Reuters
11 min read
NEW YORK (Reuters) - The United States and China reached a better-than-expected dealto temporarily slash tariffs, sending stocks and the U.S. dollar sharply higher, as the world's two biggest economies seek to end a damaging trade war that has stoked fears of recession.
The U.S. will cut extra tariffs it imposed on Chinese imports in April this year to 30% from 145% and Chinese duties on U.S. imports will fall to 10% from 125% for the next 90 days, the two sides said on Monday.
MARKET REACTION:
-- The S&P 500 was 2.93% higher at 5,826.12
-- The yield on benchmark U.S. 10-year notes rose 8.6 basis points to 4.461%
-- The dollar index was up 1.193% at 101.79. The euro was down 1.423% at $1.1088
COMMENTS:
SCOTT CHRONERT, US EQUITY STRATEGIST, CITI RESEARCH, SAN FRANCISCO (emailed note)
“Lessening the fundamental overhang risk of tariffs is providing its own form of liberation day.”
RYAN SWEET, CHIEF US ECONOMIST, OXFORD ECONOMICS, WEST CHESTER, PENNSYLVANIA (emailed note)
“The agreement by the US and China to significantly reduce tariffs for the next 90 days warrants changes to our near-term baseline forecast for GDP growth, unemployment, and inflation. The changes will be incorporated in the second May baseline forecast, released on May 21. This likely doesn’t appreciably alter the calculus for the Federal Reserve, as it is comfortable waiting out the ebbs and flows in tariffs to gauge what the ultimate implications for inflation and growth are. … Our subjective odds of a recession this year dropped to 35% following the announcement, compared with the better-than-even odds previously. But as we learned in the first trade war, we don’t want to read too much into a single agreement. A future escalation remains possible, if not likely, as tariffs are used as a negotiating tactic. This will keep trade policy uncertainty uncomfortably high and create the potential for future, and significant, disruptions in supply chains.”
MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK
"The market long recognized the conflicting policy objectives raising revenue, onshoring production and between the UK agreement last week and this deal, I think that the market's confused.
"Many people are confused by what the real goal is and it's 90 days and so this basically buys some more time, I sort of think the U.S. blinked. I'm not a big fan of the tariffs in the first place, but once they were in place, the U.S. seemed to back down without getting much in exchange. That is, we stopped with our reciprocal tariffs on China and so they unwind their reciprocal tariffs on us, but we're still back at square one.
