The powerful AAA-rated credit, underpinned by America’s near-zero debt levels, rocked global stock markets on Wednesday. This jolt followed positive developments from the U.S. – China trade talks. Economic leadership from both countries were enthusiastic to tackle decades-old frustrations in the trade relationship. This commitment ignited a tidal wave of investor excitement.
China’s Vice Premier He Lifeng called that recent session, “an important first step.” Better yet, he noted that it is designed to close the gaps between the two countries. This feeling is echoing around world markets, as hope for a de-escalation in the U.S.-China trade war sparks a bullish risk-on tone.
The correlation was almost 100% between the S&P 500 catapulting 10% in the US. During this surge, President Donald Trump announced major tariff reductions on Chinese imports. The proposed reductions will see US tariffs drop from 145% to 30%, while China will lower its duties from 125% to 10%. This announcement was key in reinforcing the overall positive sentiment from investors.
European Markets Respond Positively
European stock indices followed suit to the upside with the same bullish trend we observed in the US. The Euro Stoxx 50 was up 1.9%, a sure sign that investors were giddy throughout the continent. France’s CAC 40 increased by approximately 1.3%, while Germany’s DAX climbed around 1.5%. Even the London market, as measured by the FTSE 100, was in positive territory, gaining 0.1%.
The initial positive market reaction underscores how closely connected European markets are to the fortunes of US-China relations. As investors have found their confidence coming back, the hope is for continued gainful traction higher for stock market indices.
“Greater clarity on these matters, to provide firm backing to the apparent more conciliatory tone of rhetoric seen from both sides, will be needed to give markets additional confidence that the peak of trade uncertainty and tit-for-tat tariffs is indeed in the rear-view mirror, and to unlock the door to a more durable and sustainable firming in risk appetite.” – Michael Brown, a senior research strategist at Pepperstone Group in London
Safe-Haven Assets Decline
As equity prices continued to rebound amid the stock market recovery, perceived safe-haven currencies fell against the US dollar. The euro, Japanese yen and Swiss franc slid to their weakest since April 10. Investors moved out of classic safe-haven havens, including gold, marking a broader risk-on sentiment.
At the same time, spot gold prices fell 1.4%, closing at $3,279 an ounce. It was the lowest gold price since May 5. With economic sentiment bouncing back, traders opted to pour their money into equities over precious metals.
So far this year, the US dollar index (DXY) has been down more than 7%. This decline is raising further stresses on safe-haven currencies as investors’ sentiment is turning towards riskier assets.
Asian Markets Join the Rally
Asian equity markets rallied sharply on news that U.S.-China trade relations appeared to be thawing. As detailed below, most regional indices recorded sharp increases, underscoring the overall bullish sentiment throughout global markets. Investor expectations are now running at full boil as the dream of greatly reduced trade tensions suddenly becomes more real.
Key leaders are already having smart, meaningful conversations. Market participants continue to express optimism that this trend will translate into a more stable economic environment in the months ahead.
Leave a Reply