmarks by some 20% and Hong Kong's Hang Sen

by 16%. Additionally, the Nasdaq and Russell 2000

remain in the red for 2025.

And the dollar index is still down almost 6% for the year.

The soft producer price report was a relief, particularly

because this data feeds into the Federal Reserve's favored

inflation gauge.

But Walmart's earnings suggest we may be in the eye of a

storm. The world's largest retailer declined to provide a profit

forecast for the second quarter and said it will have to start

raising prices later this month due to the high cost of tariffs.

U.S. April import and export prices are published later on

Friday, alongside the University of Michigan's update on

consumer sentiment for May.

As to Fed thinking, the central bank is holding the second

day of a conference on its five-year review of its strategic

monetary policy stance. Fed Chair Jerome Powell indicated on

Thursday that big supply-side changes to the economy since 2020

may force the Fed to become less tolerant of above-target

inflation.

Overseas, European stocks climbed anew. The region-wide

STOXX 600 index was set for its fifth consecutive

weekly advance and the DAX hovered near a record high.

Helping European sentiment, Russia and Ukrainian negotiators

are meeting in Istanbul in what has been billed as their first

direct peace talks in three years.

However, Russian President Vladimir Putin will not meet

Ukrainian President Volodymyr Zelenskiy there, dashing earlier

hopes for face-to-face talks. Trump also said there would be no

movement in negotiations without a meeting between himself and

Putin.

In Asia, Chinese and Hong Kong stocks

dropped on Friday as market sentiment came under pressure from

renewed U.S.-China tech tensions and a disappointing earnings

report from Alibaba.

The U.S. Commerce Department is considering placing more

Chinese companies, including ChangXin Memory, on its restricted

export list, a person familiar with the matter told Reuters.

Chart of the day

Powell opened a two-day conference on the Fed's strategic

approach to monetary policy by saying the economic environment

has changed significantly since 2020. He flagged the increasing

likelihood of a "period of more frequent, and potentially more

persistent, supply shocks" ahead.

The comments suggest a change to the Fed's position adopted

five years ago that favored focusing on average inflation

targeting to avoid overreacting to temporary overshoots that

could penalize job creation unnecessarily. Powell noted that

structural drivers of inflation may have changed, meaning the

Fed may now have to be less tolerant of above-target inflation

and quicker to rein it in.

Today's events to watch

* U.S. April housing starts/permits, import/export prices

(8:30 AM EDT), University of Michigan May consumer survey (10:00

AM EDT), March TIC data on foreign holdings of Treasuries (4:00

PM EDT)

* Federal Reserve Board holds second and final day of Thomas

Laubach Research Conference on its five-year monetary policy

framework review

* Richmond Fed President Thomas Barkin and San Francisco Fed

President Mary Daly speak; European Central Bank chief economist

Philip Lane speaks

* Russia and Ukrainian negotiators meet in Istanbul in what

is billed as their first direct peace talks in three years

* US President Donald Trump completes his Middle East tour

in the United Arab Emirates

Opinions expressed are those of the author. They do not reflect

the views of Reuters News, which, under the Trust Principles, is

committed to integrity, independence, and freedom from bias.