Mon May 12 07:50:00 UTC 2025: ## Cautious Optimism Grips Markets After US-China Trade Talks Show “Substantial Progress”
**NEW YORK** – Global markets reacted with cautious optimism Monday following the announcement of “substantial progress” in US-China trade talks. While details remain scarce, the positive declaration from the Trump administration triggered a shift towards assets linked to US and Chinese growth, away from safer havens.
US stock futures outperformed European and Asian markets, while the yen and Swiss franc weakened against the dollar. Conversely, the Australian and New Zealand dollars, considered proxies for the Chinese yuan, strengthened. This shift reflects investor hope that the ongoing trade war, a major market driver this year, may be de-escalating.
Strategists expressed a mixture of hope and caution. While some celebrated the sentiment boost, others emphasized the lack of specifics and the persistence of uncertainty. Michael Brown, a strategist at Pepperstone Group, noted that “the devil will be in the detail.” Rajeev De Mello of Gama Asset Management SA echoed this sentiment, stating that firm details on tariff reductions, ideally below 40%, are needed to justify increased investment in riskier assets.
The positive news follows a weekend of negotiations in Switzerland and builds on recent moves by President Trump to scale back some tariffs. However, the market remains wary of making large bets until concrete plans are announced to reduce levies, particularly between the world’s two largest economies. The fear remains that continued tit-for-tat tariffs could trigger stagflation, simultaneously driving recession and boosting inflation.
Despite the positive market reaction, the dollar, while extending its gains from last week’s best weekly rise since late March, is still experiencing its worst start to the year in at least two decades. Speculative traders hold significant bets against the dollar, totaling around $17 billion.
Chinese markets also saw gains, nearing a full recovery from losses incurred earlier this month when US tariffs on Chinese goods surpassed 100%. Goldman Sachs has raised its 12-month target for key Chinese indices, signaling further potential growth.
While the S&P 500 has rebounded to pre-April levels, the impact of trade uncertainty is already being felt by US businesses, with several major companies withdrawing financial guidance due to the difficulty of navigating the situation. The ongoing trade war and tariff uncertainty present significant challenges for businesses relying heavily on the US-China trade relationship. The situation remains fluid, and significant details regarding tariff reductions are still awaited.
First Piper 