US and China Agree to Cut Tariffs by 115 Percentage Points for 90 Days
Tariff War on Hold After Brinkmanship
Besant: "Larger Agreement Expected in a Few Weeks"
S&P 500 Set to Recover Yearly Losses... Dollar Strengthens
Best Buy, Amazon Surge Over 8%
The three major indices on the New York Stock Exchange surged sharply in early trading on May 12 (local time). The market is rallying on expectations of eased trade tensions after the United States and China, which had been engaged in a brinkmanship tariff war, made a surprise agreement to each lower their mutual tariffs by 115 percentage points. The S&P 500 index, the benchmark for the US stock market, appears poised to recover all of its losses for the year. The value of the US dollar is also rising.
As of 9:30 a.m. on the New York Stock Exchange, the blue-chip Dow Jones Industrial Average (Dow) was up 1,045.62 points (2.53%) from the previous trading day, standing at 42,295. The large-cap S&P 500 index rose by 165.74 points (2.93%) to 5,825.65, while the tech-heavy Nasdaq index jumped 743.27 points (4.15%) to 18,672.18. Attention is focused on whether the S&P 500, which has struggled this year due to the impact of tariffs, can recover its closing price from the first trading day of the year (5,868.55).
The United States and China announced on this day that, following their first official trade negotiations held in Geneva, Switzerland on May 10-11, they would each lower their mutual tariff rates by 115 percentage points. As a result, the US tariff rate on Chinese goods will drop from 145% to 30%, and China's tariff rate on US goods will fall from 125% to 10%. This tariff reduction will be in effect for 90 days. Since the inauguration of US President Donald Trump, both countries had escalated tariffs into triple digits, turning the trade conflict into a game of chicken. Now, with the first round of talks yielding results beyond expectations, optimism is growing over the possibility of further agreements in the future.
US Treasury Secretary Scott Besant, after announcing the agreement results in the morning, stated, "The consequences of high tariffs amounted to a de facto embargo between the two countries," and added, "Both delegations agreed that neither side wants decoupling." In a subsequent interview with CNBC, he said, "I expect to meet again with the Chinese delegation within the next few weeks to reach a larger agreement." The Chinese Ministry of Commerce also issued a statement saying, "We hope the United States will continue to engage with China based on this meeting and thoroughly correct the wrongful act of unilaterally raising tariffs."
On Wall Street, there is an assessment that, following the US’s trade agreement with the United Kingdom on May 8 and the significant tariff reduction achieved in the first talks with China, the tariff war that was heading toward a full-scale conflict has now passed its peak.
Kurt Lyman, head of fixed income at UBS, said, "While trade uncertainty has peaked, market volatility is expected to persist," and added, "Our baseline expectation is that the effective US tariff rate, excluding China, will ease to 15% by the end of the year."
The market is expected to digest the results of the US-China tariff negotiations this week while also paying close attention to inflation and consumer indicators. The Consumer Price Index (CPI) for April will be released on May 13, followed by the Producer Price Index (PPI) for April on May 14. On May 15, the retail sales index?which serves as the backbone of the US economy, accounting for two-thirds of economic activity?will be announced. As household and corporate sentiment has begun to weaken due to tariffs, the key question is whether the effects of tariffs are now being reflected in US inflation and retail sales indicators.
By stock, US electronics retailer Best Buy is soaring by 8.1%. Best Buy relies on China for 55% of its electronics supply chain. Major US retailer Target is up 5%. Amazon is surging by 8.56%, Apple is up 5.14%, and Tesla is rising by 5.3%. Nvidia is showing a strong gain of 4.92%.
The value of the dollar is rising. The dollar index, which measures the value of the US dollar against the currencies of six major countries, is up 1.21% from the previous trading day, standing at 101.38.
US Treasury yields are also on the rise. The 10-year US Treasury yield, which serves as a global bond benchmark, is up 7 basis points (1bp = 0.01 percentage point) from the previous trading day to 4.45%. The 2-year US Treasury yield, which is sensitive to monetary policy, is up 10 basis points from the previous day, trading at around 3.99%.
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