The recent agreement between the United States and China to temporarily reduce tariffs has been met with enthusiasm by market experts, who describe it as "better than expected" and "more workable." This development is anticipated to provide short-term relief for investors. The deal involves a significant reduction in reciprocal tariffs, bringing them down from over 100% to 10% on both sides. However, the Trump administration will maintain a 20% tariff on fentanyl-related imports from China, resulting in a total duty on Chinese imports to the U.S. of 30% during the 90-day pause.
The announcement of the U.S.-China agreement has had a positive impact on global markets, with stock indices in Europe and Asia experiencing gains. Europe's Stoxx 600 index rose by 1%, Germany's DAX reached a one-year high, and shares listed in Hong Kong jumped by approximately 3%. In the U.S., stock futures indicated a rally, with Nasdaq futures increasing by 3.8%, S&P 500 futures rising by 2.8%, and Dow Jones Industrial Average futures gaining 3.1%.
Market analysts and strategists believe that this new U.S.-China arrangement could reignite a "risk-on" sentiment, potentially benefiting stocks and U.S. assets. Tai Hui, chief market strategist for Asia Pacific at JPMorgan Asset Management, noted that the tariff reduction was more significant than anticipated, although he cautioned that reaching a more comprehensive trade agreement within the 90-day period might be challenging. He emphasized that the temporary deal keeps pressure on the negotiation process, and further details, such as China's policies on rare earth export restrictions, are awaited.
Hui acknowledged the positive market reaction to the agreement and suggested that the pressure on the Federal Reserve to cut rates might ease temporarily. Meanwhile, Jordan Rochester from Mizuho Bank described the deal as "much better news than expected," suggesting it would counter the "Sell America" narrative. U.S. assets, including the dollar, Treasurys, and stocks, have experienced volatility following the announcement of the tariff plans.
Following the agreement, the U.S. dollar index, which tracks the greenback's value against a basket of major currencies, rose by 1%. The yield on the benchmark U.S. 10-year Treasury note increased by 6 basis points. Rochester highlighted that the 90-day deal effectively reduces the U.S. tariff rate from 108.8% to 27%, surpassing market expectations of a reduction to around 50%-60%. He noted that officials downplayed the necessity for talks to extend beyond 90 days, suggesting that the "tariff wall" had been lowered to a more manageable level.
The unexpected outcome of the trade negotiations is expected to drive further stock market rallies, according to Wall Street strategists. Emmanuel Cau from Barclays observed that while stocks have rebounded, there is still disparity between domestic and export-focused companies. Deutsche Bank strategists expressed optimism, predicting that U.S. stocks would outperform their European counterparts in the short term and advising investors to remain bullish.
Mikkel Emil Jensen, a senior analyst at Sydbank, remarked that the 90-day tariff pause marked a significant de-escalation in the U.S.-China trade war, reducing uncertainty in global trade. Although temporary, the deal is considered better than expected and could positively impact global trade and increase demand for container freight, as evidenced by a 12% rise in shares of shipping giant Maersk.
Dan Ives from Wedbush characterized the U.S.-China deal as the beginning of broader negotiations, calling it a significant win for the market. He anticipated further reductions in tariff numbers as talks progress, suggesting that the agreement could lead to new market highs, particularly for tech stocks.
The trade between the world's two largest economies is expected to resume swiftly following the tariff cuts, reversing the decline in freight vessels and shipping containers observed since April. Lindsay James, investment strategist at Quilter, acknowledged that while the new deal doesn't match the 20% tariff level seen before "Liberation Day," it allows a considerable portion of trade to resume, albeit at slightly higher prices.
In summary, the recent U.S.-China agreement to reduce tariffs has been well-received by market experts and is expected to provide short-term relief for investors. While uncertainty remains regarding a long-term trade solution, the temporary deal has reignited positive sentiment in global markets and could lead to further stock market gains.