Stocks soar as investors cheer US-China tariff rollback
The scope of the temporary reductions took markets by surprise.
Mentioned: Novo Nordisk AS Class B (NOVO B), Genmab AS (GMAB), Rheinmetall AG (RHM), Leonardo SpA Az nom Post raggruppamento (LDO), Dassault Aviation SA (AM), Tesla Inc (TSLA), Apple Inc (AAPL), NVIDIA Corp (NVDA), Takeda Pharmaceutical Co Ltd (4502)
Global equity markets jumped on Monday after the United States and China agreed to walk back sky-high tariffs that had built up during weeks of tit-for-tat escalation.
Following talks in Switzerland, officials from the world’s two largest economies said in a joint statement that several recent tariff increases would be altered or suspended, resulting in a 30% US tariff on Chinese goods and a 10% Chinese tariff on US goods. Before the weekend, those figures had stood at 145% and 125%, respectively.
The Morningstar US Market Index closed 3.3% higher, while the S&P 500 benchmark also rose 3.3% and the technology-heavy Nasdaq rose 4.3%.
Tech mega-caps outperformed on the news, Tesla TSLA rose 6.8% over the course of the day, Apple AAPL was 6.2% higher, and Nvidia NVDA was up 5.5%.
Stocks cheer trade war deescalation
Dave Sekera, Morningstar’s chief US market strategist, called the agreement a “good first step in deescalating the trade war,” noting that the 90-day pause will allow for more negotiations, while the tariffs are still high enough to encourage each side to pursue a longer-term deal.
Deutsche Bank cross-asset strategist Maximilian Uleer says, “This announcement is not only better than we expected, but also better than the market would have expected back in March.”
In Europe, the Stoxx 600 index rose 1.2%, led higher by stocks most exposed to global trade including shipping giant AP Moeller-Maersk MAERSK B, up 9.8%, and carmaker Stellantis STLA, up 6.2%.
“Although the reductions are temporary, they represent a notable shift in the overall effective tariff burden,” explains Stuart Rumble, head of investment directing in the Asia-Pacific region at Fidelity International. “The high US-China tariff regime has already caused major disruption, reducing bilateral trade between the world’s two largest economies and increasing the risk of a broader global slowdown.”
Market risks remain
Still, strategists say it’s too soon to sound the all-clear signal. There’s “a lot of potential for good news, but the markets are getting very excited too early,” says Michael Field, Morningstar’s chief European markets strategist. “The US-China deal has 30% import taxes on Chinese goods, which could still stem trade flow. The EU hasn’t even begun negotiations with the US, and if we get anything like the UK deal, then it’s bad news.”
Sekera adds that stocks could see more losses if negotiations don’t go well. “At this point, the market is no longer providing any margin of safety if trade negotiations were to breakdown, require more time than 90-day deadline provides, or if finalized trade terms are so restrictive as to impair economic activity and lead to a broad earnings slowdown,” he says.
Dollar jumps against Euro, Treasury yields up
The risk-on sentiment in equity markets weighed on safe-haven assets, with the euro erasing the past month’s gains against the dollar.
Meanwhile, both German Bund yields and 10-year US Treasury yields jumped to their highest levels in about a month. Bunds were up 7 basis points to 2.62% and Treasury yields to 4.45%.
Trump’s drug pricing plans roil pharma stocks
Over the weekend, US President Donald Trump also said on social media that he’d force a reduction in prescription drug prices by 30%-80% in the US by mandating that manufacturers charge US consumers in line with the lowest prices offered in other nations.
The announcement sent healthcare stocks plunging in Asia and Europe. Takeda Pharmaceutical TAK dropped 6.5% in Tokyo, while Europe’s Stoxx 600 Health Care sector index fell 2.8% on Monday morning, led lower by Genmab’s GMAB 8% decline and Novo Nordisk NVO falling 5.7%.
New hope for Ukraine truce
Reports over the weekend indicate Ukrainian President Volodymyr Zelenskyy may be set to meet Russian President Vladimir Putin in Istanbul as soon as Thursday, aiming to pave the way for peace talks with an initial ceasefire of 30 days. It would be the first pause in the fighting since Russia invaded Ukraine more than three years ago.
Shares of weapons makers declined on Monday morning, with Germany’s Rheinmetall RHM, Italy’s Leonardo LDO, and France’s Dassault Aviation AM all down by more than 7%.
James Gard and Sunniva Kolostyak contributed to this story.
