(Bloomberg) -- It might take more than a few friendly words between U.S. President Donald Trump and Chinese leader Xi Jinping to substantially reduce bond traders’ bets on Federal Reserve interest-rate cuts.

The U.S. and China declared a truce in their trade war on Saturday that was heavy on hoopla but light on details. While the positive noises out of the Group-of-20 summit in Osaka will underpin risk appetite, at least initially, uncertainties over still unresolved trade disputes and the economic outlook could return to cloud investor sentiment.

This Friday’s U.S. jobs report may provide more evidence about the state of the American economy than the Trump-Xi handshake. And the weekend’s events only served as a reminder that tensions remain -- not just on the trade front, but also around issues such as North Korea, the Middle East and the European Union.

Haven currencies such as the Japanese yen fell in Asia-Pacific trading Monday, while the Chinese yuan and commodity-related peers gained ground. Other markets from stocks to commodities may also benefit from more buoyant demand for risk. But with investors still smarting from the rapid re-escalation of U.S.-China tensions in May, bond traders may be reluctant to substantially trim the amount of U.S. central-bank easing they have priced in.

“Markets will probably not feel comfortable fully pricing out the possibility of more upsets on the negotiations front, given what has happened in the past 2 months,” said Alvise Marino, a New York-based foreign-exchange strategist at Credit Suisse.

Heading into the weekend, futures traders had expected the U.S. central bank to lower rates by about a percentage point in the coming year. The market had priced in a 100% probability of a quarter-point cut in July, with some observers even predicting a half-point reduction. Financial markets have see-sawed in recent weeks between optimism and gloom about the global economy’s prospects. The concern prompted the Federal Reserve, the European Central Bank and other central banks to raise the possibility of interest-rate cuts or other stimulus to offset the dampening effects of tit-for-tat tariffs between the world’s two largest economies. After meeting with Xi, Trump said he would hold off imposing an additional $300 billion in tariffs on Chinese imports, a concession Beijing demanded to restart negotiations. Trump also said he would delay restrictions against Huawei Technologies Co., letting U.S. companies resume sales to China’s largest telecommunications equipment maker.

Tariff Threats

As the two sides return to the negotiating table, what remains in place are U.S. tariffs on about $250 billion in Chinese imports, much of which only went into effect in May. Since trade talks collapsed on May 10, Trump has raised tariffs on $200 billion of Chinese goods to 25% from 10%. He had indicated ahead of the just-completed G-20 summit that the next step could be a 10% tariff on all remaining imports from China -- some $300 billion worth, including products from smartphones to children’s clothes. Given the overhang of the existing duties, traders will likely be reluctant to pare Fed easing wagers unless U.S. inflation pressures pick up, according to Bipan Rai, North American head of foreign-exchange strategy at Canadian Imperial Bank of Commerce. “Despite the market-friendly outcome, the old tariffs are still in place, and the G-20 statement still didn’t denounce protectionism,” said Toronto-based Rai. “What’s needed is information that inflation expectations will stabilize.”

Tempered Expectations?

While the White House released no details about the arrangement worked out by the U.S. and Chinese leaders, the weekend’s positive vibes may still help temper market expectations for a 50-basis point reduction at the U.S. central bank’s July policy meeting. Federal Reserve Bank of St. Louis President James Bullard cautioned last week that such a move would be “overdone.”

“The tariff threat will linger for some time, weighing further on U.S. business investment plans,” said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. “This will concern the Fed at the July meeting, but confirmation of the talks resuming should help further reduce market pricing” for a 50-basis-point cut, he said.

For Credit Suisse’s Marino, the weekend’s de-escalation increases the focus on upcoming data releases in the days ahead. The monthly U.S. jobs report this Friday will be a major indicator, as will manufacturing data from the Institute for Supply Management that’s scheduled for release Monday. With some of the trade uncertainty removed from markets, these domestic signposts could point the way for markets.

“If no new tariff news emerge, I would almost think that the biggest risk from here becomes if U.S. data surprises strong,” Marino said. “Payrolls and ISM this week will be important.”

--With assistance from Netty Ismail.

To contact the reporters on this story: Katherine Greifeld in New York at kgreifeld@bloomberg.net;Brendan Murray in London at brmurray@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Jenny Paris

©2019 Bloomberg L.P.