Sino-US trade consensus ignites a stock market rally! Nasdaq returns to a bull market, "Buy America" sweeps the globe again.

With Wall Street and global stock markets once again experiencing a strong rally, the overall performance of the financial markets seems as if Donald Trump's "Liberation Day" tariff shock never happened. The latest statistics show that the trend of "Buy America" (buying all American assets) is sweeping the globe again, with the US stock market and major commodities like US WTI crude oil welcoming positive developments in US-China trade talks on Monday. Following high-level economic and trade talks between China and the United States in Geneva, Switzerland, they reached a positive consensus and announced a significant reduction in bilateral tariff levels. As of the Monday closing of the US stock market, the S&P 500 index surged 3.3%, and the Nasdaq 100 index, known as the "global tech stock barometer", re-entered a bull market trend. The US dollar, which has been experiencing continuous selling since April, also saw a positive rebound, with the dollar index rising by over 1%, marking its largest single-day increase since November 6 when Trump won the US presidential election. US Treasury bond prices fell as Federal Reserve officials continue to signal maintaining current interest rates, prompting traders to lower their expectations for Fed rate cuts this year ahead of economic data releases such as CPI and PPI in April. The unexpected easing of trade tensions between China and the US has provided global investors with the clearest bullish signal to date, indicating that the Trump administration, which sparked a global financial market upheaval with its aggressive tariff policies a few weeks ago, is now adopting a more moderate and rational approach. With hopes that the US economy can avoid stagflation and recession under the drive of the US-China Geneva trade consensus, interest rate futures traders currently expect the Fed to cut rates only twice in 2025, rather than the 4 times priced in a week ago. The unexpected easing of trade tensions between China and the US has reignited severe volatility in US assets since April. "People are unwinding trades that were previously pricing in a recession," said Mark Dowding, Chief Investment Officer of Fixed Income at BlueBay. "This makes perfect sense as there was genuine concern previously that we might ultimately face a cliff event where the US economy would be severely hit by a sudden halt in the trade between the US and China, which accounts for a significant portion of the global GDP. Now, this concern has been greatly alleviated." Shares of US tech giants such as Apple, Amazon, Nvidia, and Tesla (known as the "Magnificent 7" with high weightings in the S&P and Nasdaq 100 indices) suffered heavy losses in the previous wave of selling in US assets but surged on Monday after a positive consensus at the US-China trade level, leading the US stock market rally. Driven by the positive consensus in US-China trade, the Hong Kong stock market, A-share market, as well as stock markets in Japan, South Korea, Europe, and Australia all rose significantly on Monday. The Magnificent 7 index of US tech giants rose 5.35% on Monday, while the Nasdaq 100 index rose 4.02%, entering what is known as a "technical bull market trend" driven by the seven giants. It is worth noting that after Trump's April 9 social media post saying "now is a good time to buy stocks" (just hours before he suspended most of the tariff policies), the S&P 500 index rebounded by over 16% that month. This is also the largest phase increase in the S&P 500 index during Trump's two terms as US president (calculated on a 21-day rolling basis, i.e. the trading days between the two comments), excluding the rebound during the pandemic period. With the trend of "Buy America" sweeping the globe once again, the bullish sentiment in the US stock market has significantly increased. The S&P 500 index surged 3.3% on Monday, closing at 5844.19 points, successfully breaking through a key technical level - the 200-day moving average, the first time in over 30 trading days that the index has been above this long-term trend indicator. According to SentimenTrader's statistics dating back to 1929, whenever the S&P 500 index falls from a three-year high and hovers below the 200-day moving average for over 30 trading days, it tends to perform well afterwards. The median return of the S&P 500 is 4.1% in the following three months, and the median return in the next 12 months is a double-digit increase. At the same time, signs of risk aversion have collectively receded, with safe-haven assets experiencing a simultaneous decline. Gold, the yen, and the Swiss franc all weakened together. The strong Euro exchange rate has seen a sharp decline since April, marking its worst performance of the year. In terms of rate cut expectations, as expectations for a "soft landing" of the US economy increased rapidly on Monday, the forward rate market is currently pricing in a 25 basis point rate cut by the Fed in September, compared to market expectations of four rate cuts last week, with the earliest likely in July. Before the US stock market opened on Monday, the Chinese Ministry of Commerce released a joint statement on the US-China Geneva trade talks, stating that the US will amend the price-based tariffs imposed on Chinese goods (including those from Hong Kong and Macau) according to Executive Order 14257 issued on April 2, 2025. 