Nasdaq 100 Enters Bull Market After US-China Truce; Dollar Rises to ¥148 Range
News Summary
US stocks rose sharply after the United States and China agreed to temporarily lower some reciprocal tariffs for 90 days, boosting investor risk appetite. The S&P 500 and Nasdaq Composite closed significantly higher, with the Nasdaq 100 index gaining over 4% and entering a technical bull market. Technology stocks led the rally, with large tech companies like Amazon soaring. Pharmaceutical stocks also advanced on views that Trump administration drug price reduction efforts might be less stringent than feared. The US will lower tariffs on Chinese goods from 145% to 30%, and China will lower tariffs on US goods from 125% to 10% for 90 days, providing time for both sides to resolve differences. Analysts called the agreement a "massive positive surprise" that took the "worst case scenario off the table." US Treasury prices fell (yields rose) as returning risk appetite reduced demand for safe-haven assets. Heavy corporate bond issuance also weighed on the market. Traders lowered expectations for the number of Fed rate cuts this year, now seeing only two cuts in 2025, with the first 0.25 point cut still expected in September. The dollar strengthened against major currencies, with the Bloomberg Dollar Index posting its largest gain since November. Safe-haven currencies like the yen and Swiss franc fell sharply, with the yen dropping over 2% against the dollar at one point. Oil prices rose as easing trade tensions reduced concerns about demand declines. Gold prices fell as safe-haven demand retreated.
Background
Ongoing trade tensions between the United States and China had previously worsened the global economic growth outlook and impacted commodity markets. Specifically, the imposition of high reciprocal tariffs had a negative impact on market sentiment and risk appetite.
In-Depth AI Insights
Is the core driver of this temporary trade agreement really just the literal tariff reduction? Not entirely. While tariff reduction is the immediate cause, the deeper drivers are: - Expectation Management and Market Signaling: By taking this step, both sides signaled a willingness to negotiate and avoid a full-blown trade war escalation, which in itself significantly alleviated market panic. - Buying Time for Negotiation: The 90-day "truce" provides breathing room to address more intractable issues (like technology transfer, intellectual property protection, forced joint ventures, etc.). - Domestic Political Considerations: For the US, achieving a deal amidst market volatility and potential signs of economic slowdown boosts the stock market, favorable ahead of upcoming elections. For China, easing external pressure helps focus on internal economic structural issues. Why did the market react so strongly to this temporary 90-day agreement? The strong market reaction is due to: - "Worst Case Scenario" Averted: Before the agreement, markets widely feared a trade war escalation, even risking a full decoupling. The temporary deal, while not solving everything, removed this extreme concern for now. - Sharp Rebound in Risk Appetite: Safe-haven assets (Treasuries, gold, yen) were sold off, and funds flowed into risk assets (stocks, commodities), indicating a fundamental shift in market sentiment. - Technical Breakouts: The Nasdaq 100 entering a bull market and the S&P 500 breaking key technical levels (like the 200-day moving average and the April 2nd high) further amplified the upward momentum, attracting more capital. - Carry Trade and Position Adjustments: Large short positions in the dollar were covered, and low-yielding currencies like the yen were sold off, reflecting a rapid adjustment in market expectations regarding global yield differentials and risk conditions. Why are the other two conditions mentioned by the Morgan Stanley team (a more dovish Fed and 10-year yields below 4%) still important for sustaining the rally? These two conditions are crucial because: - Monetary Policy Has Deep Influence on Liquidity and Valuation: While trade optimism boosts the market, if the Fed remains hawkish or cuts rates less than expected, a high-interest-rate environment will still pressure corporate earnings, financing costs, and asset valuations, limiting the stock market's long-term upside. - Bond Yields Reflect Growth and Inflation Expectations: Low 10-year Treasury yields typically signal market expectations of future economic slowdown or controlled inflation, making stocks more attractive relative to bonds. If yields rise persistently due to overly optimistic growth forecasts or inflation fears, they will erode the attractiveness of stocks. - Trade Deal Doesn't Solve Macro Headwinds: The trade deal alleviates external risk but doesn't fully offset domestic macroeconomic headwinds (like potential stagflation risks or structural issues). Sustained accommodative monetary policy and lower borrowing costs are more direct tools to counter these macro challenges and support corporate earnings and investment. Therefore, lacking these two conditions means the market rally's foundation might not be solid and remains susceptible to volatility from macro data.