US-China Trade Accord Fuels Global Market Rally

A significant wave of optimism has swept across global financial markets following the announcement of a temporary trade accord between the United States and China. This development, breaking a period of sustained economic tension, has notably altered investor sentiment, steering capital flows towards assets perceived to carry higher risk.

Market Surge on Trade Detente

The immediate reaction in equity markets was robust. In the United States, the S&P 500 index concluded with a 3.26% increase, the Nasdaq Composite saw a significant jump of 4.02%, and the Dow Jones Industrial Average rose by 2.81%. European shares also reflected this positive outlook, with the Stoxx 600 index advancing by approximately 1%. This widespread rally followed high-level discussions in Switzerland where both nations committed to a substantial tariff rollback.

The agreement entails a 90-day period during which the U.S. will lower its tariffs on certain Chinese goods from 145% to 30%, and China will reciprocate by reducing its duties on U.S. products from 125% to 10%. This represents a mutual decrease of 115 percentage points. U.S. Treasury Secretary Scott Bessent described the negotiations as “very productive,” emphasizing that these new tariff levels should be viewed as a baseline rather than a maximum.

Currency and Commodity Movements

The U.S. dollar experienced a notable strengthening, with the ICE U.S. Dollar Index climbing 1.1%, its most significant daily gain since November 2024. This was attributed to the improved trade outlook and expectations of reduced geopolitical friction. The dollar advanced against all G10 currencies, with the Japanese yen and Swiss franc showing particular weakness as investors moved away from safe-haven currencies.

In the commodities sector, Brent crude oil prices ascended to $65.66 per barrel, a 2.7% rise, while West Texas Intermediate (WTI) crude increased by 0.93% to $61.95 per barrel. Companies with significant exposure to the Chinese market, such as Nvidia (NVDA), saw their stock values climb by nearly 5%. Similarly, casino operators like Las Vegas Sands (LVS) and Wynn Resorts (WYNN), with substantial interests in Macao, also registered gains.

Shift from Safe Havens and Lingering Concerns

Conversely, assets typically considered safe havens, such as U.S. Treasury bonds and gold, experienced declines. The yield on the 10-year U.S. Treasury note increased to 4.457%. Gold prices also retreated as the narrative around the trade dispute shifted.

Despite the positive developments, analysts caution that a complete removal of all tariffs is not assured. The Trump administration continues to levy a 20% tariff on Chinese goods linked to fentanyl. Furthermore, restrictions remain in place for key sectors including technology and rare earth minerals. Some Federal Reserve officials, including Austan Goolsbee and Adriana Kugler, have noted that the current tariff relief is temporary and could have varied impacts on inflation.

Economic Outlook and Analyst Perspectives

Investment banks have generally welcomed the truce as a constructive step, though they underscore the complexities that lie ahead in forging a lasting agreement. Capital Economics termed the announcement a “substantial de-escalation” but pointed out that existing tariffs are still considerably higher than pre-conflict levels. Tai Hui, a strategist at J.P. Morgan, observed that the scale of the tariff reduction surpassed expectations, indicating a greater willingness from both sides to negotiate. However, he also suggested that the 90-day timeframe might be insufficient to finalize a comprehensive deal.

Looking ahead, market participants will closely monitor upcoming economic releases, including U.S. Consumer Price Index (CPI) data, employment figures from the United Kingdom and Australia, and the monetary policy announcement from the Bank of Mexico. These indicators will likely influence market sentiment and help determine the sustainability of the current optimistic trend.