Asian markets cheer as pause in US-China trade war boosts risk appetite
TOKYO: Asian stocks joined the global rally and the US dollar held on to most of its gains on Tuesday (May 13) as investors heaved a sigh of relief after a temporary halt in the trade war between the US and China eased worries of a global recession.
Japan's Nikkei soared 2 per cent, touching its highest level since Feb 25, and tech-heavy Taiwan also rose 2 per cent, while Chinese stocks inched higher in early trading.
Singapore's Straits Times Index (STI) was up more than 1.5 per cent in early trade.
That left the MSCI's broadest index of Asia-Pacific shares outside Japan at a six-month peak. The S&P 500 rose over 3 per cent while Nasdaq soared 4.3 per cent after the US and China agreed to slash tariffs for at least 90 days.
"The real win here was the shift in tone from both the US and China. Words like 'mutual respect' and 'dignity' mark a sharp departure from the recent confrontational rhetoric, and that's what markets are cheering," said Charu Chanana, chief investment strategist at Saxo in Singapore.
The US said it will cut tariffs imposed on Chinese imports to 30 per cent from 145 per cent while China said it would cut duties on US imports to 10 per cent from 125 per cent, providing relief to the markets, although concerns linger that tariffs could hurt the global economy.
The US dollar surged against the yen, euro and Swiss franc immediately after the agreement was announced but on Tuesday morning was slightly weaker, holding on to most of its gains.
Some analysts highlighted the uncertainty caused by the tariffs that remain in place.
"A de-escalation was inevitable and I think it's clear there won't be much durable that comes out of these talks," said Christopher Hodge, chief US economist at Natixis.
"When all is said and done, tariffs will still be dramatically higher and will weigh on US growth."
Ratings agency Fitch estimated that the US effective tariff rate is now 13.1 per cent, a notable decline from 22.8 per cent prior to the agreement but still at levels last seen in 1941 and much higher than the 2.3 per cent it was at the end of 2024.
US INFLATION TEST
Investor focus will now switch to details of the agreement and what happens after 90 days but before that the spotlight will be on US inflation data later on Tuesday.
"Should we be treated to another set of soft CPI figures, it could allow traders to refocus on Fed policy and the potential for cuts, and take some steam out of the dollar's rebound," said Matt Simpson, senior market analyst at City Index.
The shift in US-China trade relations has led traders to pare back bets of Federal Reserve rate cuts, inferring that policymakers are likely to be under less pressure to ease interest rates to boost growth.
Traders are now pricing in 57 basis points of cuts this year, down from over 100 basis points during the height of tariff-induced anxiety in mid-April.
US Treasury yields rose to a one-month high on Monday and were hovering near that level in early trading on Tuesday. The two-year yield was at 3.9873 per cent, while the benchmark 10-year yield was last at 4.4512 per cent.
In cryptocurrencies, bitcoin eased 0.5 per cent to US$102,146 on Tuesday but remained above the key US$100,000 level it breached last week.
Oil prices eased a bit on Tuesday after hitting a two-week high in the previous session on trade deal optimism, while gold prices were steady after dropping 2 per cent on Monday as investors exited some of the safe havens.
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