By Amanda Cooper and Samuel Shen
LONDON/SHANGHAI (Reuters) -A breakthrough in U.S.-China trade talks has propelled world stocks and the dollar higher, but investors fear further negotiations could prove a long slog, tempering optimism, as risks of a global economic slowdown persist.
After two days of talks with Chinese officials in Geneva, U.S. Treasury Secretary Scott Bessent said on Monday the two sides had agreed to a 90-day pause on measures and that tariffs would fall by over 100 percentage points.
That leaves U.S. tariffs on Chinese goods at 30% from May 14 to August 12 and Chinese duties on U.S. imports at 10%, beating investors’ best-case scenarios going into the talks.
The dollar jumped over 1% against a basket of major currencies, as the yen and Swiss franc fell along with other safe-haven assets like gold and government bonds.
U.S. stocks soared, with the benchmark S&P 500 index rising 2.3% in morning trading, while the tech-heavy Nasdaq Composite jumped 3%.
U.S. Treasury prices sagged, sending the benchmark 10-year Treasury yield to 4.44%, its highest in about a month, as investors moved away from safe havens and scooped up risk assets. MSCI’s index of global shares rose 1.5%.
“This is a relief rally that the worst case scenario in tariffs, being tariffs over 100%, is not likely to materialize,” said John Praveen, managing director at Paleo Leon in Princeton, New Jersey. “We may not get zero tariffs but the worst case is unlikely. We’ve pulled back from the brink.”
But relief was tempered by caution, given a more permanent trade deal needs to be struck, while higher tariffs overall are still likely to weigh on the global economy.
“It’s long-term positive plus 90 days of uncertainty,” said Charles Wang, chairman of Shenzhen Dragon Pacific Capital Management Co.
Michael Metcalfe, head of macro strategy at State Street Global Markets in London, estimated that Monday’s U.S.-China trade deal implied an average effective tariff rate of around 15%.
“Given where expectations were, it’s a net positive,” he said. “You basically reverse the reciprocal tariff announcement, and if you reverse the reciprocal tariff announcement you are back to square one.”
U.S. President Donald Trump had imposed tariffs of 145% on imports of Chinese goods. China in turn raised tariffs on U.S. goods to 125% and limited exports on some vital rare earth minerals.
Those measures had brought nearly $600 billion in two-way trade to a standstill, disrupting supply chains and sparking fears the global economy could crater.
Trump’s April 2 “Liberation Day” announcement of sweeping tariffs sparked a sharp exit from U.S. assets, including the dollar and Treasuries, mainstays of the global financial system. Heightened uncertainty over U.S. trade policy hurt business and consumer confidence.
“This pause gives U.S. companies more time to adapt and to plan for contingencies should the trade talks go sideways again,” said Jamie Cox, managing partner for Harris Financial Group.
SOFTENING STANCE
Reassuring for markets are signs that Trump may be rethinking his trade strategy, as economic indicators have turned south and central bankers have warned of risks of slowing growth and rising inflation.
A deal last week with Britain, plus positive noises from Japan, Vietnam and South Korea, helped restore some confidence, along with a cooling in geopolitical tensions.
“This is only a three-month temporary reduction of tariffs. So this is the beginning of a long process,” Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong, said.
“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.”
Rabobank’s head of FX strategy Jane Foley said there was more optimism the tariffs will not be as devastating as many had feared, but this did not mean a return to the pre-Trump status quo.
“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,” she said.
State Street’s Metcalfe said as trade fears lift, the focus could turn to other issues. For instance, many investors are concerned about what Trump’s planned tax cuts will mean for U.S. debt levels, especially as revenues from tariffs drop.
The U.S.-China trade deal “doesn’t mean the policy uncertainty has gone away, it’s moved on to a new area,” he said.
(Reporting by Alun John, Amanda Cooper and Dhara Ranasinghe in London, Samuel Shen in Shanghai, Summer Zhen in Hong Kong and Lewis Krauskopf and Sinéad Carew in New York; Graphic by Amanda Cooper; Editing by Dhara Ranasinghe, Catherine Evans and David Gregorio)
