Actions futures shot the highest Monday after the United States and China announced an agreement to reduce their reciprocal tariffs, offering a feeling of relief for investors who feared an important economic recession of the commercial policies of President Donald Trump.
In the market prior to the market on Monday morning, the futures of the Dow Jones industrial average pointed to the index opening approximately 1,000 points higher, which would be an increase of approximately 2.5%. S&P futures showed a 3% higher, while Nasdaq’s futures increased almost 4%.
Beyond the actions, other signs pointed out the growing optimism that the economic damage of tariffs could end up being limited. In particular, the chances of the Fed maintaining interest rates at the current levels until its July meeting increased almost 10 percentage points for fear that current levels of inflation do not decrease. There had been increasing expectations that an economic deceleration related to tariffs would push Fed to reduce rates to boost the economy.
In a joint statement on early Monday, the United States announced that it would reduce tariffs that collected Chinese imports from 145% at a rate of 30%, while China’s taxes on US imports would fall from 125% to 10%. For the US, the 30% rate represents a reference rate of 10% plus a 20% rate imposed so that China slows the fentanyl flows.
Even with some still valid duties, the reaction to the announcement of the early markets on Monday has been almost euphoric. The actions had already recovered the losses observed since the announcement of the “Liberation Day” of Trump on April 2, but the important rates remained up to 10% lower since the inauguration.
“We believe that the risk of a more severe economic recession is now more limited, and we describe US actions as attractive,” UBS analysts said in a client note on Sunday night, even before the joint statement has been published.
But although the reduction of tariffs is larger than some analysts had anticipated, there are tensions and goods sent from China will remain more expensive for US consumers in relation to the scenario prior to rates.
According to Capital Economics Consultancy, a 30% rate, which is effectively 40% when other products are taken into account, is “substantially higher than most in other countries,” Capital Econ analysts said in a note.
Meanwhile, the “underlying strains that put the United States and China in a collision course” in the first place, mainly the great commercial imbalance in which the United States incurs with China, “they have not left,” analysts said.
What is worse, “the differences are broader now” in the middle of the United States so that countries such as the United Kingdom exclude China from their supply chains, analysts wrote.
In an appearance in CNBC, the Treasury Secretary, Scott Besent, said it would be “unlikely” that tariffs fall below 10%, even if more negotiation advances were reached. He also said that the United States would continue to seek “decoupling” from China in strategic industries such as steel and semiconductors.
Even so, he gave an optimistic tone about the perspective of future meetings.
“We did a lot for two days,” he said. “So I imagine that in the coming weeks, we will meet again to reach a more satisfied agreement.”
