U.S. stocks soared between investors on Monday, when trade talks between Washington and Beijing were progressing, meaning Donald Trump’s trade war was surpassing its most intense stage.
Blue chip S&P 500 ended 3.3%, while technology-heavy Nasdaq Complex closed at 4.4%. Both indexes have had their best day since March and are far higher than Trump's announcement of tariffs on April 2. The dollar jumped 1.5%, bringing it to its biggest daily rise since Donald Trump's election on November 5.
"The peak tariffs in the past are very important. We will have increased interest this year, but this is different from the recession," said Ajay Rajadhyaksha, president of Barclays Global Research.
The United States and China said on Monday that they will cut tariffs for at least the next 90 days after meeting in Geneva over the weekend. U.S. tariffs will be reduced to 30%, while Chinese tariffs will be reduced to 10%.
The negotiations marked a massive downgrade of Trump’s global tariff offense, whose stock fell as much as 15% after Trump’s “liberation day” was announced.
Trump suspended most of the so-called reciprocity tariffs a week after announcing, but he left it in China, a huge source of U.S. imports. Some economists predict a recession this year, with higher inflation rates and increased supply chain issues in the U.S. groups.
But the U.S.-China deal is now alleviating these concerns.
Rajadashisha said: "The market defaults, assuming we are now in the 10-30 world: 10% (tariffs) in most parts of the world, and 30% of China."
U.S. fiscal yields rose on Monday, suggesting traders have withdrawn their bets amid this year’s recession and expect the Fed to make interest rates higher.
As expected growth of 10-year fiscal yields rose to its highest level in one month, up 0.09 percentage points to 4.46%. As interest rate expectations grew, the two-year yield rose 0.11 percentage points to 4%, as traders lowered large rates lowered from the Fed.
As U.S. stocks soared on Monday, technology stocks and groups selling discretionary consumer goods were the biggest winners. All 30 stocks on the Philadelphia Semiconductor Index ended the meeting as the index jumped 7.2%, while retailers’ targets and warehouses rose 4.9% and 3.8% respectively.
Strategists say the S&P 500 rally may go further, as system traders usually perform well in obvious direction markets, but tend to lose during volatility — gradually rebuilding the stock positions they cut after Trump’s tariff announcement on April 2.
But Deutsche Bank analysts said “stocks are not out of the woods”, stressing that “far-depending sector tariffs” for drugs, semiconductors and copper can still be expected in the coming weeks.
"Uncertainty remains with us," added Priya Misra, a fixed income portfolio manager at JPMorgan Asset Management.
"Companies still have to consider supply chains, investments, recruitment... have caused some losses. The dust has not been completely resolved."