24% of the tariffs will be temporarily suspended within the initial 90 days, while the remaining 10% tariffs will still apply following the provisions of this executive order; and (2) cancel the additional tariffs imposed on these goods according to Executive Orders 14259 and 14266 issued on April 8 and April 9, 2025, respectively. According to calculations by several financial institutions, the new trade consensus means that for the vast majority of goods, the US's additional tariffs on China this year have been significantly reduced from 145% to 30% (fentanyl 20% + 10% equivalent tariff). Including some goods that were subject to tariffs imposed during Trump's first term (2018), the actual US tariff rate on China is between 40% and 50%. "Was the past six weeks just a nightmare? With the Geneva consensus over the weekend and the suspension of most US-China tariffs, trade policy suddenly looks more like the optimistic expectations of early April," said Cameron Crise, macro strategist from Bloomberg's Strategists. Geoffrey Yu, macro strategist at BNY Mellon, stated, "We doubt the market will forget what happened in April, but"The possibility of the worst-case scenario has now become a distant memory, and people will use this as a basis for asset allocation.At a time when global stock markets are soaring, a cautious stance still exists. However, there are still some investors who remain highly vigilant about the lack of details in Monday's announcement and the risk of renewed trade frictions between Beijing and Washington. Trump said he might have discussions with the Chinese side later this week. The two countries have three months to fully resolve their trade disputes, but this is not ample time to negotiate complex trade disputes. It is also unclear what the goal is at the end of the cooling-off period. When asked how to avoid tariff hikes after the 90-day period, U.S. Treasury Secretary Scott Benett suggested the possibility of further extending the trade ceasefire. During this period, U.S. importers may take advantage of this time to ship more Chinese goods to the U.S., exacerbating the so-called trade imbalance. Roberto Scholtes, chief strategist at Singular Bank, said that the U.S. stock market is unlikely to quickly return to its record highs. He warned that even if a positive agreement is reached, businesses will still suffer economic losses due to the confusion in U.S. economic policy and the uncertainty of Trump's policies. "We did indeed buy on dips," he said in an interview. "But now, we are temporarily on the sidelines, and weighing whether to sell at highs." As a key representative of U.S. dollar assets, the Bloomberg Dollar Index rose 1% by Monday's close, marking its best performance since Trump's victory in the presidential election. Strategists Eric Nelson and Alup Chattery from Goldman Sachs pointed out in a report to clients on Monday, "Expectations of U.S. monetary policy shifting higher will boost the strength of the dollar, combined with extreme short positions already in the dollar." Data shows that U.S. trade pressures are starting to impact U.S. businesses, with companies such as United Parcel Service, Ford Motor Company, and Mattel withdrawing their 2025 earnings guidance due to tariff uncertainties, stating that the economic outlook and tariff uncertainties are difficult to grasp and respond to. A Bloomberg Intelligence analysis report shows that 6.1% of the average revenue of companies in the S&P 500 index in 2024 comes from the Chinese market or from sales to Chinese companies. For many investors, the significant change in market sentiment is enough to drive a new bull market in global financial markets. "For stock investors, there are no more lows to buy on dips, so if you didn't position yourself earlier, entering the market now is very difficult," said David Crook, trading director at La Financiere de L'Echiquier. "For investors who missed most of the rebound, this is a truly painful trade." Carly Cox, chief market strategist at Ritholtz Wealth Management, said, "The 200-day moving average is an extremely important 'watershed' in past market recoveries. If it can hold this level, the market may move towards new highs, otherwise, it's just an emotionally driven short-term rebound." She also reminded investors not to overlook corporate and economic fundamentals expectancies: "Recessions often bring about long-lasting and destructive declines, stemming from shrinking corporate profits and household incomes. Although we have not fully entered this stage yet, the possibility of a recession cannot be ruled out."