US-China Trade War Truce Causes US Stock Market Surge…Nasdaq Up 3.6%

Safe Assets Like Treasury Bonds, Gold, and Yen Plummet

The temporary truce in the US-China trade war led to a surge in the New York Stock Exchange on the 12th (local time).

At 10 a.m. Eastern Standard Time, the S&P 500 index rose by 2.6%. The Nasdaq Composite Index surged by 3.6%. The Dow Jones Industrial Average increased by 1,021 points (2.5%).

Safe assets like Treasury bonds, gold, and yen plummeted.

As speculation spread that the possibility of a recession had decreased, Treasury bonds plummeted. The 10-year Treasury yield rose by 7 basis points (1bp=0.01%) to 4.451%, and the policy-sensitive 2-year Treasury yield rose by 10bp to 3.991%. Bond prices and yields move in opposite directions. Another safe asset, spot gold price, fell by 2.7% to $3,235.46 per ounce.

The Bloomberg Dollar Spot Index rose by 0.8%, and the Japanese yen fell by 1.7% to 147.89 yen per dollar.

Risk asset Bitcoin surpassed $105,000.

Treasury Secretary Scott Besant announced that the US and China agreed to suspend tariffs by 115% points for 90 days. As a result, US tariffs on Chinese goods, including fentanyl tariffs, were reduced to 30%, and China's tariffs on US imports were lowered to 10%. Secretary Besant stated that they would meet with China again in the coming weeks to reach a larger agreement.

Stocks of technology companies and electronics and appliance retailers, which were heavily exposed to Chinese tariffs, rose significantly. Best Buy rose by 8.7%, Dell Technologies by 7.8%, Amazon.com by 8%, and Apple by more than 5%.

Meanwhile, the stock prices of US and global pharmaceutical companies showed weakness as President Trump signed an executive order to reduce prescription drug prices by 30-80% that morning. President Trump has pledged to announce drug tariffs within 2-3 weeks.

President Trump also stated that tea, steel, and pharmaceuticals were not included in the agreement with China.

Kurt Lyman, head of UBS's bond division, stated in a report that "trade-related uncertainty has peaked, but market volatility will continue." He predicted that the effective US tariff rate (excluding China) would ease to 15% by the end of the year.

The S&P 500 index has entered a correction, falling more than 20% from its February peak after Trump announced reciprocal tariffs on 'Liberation Day.'

Carol Schleif of BMO Private Wealth said, "While the reduction in tariffs between the US and China is temporary, the framework for ongoing negotiations is what the market had hoped for."

However, Morgan Stanley strategists emphasized that it is still too early to say the US stock market is safe. The team led by Michael Wilson pointed out that for the stock rally to last, the trade negotiations with China, stable corporate profits, the Fed's dovish stance, and the 10-year Treasury falling below 4% without recession data are necessary.

This week, the Consumer Price Index will be released on Tuesday, and retail sales and the Producer Price Index will be announced on Thursday.

Guest reporter Kim Jung-ah kja@hankyung.com