Markets Overview

  • ASX SPI 200 futures up 1.1% to 8,360.00
  • Dow Average up 2.8% to 42,410.10
  • Aussie down 0.7% to 0.6372 per US$
  • US 10-year yield rose 9.2bps to 4.4709%
  • Australia 3-year bond yield rose 6.3 bps to 3.48%
  • Australia 10-year bond yield rose 7.2 bps to 4.36%
  • Gold spot down 2.7% to $3,234.50
  • Brent futures up 1.6% to $64.95/bbl

Economic Events

  • 10:30: (AU) May Westpac Consumer Conf SA MoM, prior -6.0%
  • 10:30: (AU) May Westpac Consumer Conf Index, prior 90.1
  • 11:30: (AU) April NAB Business Conditions, prior 4
  • 11:30: (AU) April NAB Business Confidence, prior -3

Wall Street’s rebound in risk appetite following the easing of US-China tariffs is poised to spill into Asia trading Tuesday.

Futures showed Tokyo’s equity benchmark may rise more than 2% at the open, with hefty gains also earmarked for Shanghai and Sydney. A gauge of US-listed Chinese stocks surged 5.4% on Monday in its best session in over two months. The S&P 500 closed more than 3% higher, while the dollar climbed the most since its November post-election rally.

Diminished expectations of a recession drove the US stock benchmark above President Donald Trump’s April 2 “Liberation Day” level. A surge in big tech shares put the Nasdaq 100 back into a bull market just about a month after it plunged 20% from a previous record. US equity futures were little changed early Tuesday.

Amid a potential reset in inflation expectations, Treasury yields climbed as traders lowered their Federal Reserve wagers to just two rate cuts in 2025. Australia’s 10-year yield climbed seven basis points in early Asia trading.

For investors shocked into defensive measures at the height of April’s chaos, the swift recovery in markets has been a mixed blessing. Shorting the dollar, going long stock volatility and piling on bets premised on multiple Fed rate cuts were among the most popular trades in mid-April. Now, their unwinding may be adding fuel to the bounce-back.

After two days of high-stakes talks in Switzerland, trade negotiators from the world’s biggest economies announced Monday a massive de-escalation in tariffs. In a carefully coordinated joint statement, the US slashed duties on Chinese products to 30% from 145% for a 90-day period, while Beijing dropped its levy on most goods to 10%.

“No one had these low China tariff rates on their bingo cards. This is a big positive surprise,” said Jeff Buchbinder at LPL Financial. “Risk remains that tariffs go back up from current levels as the pauses end, though taking worst-case scenarios off the table is reassuring.”

The S&P 500 breached its 200-day moving average. The Nasdaq 100 rallied 4%. The Dow Jones Industrial Average added over 1,000 points. A gauge of megacaps soared 5.7%. Trump said he spoke with Apple Inc.’s Tim Cook, just as the iPhone maker was reported to be considering price hikes. Drugmakers bounced on bets they averted the worst-case scenario as the president targets price cuts.

The two-year yield climbed 11 basis points to around 4%. The Bloomberg Dollar Spot Index rose 1%.

“Things could easily turn out a bit bumpier in future trade negotiations — but clearly the US administration has altered its tone such that future episodes of weakness should be used as buying opportunities, in our view,” HSBC Bank Plc strategists including Max Kettner wrote in a note to clients.

The risk-on move suggests that investors had not expected such a positive outcome so quickly, according to Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. The deal is consistent with her firm’s base-case that the effective US tariff on Chinese imports will settle around 30-40%.

“Investors will now be focused on signs that the temporary fix can be turned into a lasting agreement,” she said.

Regardless, the reverberations of Trump’s trade war will continue to affect global markets in the months to come. In Japan, Prime Minister Shigeru Ishiba said Monday that his government won’t accept any initial trade agreement with the US that excludes an accord on autos. Top trade negotiator Ryosei Akazawa said the nation will continue to seek a reprieve from all the tariff measures imposed by the US.

In China, there was a sense of relief on Monday that the trade negotiations between the two biggest economies had quickly borne fruit. The Hang Seng China Enterprises Index and Hong Kong’s benchmark Hang Seng Index both closed the day 3% higher.

To Matt Maley at Miller Tabak, the news of a trade agreement between the US and China is certainly positive for the stock market. The question now is whether this change will be enough to help earnings growth reverse higher in a significant way or not.

“Think of this like a trade embargo being lifted, at least for now,” said Callie Cox at Ritholtz Wealth Management. “Tariffs are still high, Americans will likely feel the sting of higher prices, and companies probably won’t make different strategic decisions in the wake of this deal. But trade between the US and China could open up more, which means more shipping and fewer empty shelves (for now).”

Investors who followed Trump’s advice on social media in the past month have enjoyed one of the biggest rallies in the S&P 500 under his leadership.

Having slumped on Trump’s “Liberation Day” tariff announcement, the benchmark soared in the month after he said it was “a great time to buy” on April 9 — hours before he paused some of the harshest levies in a century. He reiterated that on May 8, telling reporters the economic outlook warranted piling into stocks.

With good news on the trade front giving a boost to stocks at the start of the week, it will be up to inflation data, retail sales, and earnings to sustain the momentum, according to Chris Larkin at E*Trade from Morgan Stanley.

“There’s still debate about how much tariffs have already disrupted supply chains and potentially slowed growth,” Larkin said. “While numbers that feed into the stagflation narrative could certainly derail the bullish mood, the economy still appears to be on solid ground, as Jerome Powell noted last week.”

Swaps that track upcoming central bank meetings showed just 56 basis points of easing by December, down from near 75 basis points last week. Traders still see the first quarter-point cut in September.

Fed Governor Adriana Kugler said the Trump administration’s tariff policies are likely to boost inflation and weigh on economic growth, even with the recently announced reduction in levies on China.

“Trade policies are evolving and are likely to continue shifting, even as recently as this morning,” Kugler said Monday in remarks prepared for an event in Dublin. “Still, they appear likely to generate significant economic effects even if tariffs stay close to the currently announced levels.”