NEW YORK (Reuters) – The United States and China reached a better-than-expected dealto temporarily slash tariffs, sending stocks and the U.S. dollar sharply higher, as the world’s two biggest economies seek to end a damaging trade war that has stoked fears of recession.
The U.S. will cut extra tariffs it imposed on Chinese imports in April this year to 30% from 145% and Chinese duties on U.S. imports will fall to 10% from 125% for the next 90 days, the two sides said on Monday.
MARKET REACTION:
— The S&P 500 was 2.93% higher at 5,826.12
— The yield on benchmark U.S. 10-year notes rose 8.6 basis points to 4.461%
— The dollar index was up 1.193% at 101.79. The euro was down 1.423% at $1.1088
COMMENTS:
SCOTT CHRONERT, US EQUITY STRATEGIST, CITI RESEARCH, SAN FRANCISCO (emailed note)
“Lessening the fundamental overhang risk of tariffs is providing its own form of liberation day.”
RYAN SWEET, CHIEF US ECONOMIST, OXFORD ECONOMICS, WEST CHESTER, PENNSYLVANIA (emailed note)
“The agreement by the US and China to significantly reduce tariffs for the next 90 days warrants changes to our near-term baseline forecast for GDP growth, unemployment, and inflation. The changes will be incorporated in the second May baseline forecast, released on May 21. This likely doesn’t appreciably alter the calculus for the Federal Reserve, as it is comfortable waiting out the ebbs and flows in tariffs to gauge what the ultimate implications for inflation and growth are. … Our subjective odds of a recession this year dropped to 35% following the announcement, compared with the better-than-even odds previously. But as we learned in the first trade war, we don’t want to read too much into a single agreement. A future escalation remains possible, if not likely, as tariffs are used as a negotiating tactic. This will keep trade policy uncertainty uncomfortably high and create the potential for future, and significant, disruptions in supply chains.”
MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK
“The market long recognized the conflicting policy objectives raising revenue, onshoring production and between the UK agreement last week and this deal, I think that the market’s confused.
“Many people are confused by what the real goal is and it’s 90 days and so this basically buys some more time, I sort of think the U.S. blinked. I’m not a big fan of the tariffs in the first place, but once they were in place, the U.S. seemed to back down without getting much in exchange. That is, we stopped with our reciprocal tariffs on China and so they unwind their reciprocal tariffs on us, but we’re still back at square one.
“This is sort of this huge sigh of relief and with the NASDAQ up 3%, I don’t think that’s going to really change the U.S. when I look at the tariff announcements, it doesn’t look like the sectoral things have changed so China still has export controls on the critical earth, and we’ll still have export controls on semiconductors.”
PATRICK KASER, PORTFOLIO MANAGER, BRANDYWINE GLOBAL, PHILADELPHIA
“The reduction in fears is a positive catalyst in the short term, but that doesn’t necessarily say much about the economy or the market a week from now or a month from now”
“There’s still uncertainty. It’s still hard for companies to make decisions on spending. The market is acting like the risk has gone away, but I don’t think that’s how a lot of businesses and companies are going to view the situation.”
“The Nasdaq is up more than other pockets of the market; It’s clearly a relief day for cyclicals, but again, I don’t think this is necessarily sustainable.”
MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK
“The market long recognized the conflicting policy objectives raising revenue, onshoring production and between the UK agreement last week and this deal, I think that the market’s confused.
“Many people are confused by what the real goal is and it’s 90 days and so this basically buys some more time, I sort of think the U.S. blinked. I’m not a big fan of the tariffs in the first place, but once they were in place, the U.S. seemed to back down without getting much in exchange. That is, we stopped with our reciprocal tariffs on China and so they unwind their reciprocal tariffs on us, but we’re still back at square one.
“This is sort of this huge sigh of relief and with the NASDAQ up 3%, I don’t think that’s going to really change the U.S. when I look at the tariff announcements, it doesn’t look like the sectoral things have changed so China still has export controls on the critical earth, and we’ll still have export controls on semiconductors.”
KAMIL DIMMICH, PARTNER AND PORTFOLIO MANAGER, NORTH OF SOUTH CAPITAL EM FUND
“Our concern has been that if the Trump administration was serious about achieving its stated goals, there was no plausible deal to be done with China. First and foremost this was the idea of the U.S. no longer running a trade deficit. This would have largely precluded trade with China and would have been achieved with the tariffs in place until yesterday.
“The Chinese have called their bluff however and while today’s announcements don’t represent a trade agreement or any comprehensive solution, they strongly suggest that the U.S. wants to continue trading with China and wasn’t ever willing to contemplate significant disruption for longer than a few weeks.
“We have been adding to China over the past months on the view that in the long term the current level of tariffs would be significantly reduced. At the same time, we were concerned that the path towards this could be highly volatile and painful. Markets have been fairly quick to price in the anticipated ‘normalization’, so we are no longer in a rush to add but remain happy with our exposures in China. Most likely there will be further ups and downs over the coming weeks and months so there may be better times to add.”
