[New York Stock Market] U.S.-China Surprise Tariff Cut Sparks Rally... Nasdaq Soars 4.35%

US and China Slash Tariffs by 115 Percentage Points for 90 Days
Tariff War Paused as Both Sides Step Back from the Brink
Trump: "China to Open Its Market... Will Speak with Xi This Weekend"
Dollar Surges; Treasury Yields Rise as Investors Favor Risk Assets
Best Buy Jumps 6.5%... Amazon Up 8%

On May 12 (local time), all three major U.S. stock indexes in New York closed sharply higher. The rally was fueled by growing optimism that the U.S. economy could avoid a recession, as the United States and China, which had been engaged in a brinkmanship tariff war, unexpectedly agreed to lower their mutual tariffs by 115 percentage points each, easing trade tensions between the two countries. The S&P 500 index, the benchmark for the U.S. stock market, has nearly recovered its losses for the year. The value of the U.S. dollar rose, and as risk appetite increased, U.S. Treasury yields surged.

Reuters Yonhap News

On this day in the New York stock market, the Dow Jones Industrial Average, which focuses on blue-chip stocks, closed at 42,410.1, up 1,160.72 points (2.81%) from the previous trading day. The S&P 500 index, which tracks large-cap stocks, jumped 184.28 points (3.26%) to 5,844.19, while the tech-heavy Nasdaq index soared 779.43 points (4.35%) to close at 18,708.34. The S&P 500 index, which had been sluggish this year due to the impact of tariffs, is now on the verge of recovering 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 U.S. tariff rate on Chinese goods will drop from 145% to 30%, and China's tariff rate on U.S. goods will decrease from 125% to 10%. This tariff reduction will be in effect for 90 days. As the United States and China, which had escalated the trade war to a game of chicken by raising tariffs to triple digits after President Donald Trump took office, achieved better-than-expected results at their first negotiation, optimism is rising about the possibility of additional agreements in the future.

President Trump, speaking to reporters at the White House on this day, said, "We have reached a very good trade agreement," and evaluated that "the best part of this deal is that China has agreed to open its market to U.S. companies." He added that China has agreed to "stop and eliminate non-monetary (non-tariff) trade barriers," emphasizing, "They agreed to open up China, and completely at that. This will be a great thing for both China and us." President Trump also stated that relations with China are friendly and that he would speak with President Xi later this weekend. Scott Besant, U.S. Treasury Secretary and a participant in the U.S.-China trade negotiations, also said in an interview with CNBC on this day, "We expect to meet with the Chinese delegation again in the coming weeks to reach a larger agreement."

With the United States achieving a significant reduction in tariffs in its first trade negotiation with China, following its trade agreement with the United Kingdom on May 8, there is a growing assessment that the tariff war, which had been escalating into a global all-out conflict, has passed its peak. Optimism is also spreading that substantial trade agreements could be concluded in succession within the 90-day period during which the United States has suspended mutual tariffs by country.

Jeff Kilburg, CEO of KKM Financial, diagnosed, "Investors were surprised by the speed of progress in the U.S.-China tariff negotiations, which triggered the market rally."

Jeff Buchbinder, Chief Equity Strategist at LPL Financial, noted, "No one expected the tariff rate on China to be this low," calling it "a very positive surprise." However, he added, "This is not a trade agreement but a de-escalation, and there is still much work to be done."

The market is expected to digest the results of this week's U.S.-China tariff negotiations while also focusing on inflation and consumer data. On May 13, the Consumer Price Index (CPI) for April will be released, followed by the Producer Price Index (PPI) for April on May 14. The next day, on May 15, retail sales data, a key indicator that accounts for two-thirds of the U.S. economy, will be announced. As household and business sentiment has begun to weaken due to tariffs, the key question is whether the effects of tariffs have started to be reflected in U.S. inflation and retail sales indicators.

By sector, U.S. electronics retailer Best Buy surged 6.57%. Best Buy's dependence on China in its electronics supply chain reaches 55%. Major U.S. retailers Target and Home Depot rose 4.85% and 3.83%, respectively. Amazon soared 8.07%, while Apple and Tesla climbed 6.31% and 6.75%, respectively.

The value of the dollar is rising. The dollar index, which measures the value of the U.S. dollar against the currencies of six major countries, is up 1.41% from the previous trading day at 101.58.

As risk appetite increases, prices of safe-haven assets such as government bonds are falling, and bond yields are on the rise. The 10-year U.S. Treasury yield, the global benchmark for bond rates, jumped 10 basis points (1bp=0.01 percentage points) from the previous trading day to 4.47%, while the 2-year U.S. Treasury yield, which is sensitive to monetary policy, rose 11 basis points to around 4.0%.