The 90-day pause on tariffs between the U.S. and China has resulted in a rally and positive market sentiment. However, experts caution that this reprieve is not a definitive end to the trade war, leaving significant uncertainty over the long term.
What Happened: According to John Murillo, Chief Dealing Officer of B2BROKER, a global fintech solutions provider, the news triggered an immediate positive market response. “Stocks and oil prices have rebounded – apparently, in reaction to the news, which can lead to lower costs for businesses and consumers,” Murillo noted.
The mutually agreed-upon reduction in tariffs mirrors a similar scenario observed last week during negotiations between the U.S. and the U.K., raising hopes for a potential kickstart to global trade and economic activity.
Despite the initial positive action following the announcement, Murillo emphasized the temporary nature of the agreement. “Now, while the 90-day pause is a big step towards easing tensions, it’s crucial to remember that it doesn’t guarantee a complete resolution of the trade war.”
He underscored that the market will closely monitor the ongoing negotiations within the upcoming 90 days to determine whether the tariffs will be permanently reduced or reinstated.
Murillo stressed that some factors need to be studied and resolved before a conclusive end to the trade dispute can be declared. “There’s undoubtedly an issue of the U.S. goods’ competitive pricing and Chinese customers’ propensity to consume them in bulk volumes, which have not been studied and addressed yet to call it quits,” he said.
Why It Matters: Economic indicators will be a reflection of how these negotiations unfold. “If they (tariffs) come back or if negotiations fall through, we could face market volatility and a downturn in economic indicators,” explained Murillo.
Looking ahead, Murillo anticipates continued volatility in Treasury yields throughout the 90-day pause. “Treasury yields might experience more volatility, becoming quite sensitive to any news – whether affirmative or refuting – related to the trade negotiations and shifts in investor sentiment.”
Craig Shapiro, a macro strategist at the Bear Traps Report, reiterated the same. He believed that the so-called “tariff climb down” might prevent bond yields from falling, thereby maintaining pressure on an already strained economy as the Federal Reserve remains on the sidelines.
According to him, inflationary effects from existing tariffs on aluminum, steel, and cars could continue to push up prices and inflation expectations, and this will prevent bond yields from falling, as investors demand higher yields to offset inflation risk and perceived economic uncertainty.
Price Action: The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, jumped with joy on Monday. The SPY was up 3.30% to $582.99, while the QQQ advanced 4.07% to $507.85, according to Benzinga Pro data.
On Tuesday, the futures of the Dow Jones, S&P 500, and Nasdaq 100 indices were trading lower.
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