LONDON/SHANGHAI: Stocks and the dollar rallied on Monday after the US 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.

US 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.

Market reaction

• Futures on the S&P 500 ESc1 and Nasdaq NQc1 jumped to trade up 2.8 percent and 3.6 percent, respectively, from gains of 1.5 percent to 2 percent previously, while in Europe, the STOXX 600 .STOXX rose 1 percent in early trading.
• The dollar extended gains, with the euro down 0.8 percent at $1.1164, having traded down 0.2 percent on the day earlier, while the yen  weakened, leaving the US currency up 1.1 percent at 146.945, from a 0.5 percent gain earlier.
•  Benchmark 10-year US Treasury yields edged up 6 basis points on the day to 4.435 percent, having traded up 5 bps before the joint statement.

Analyst comments

Kenneth Broux, senior strategist FX and rates, at Societe Generale in London, said: “There is a de-escalation between China and US resulting in a reduction of tariff on Chinese goods to 30 percent and Chinese tariffs on US goods to 10 percent. It’s a clear vote by the market in favor of riskier assets. It’s a step in the right direction and a positive of US assets and US economy.”

He added: “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 at Pinpoint Assets Management in Hong Kong said: “This is better than I expected. I thought tariffs would be cut to somewhere around 50 percent and this is much lower.

“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 at AFS Group, in Amsterdam said: “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, in Shanghai, said: “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.”

Reuters