DEAN SMITH, CHIEF STRATEGIST, FOLIOBEYOND, NEW YORK
“This weekend in Geneva, China got everything they wanted and gave up nothing. The preposterous 145% tariffs are gone, almost surely for good, and they now have 90 days to manage the context and agenda for future discussions. The US got nothing but an agreement to agree to talk about someday working out a deal both sides can agree on. In other words, basically nothing. The administration spinning this as a genius negotiating win for the US is laughable.”
“The relief rally in stocks is just that. Look to the bond market to see what really matters. We are now back within 10 bps of where we started the year. Bessent’s goal of getting long term rates down is now in tatters.”
ADAM SARHAN, CHIEF EXECUTIVE, 50 PARK INVESTMENTS, NEW YORK
“The market is able to breathe a collective sigh of relief – not just the stock market, all capital markets. There was fear earlier this year that the market would have to deal with a new reality of the global trade paradigm breaking down, or a massive recession sparked by a trade war that would get out of control. It appears that that’s off the table. Cooler heads prevailed, and that’s no longer going to happen. Could the trade talks turn sour, reverse? Yes, anything is possible. But as of right now, the market is breathing a sigh of relief. The reality is we’re going to get past this and come out the other side stronger because we’re going to have less tariffs against us on the other side of these trade deals … There are several clear paths to coming out of this situation stronger, and that’s why there’s optimism.”
GINA BOLVIN, PRESIDENT, BOLVIN WEALTH MANAGEMENT GROUP, BOSTON (emailed note)
“This is a textbook recovery after the market’s waterfall declines. Expect volatility we approach the 90-day reciprocal tariffs deadline. But today the market is blowing through resistance levels and if it sticks, this is a big WIN for Trump, for stocks and for investors. Regarding earnings, corporate America can handle 10% tariffs, and this will only be a 2% hit to earnings, not the 5% that rattled markets. Today’s rally illustrates why we tell our clients not to trade headlines.”
THIERRY WIZMAN, GLOBAL FX AND RATES STRATEGIST, MACQUARIE (emailed note)
“The US is re-engaging with the world now through a kinder, gentler economic diplomacy than it did in March and early April – that’s the ‘Bessent brake’. And yet, the view of the US as a ‘full faith and credit’ counter-party won’t return soon, given the damage caused by April’s events. Diversity economic and security exposure away from the US – especially after 13 years (2012-2024) of US primacy – is likely still compelling. It will limit the USD’s gains, before the USD weakens again.”
CHRISTOPHER HODGE, CHIEF ECONOMIST, U.S., NATIXIS, NEW YORK
“A de-escalation was inevitable and I think it’s clear there won’t be much durable that comes out of these talks. Perhaps a lowering of tariffs and a purchase agreement for some agriculture products, just like the phase one deal. But nothing that will dramatically open up Chinese markets for U.S. products or change the nature of the trading relationship. I think we can take the left-tail risks off the table, but when all is said and done tariffs will still be dramatically higher and will weigh on U.S. growth.”
JACK ABLIN, FOUNDING PARTNER AND CHIEF INVESTMENT OFFICER, CRESSET CAPITAL, CHICAGO
“It’s obviously positive headlines, we are going to hear more tomorrow. I’m not sure I would hit the ‘buy’ button on what we have heard today, but if we can make substantive progress with China I think the market will like it.”
“To me, this news is slightly better than expectations. I think most of us at the end of last week thought that there would be some progress made.”
“I did not expect a conclusion to the talks just because the whole portfolio of goods and services is so broad. … But it sounds like we are going to take a trade war with China off the table.”
ERIC KUBY, CHIEF INVESTMENT OFFICER, NORTH STAR INVESTMENT MANAGEMENT CORP., CHICAGO:
“This is a step in the right direction, showing that both sides are interested in coming to a constructive conclusion and develop a better trade relationship. The details are quite sketchy, but I think the direction sounds to be more cooperative rather than combative, and I think that we have to view that as a positive.
“There were a variety of possible outcomes of this weekend’s meetings, ranging from both sides walking out and pointing the finger at the other side to announcing that the extra tariffs have been taken off the table. What we got here was something more in the middle, but more towards the positive side. So I think this is a step in the right direction. It is not likely to trigger a dramatic market rally, but it’s certainly also not going to create any selling pressure.”
GENNADIY GOLDBERG, HEAD OF US RATES STRATEGY, TD SECURITIES, NEW YORK:
“Markets may be encouraged by some agreement on a deal, but it will remain contingent on further details being released. Recent price action suggests some optimism around a trade deal. If that turns out to be the case, pricing will have been justified. The risk is if the deal is less substantial than expected. Then the market might come away disappointed.”
JAMIE COX MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND VIRGINIA:
“The administration downplayed the talks heading into the weekend, so the substantial progress language will send markets zooming on a Monday. The one caveat to consider, however, is that the president could throw cold water on the talks if he thinks China is getting off easy.”
DAVID WAGNER, HEAD OF EQUITIES AT APTUS CAPITAL ADVISORS LLC IN FAIRHOPE, ALABAMA:
“There’s been a lot of optimism starting to be priced into the market already, but positive sentiment around the issue should continue to fuel a market recovery.”
(Compiled by the Global Finance & Markets Breaking News team)
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