Asian stocks rise on US-China trade truce

Asian stocks followed gains in US equities on optimism the US-China trade truce marks the end to an all-out tariff war.

Shares in Australia and Japan jumped at the open after the S&P 500 closed more than 3% higher. Japan’s Topix gained for a 13th day, putting it on track for it longest winning streak in 16 years. A gauge of US-listed Chinese stocks surged 5.4% on Monday in its best session in over two months. The dollar was little changed in Asia after jumping Monday.

The return of risk appetite came as trade negotiators from the world’s two biggest economies announced Monday a massive de-escalation in tariffs. In a carefully coordinated joint statement, the US slashed duties on Chinese products to 30% from 145% for a 90-day period, while Beijing dropped its levy on most goods to 10%.

For investors shocked into defensive measures at the height of April’s chaos, the rebound in markets has been a mixed blessing. Shorting the dollar, going long stock volatility and piling on bets premised on multiple Federal Reserve interest-rate cuts were among the most popular trades in mid-April. Now, their unwinding may be adding fuel to the bounce-back.

“There’s very clearly upside risk for the broader risk asset spectrum now as markets will likely extrapolate a higher likelihood of further deals in the coming weeks,” HSBC Bank strategists including Max Kettner wrote in a note to clients. “Things could easily turn out a bit bumpier in future trade negotiations — but clearly the US administration has altered its tone such that future episodes of weakness should be used as buying opportunities.”

Diminished expectations of a recession drove the US stock benchmark above President Donald Trump’s April 2 “Liberation Day” level. A surge in big tech shares put the Nasdaq 100 back into a bull market just about a month after it plunged 20% from a previous record.

Amid a potential reset in inflation expectations, Treasury yields jumped Monday as traders lowered their Fed wagers to just two rate cuts in 2025. After surging nine basis points Monday, the 10-year yield slipped back two basis points Tuesday.

The reverberations of Trump’s trade war are likely to keep affecting global markets in coming months. In Japan, Prime Minister Shigeru Ishiba said Monday that his government won’t accept any initial trade agreement with the US that excludes an accord on autos.

In China, there was a sense of relief that the trade negotiations between the two biggest economies had quickly borne fruit. The Hang Seng China Enterprises Index and Hong Kong’s benchmark Hang Seng Index both closed the day 3% higher Monday.

“We expect the ‘trade optimism’ to send China equities higher in the near term, with the Hang Seng Index likely to advance closer to its March peak,” Patrick Pan, equity strategist at Daiwa Capital Markets Hong Kong Ltd., wrote in a note. “We see tactical trading opportunities for ‘tariff-hit industries’ like electronics, textile, shipping and electrical equipment.”

Investors who followed Trump’s advice on social media in the past month have enjoyed one of the biggest rallies in the S&P 500 under his leadership.

Having slumped on Trump’s “Liberation Day” tariff announcement, the benchmark soared in the month after he said it was “a great time to buy” on April 9 — hours before he paused some of the harshest levies in a century. He reiterated that on May 8, telling reporters the economic outlook warranted piling into stocks.

Swaps that track upcoming central bank meetings showed just 56 basis points of easing by December, down from near 75 basis points last week. Traders still see the first quarter-point cut in September.

Fed Governor Adriana Kugler said the Trump administration’s tariff policies are likely to boost inflation and weigh on economic growth, even with the recently announced reduction in levies on China.

“Trade policies are evolving and are likely to continue shifting, even as recently as this morning,” Kugler said Monday in remarks prepared for an event in Dublin. “Still, they appear likely to generate significant economic effects even if tariffs stay close to the currently announced levels.”