Originally published at: This week in charts: US & China truce lifts markets – InvestEngine Insights
The week got off to a roaring start, following two days of talks in Switzerland where the U.S. and China agreed to a 90-day, reciprocal tariff rollback.
Beijing cut duties on most U.S. goods from 125% to 10%, and Washington trimmed tariffs on Chinese imports from 145% to 30%. That unexpectedly positive news fuelled an extremely positive day for markets on Monday, boosted by optimism that broader tariff de-escalations may follow, along with easing recession fears – the chances of which, according to betting markets, have fallen from 65% to 37%.
*Source: Bloomberg, Polymarket.*
As a result, the S&P 500 rose just over 3% (3.5% in sterling terms) on Monday, the Nasdaq 100 sprinted back into bull-market territory after a swift 20% plunge, and bond yields, the dollar and oil prices pushed higher. Defensive havens like gold and long-dated Treasuries took a back seat as traders dialed back Fed-rate-cut bets to two in 2025.
For U.S. based investors investing in USD, the S&P 500 is now breaking even this year, crossing into positive territory for the first time since ‘Liberation Day’. Due to dollar weakness, the S&P is still down around 5% for sterling investors, although it still marks a significant recovery from its position last month:
*Source: Bloomberg. Past performance is not indicative of future results.*
Buoyed by the ‘risk-on’ environment, this week saw continued gains for tech companies, with Nvidia reclaiming its hotly-contested spot as the second largest global stock after Microsoft:
*Source: Bloomberg. Past performance is not indicative of future results.*
Despite strong gains in the equity market this week, the bond market suggests that investors aren’t universally optimistic on US assets though. 30-year yields are now at almost 5%, with the dollar, despite a strong recent rally, still struggling versus other currencies – it’s currently at $1.33 to the pound, up from $1.25 at the start of the year.
As mentioned in a previous post, higher bond yields typically attract foreign capital, pushing the dollar up. But over the last few weeks the dollar has veered sharply below the level expected by yields.
This gap could imply a lack of confidence. If tariffs and one-sided trade policies undermine trust in US stewardship, investors may question the safety of dollar-denominated bonds and other assets, causing the dollar to fall despite the rising yields. We’ve now seen some evidence of tariffs being rolled back, but the hit to confidence from sudden policy shifts is less easily reversed.
*Source: Bloomberg. Past performance is not indicative of future results.*
In the UK, GDP numbers released this week showed that the UK economy grew 0.7% in the first quarter. This was the fastest pace in a year, ahead of the 0.6% forecast, and the 0.1% expansion in Q4.
The services sector and a pickup in business investment drove much of the rebound, while net trade also added a positive contribution, suggesting that firms may have front-loaded activity in anticipation of looming tariffs.
That upbeat release comes with a big caveat, however: the data were compiled before President Trump’s April 2 announcement of global tariffs, including 10% duties on UK imports. Though the UK recently struck a deal to ease levies on cars and steel, the 10% flat tariff still stands.
Economists warn that even scaled-back U.S. tariffs could weigh on global growth, and that the confidence boost from Q1 might prove more fleeting once the tariff effects start to bite.
*Source: Bloomberg.*
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