ORLANDO, Florida, May 9 (Reuters) -

TRADING DAY

Cautious stability

World markets traded on a solid footing this week as the

Trump administration struck what could be the first of "dozens"

of trade deals in the coming weeks, and as investors cheered

this weekend's US-China trade talks in Switzerland.

The S&P 500 and Nasdaq are back where they were on April 2,

recovering the 15% losses in the days immediately after

'Liberation Day' when Trump unveiled his reciprocal tariffs,

Germany's DAX is at new highs and Japanese stocks sealed their

best weekly winning streak in over two years.

Sentiment was boosted by a sweeping raft of stimulus

measures from China, including interest rate cuts and liquidity

injections. The Bank of England also cut rates and the Bank of

Japan looks to have put its tightening cycle on ice. While the

U.S. Federal Reserve didn't ease policy, markets know where they

are with it - stability amid uncertainty can be reassuring too.

On the earnings side, 450 companies listed on the S&P 500

have reported first quarter results. Earnings growth is running

at around 14%, although negative projections for the second

quarter have outstripped positive forecasts by almost 50%,

according to IBES/LSEG analysis.

Caution reigns though, at least in U.S. markets. Despite the

wave of trade optimism, Wall Street and Treasury yields ended

little-changed on the week. Investors were also reminded of how

erratic and unpredictable the U.S. administration is - President

Donald Trump and Vice President JD Vance renewed their attacks

on Fed Chair Powell, and Trump said 80% tariffs on China "seemed

right", a figure the White House later said he "threw out

there".

Once the dust settles and deals are reached, tariffs will be

lower than those proposed on April 2, perhaps significantly

lower. But the fact is, they will be significantly higher than

they were before Trump entered office.

As economist Phil Suttle notes, tariffs have yet to bite,

but they will. He estimates the average effective U.S. tariff

rate will settle around 22%, which would be a four-fold increase

from when Trump took over. Goldman Sachs economists note that

while the 'hard' data has been resilient, the economy is on the

"precipice of an activity slowdown".

So for investors, it depends on the starting point. Are you

relatively bullish because tariffs won't be as high as looked

likely on April 2, or relatively bearish because they will be

much higher than before Trump? With uncertainty so high and

visibility so low, the current interregnum might be appropriate.

All eyes now turn to Geneva, where a U.S. delegation led by

Treasury Secretary Scott Bessent will sit down for trade talks

with a Chinese team led by economic tsar He Lifeng. Monday's

markets could be very interesting.

I'd love to hear from you, so please reach out to me with

comments at . You can also follow me at @ReutersJamie and

@reutersjamie.bsky.social.

This Week's Key Market Moves

* Wall Street's 3 main indices, the MSCI's World and Asia

ex-Japan

benchmarks all close on Friday within 0.5% of where they were a

week earlier. Stability on the surface masking turbulence under

the hood?

* Germany's DAX hits a record high. The index is up 18% this

year

and up 27% from its post-Liberation Day low on April 7.

* Japanese stocks rise for a fourth week, supported by the

weaker

yen, their best run in over a year.

* U.S. high yield credit spreads tighten for a fifth week, a

run

not seen in two years, and are back down to 350 bps.

* Bitcoin rises nearly 10% back above $100,000 for the first

time

since February.

Chart of the Week

Remember Elon Musk and DOGE? The billionaire Tesla CEO and

owner of social media platform 'X' was brought into the Trump

administration in January to great fanfare, pledging to take a

chainsaw to federal spending and get the budget deficit down.

Eventual cuts of $2 trillion were touted.

It's safe to say his initial efforts have fallen short of

those lofty goals, and Musk has taken has taken a step back from

the limelight. As Republicans prepare to complete Trump's fiscal

package next week, those aims are looking increasingly out of

reach.

The early days of the Trump 2.0 administration suggest

spending has not been reigned in at all. Indeed, it is higher

than it was under the Biden administration.

Morgan Stanley economists this week said they expect the

2026 budget deficit to be 7.1% of GDP, up from 6.7% in 2025.

That would be an increase of around $310 billion. Numbers like

that could unnerve investors and put added downward pressure on

long-dated Treasuries.

Here are some of the best things I read this week:

1. Why a Pact to Weaken the Dollar Makes No Sense

2. A Mar-a-Lago Accord Could Break the Dollar

3. The 'Global South' - A Strategic Approach to the

World's

Fourth Bloc

4. INSIGHT-In Trump's circle, some expect high

tariffs even

after trade deals

5. Inside China's decision to come to the table on

Trump

tariffs

What could move markets on Monday?

* Reaction to US-China trade talks in Geneva

* Reaction to Chinese inflation data on Saturday

* India inflation (April)

* Japan trade, current account (March)

* Bank of England's Megan Greene, Clare Lombardelli,

Catherine

Mann and Alan Taylor speak at event in London

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.

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(Writing by Jamie McGeever; Editing by Nia Williams and Deepa

Babington)