LONDON/SHANGHAI (Reuters) - Stocks and the dollar surged on Monday after the United States and China said they had agreed on a 90-day pause on tariffs and reciprocal duties would drop sharply, giving investors some confidence that a full-scale trade war may have been averted.
U.S. Treasury Secretary Scott Bessent, speaking after talks with Chinese officials in Geneva, told reporters the two sides had reached the deal that was outlined in a joint statement and that reciprocal rates would drop by 115 percentage points.
This weekend's meetings were the first face-to-face interactions between U.S. and Chinese officials since U.S. President Donald Trump returned to power and launched a global tariff blitz, imposing particularly hefty duties on China.
MARKET REACTION:
STOCKS: Futures on the S&P 500 and Nasdaq jumped, while in Europe, the STOXX 600 rose 0.8%.
FOREX: The dollar extended gains, with the euro down 1.5% at $1.1078, while the yen weakened, leaving the U.S. currency up 2.1% at 148.49.
BONDS: Benchmark 10-year U.S. Treasury yields rose 8 basis points on the day to 4.457%, having traded up 5 bps before the joint statement.
COMMENTS:
CHARLES WANG, CHAIRMAN, SHENZHEN DRAGON PACIFIC CAPITAL MANAGEMENT CO, SHENZHEN
"The result of the China-U.S. talks is certainly good news. Both sides have returned to reason and common sense. However, neither has changed the tough stance based on deliberation of national interest.
"The U.S. side has kept the 20% tariffs based on its hegemony and excuse over Fentanyl. In addition, if no deal is reached after 90 days, long-term tariffs will be 54% on Chinese exports and 34% on U.S. exports. That would be semi-decoupling.
"So today's news cannot be counted as being long-term positive. It's long-term positive plus 90 days of uncertainty."
SHELDON MACDONALD, CIO, MARLBOROUGH, LONDON
“Our snap reaction is that this reduction is much bigger than expected. Yes, it’s only temporary, but the market is going to see this as confirmation that Trump doesn’t really want to cause the sort of disruption he has previously seemed to embrace.
“That said, if we assume the ‘steady state’ is 10% blanket tariffs and 30% on China, it’s still negative relative to the situation when Trump took over. It’s also still a negative for growth – just smaller than had been expected more recently – so there’s no ‘all clear’ on recession fears just yet.
“With positioning pretty ‘wrong way’ in a lot of assets, there’s potential for a bigger unwind. This could see risk assets up, the dollar up and a flatter yield curve. Conversely, safe-haven trades might soften. So once again we have sentiment, psychology and positioning in the driving seat rather than fundamentals.”
SIMON EDELSTEN, FUND MANAGER, GOSHAWK ASSET MANAGEMENT, LONDON
“It's no surprise that the world’s two largest economies are trying to address their long-standing issues, but don’t expect an easy resolution. Even if quite modest tariffs remain, that could make a large difference to trade flows as many Chinese exports to the US are low-margin and price sensitive. China may devalue the renminbi to make up for the change of terms of trade, which will reignite another old argument. This is like a mix of Chinese opera and soap opera – colourful characters and a plot that takes years to unfold.”
JAN VON GERICH, CHIEF MARKET ANALYST, NORDEA, HELSINKI
"Markets have taken it at face value, I personally am a bit sceptical, if you want to end up with low tariffs then why do it like this? It’s still bouncy, and uncertainty is elevated.
"I’m still worried that there will be a last word, that now they’ve come to an initial conclusion the details won’t satisfy both sides, and there will be something else but, of course, time will tell. I would not take everything we hear at the moment at face value, that’s what we saw on ‘Liberation Day’ (April 2 tariff announcement), and now, and it still bounces both ways."
JANE FOLEY, HEAD OF FX STRATEGY, RABOBANK, LONDON
"We’ve had reassurance from the U.S. that negotiations will continue and that the tone of the negotiations have been positive and US and China don’t want to decouple, so there is a lot more optimism that the tariffs won’t have the devastating impact that perhaps they could have done, and there is a collective sigh of relief in markets.
"That doesn’t mean that we’re back to where we were before the Trump inauguration, the 10% baseline tariff still exists everywhere, the 90-day pause is there and the clock is starting to tick. The overall scenario is not as bad as it could have been, but we still have a fair amount of uncertainty about where these tariffs will settle, their impact on world growth and central bank policy."
KENNETH BROUX, SENIOR STRATEGIST FX AND RATES, SOCIETE GENERALE, LONDON
"It's a clear vote by the market in favour of riskier assets. It's a step in the right direction and a positive of U.S. assets and U.S. economy."
"The dollar was lagging other markets in the recovery from the April lows. We had equities up back to April 2nd levels, we had bond yields up to those levels and the dollar was actually lagging that move. Now the conditions are falling into place for a deeper adjustment and a bigger recovery of the dollar to catch up with equities and bond yields."
ZHIWEI ZHANG, CHIEF ECONOMIST, PINPOINT ASSET MANAGEMENT, HONG KONG
"This is better than I expected. Obviously, this is very positive news for economies in both countries and for the global economy, and makes investors much less concerned about the damage to global supply chains in the short term.
"But we also need to keep in mind this is only a three-month temporary reduction of tariffs. So this is the beginning of a long process. The two sides will spend months probably, to come up with a resolution, or reach a final trade deal, but this is a very good starting point."
ARNE PETIMEZAS, DIRECTOR RESEARCH, AFS GROUP, AMSTERDAM
"Such a sharp U-turn by the US on tariffs on a Monday morning is quite the surprise. It seems that tariffs on China will fall to manageable levels, albeit temporary. Markets should rally on this. How can Trump credibly raise tariffs when the 90-day pause ends? He has toned down his tariffs faster than anyone thought he could, and April 2 will soon be forgotten. Granted, he told you to buy the dip."
WILLIAM XIN,CHAIRMAN OF HEDGE FUND SPRING MOUNTAIN PU JIANG INVESTMENT MANAGEMENT, SHANGHAI
"The result far exceeds market expectations. Previously, the hope was just that the two sides can sit down to talk, and the market had been very fragile. Now, there's more certainty. Both China stocks and the yuan will be in an upswing for a while."
(Reporting by Reuters Markets Breaking News team; Compiled by Amanda Cooper; Editing by Vidya Ranganathan and Dhara Ranasinghe)
