US-China Trade Deal Sparks Relief Rally Across Global Markets

Strategic Insights -

Following an agreement to reduce tariffs on Chinese goods and retalivalent duties on US goods, US and China emerged from talks in Geneva with a deal that has sparked a significant relief rally across global markets. The S&P 500 index surged by 2.4% and the Nasdaq Composite jumped 3.6% as investors reacted to the news. The US dollar also gained 1.3% against a basket of its peers.

Key Takeaways:

  • The agreement marked a significant reduction in additional tariffs imposed on Chinese goods from 145% to 30%, while retaliatory duties on US goods will fall from 125% to 10%.
  • The market reaction was swift, with the S&P 500 index rising 2.4% and the Nasdaq Composite jumping 3.6% by early afternoon in New York.
  • Investors cited reduced US recession fears and a shift away from "bearish US trades" as key drivers of the market rally.
  • The deal prompted a rise in the US dollar, which gained 1.3% against a basket of its peers.
  • European equities also saw gains, with the benchmark Stoxx Europe 600 index rising 1.1%.
  • Government bond yields climbed as investors shifted away from haven assets, with the 10-year US Treasury yield up 0.06 percentage points at 4.44%.
  • The agreement also led to a decline in currencies traditionally used as safe havens, including the euro, Swiss franc, and Japanese yen.

Statistics:

  • S&P 500 index increased by 2.4% by early afternoon in New York.
  • Nasdaq Composite jumped 3.6% in the same period.
  • US dollar gained 1.3% against a basket of its peers.
  • 10-year US Treasury yield up 0.06 percentage points at 4.44%.
  • European equities benchmark Stoxx Europe 600 index rose 1.1%.
  • Brent crude oil gained 1.9% to $65.15 a barrel.
  • Euro fell 1.2% to $1.111.

Sources:

  • [Mark Dowding, chief investment officer for fixed income at RBC Bluebay Asset Management]
  • [Pooja Kumra, a strategist at TD Securities]
  • [Trevor Greetham, head of multi-asset at Royal London Asset Management]
  • LSEG Markets update
  • Morningstar
  • Bloomberg
  • Reuters