US and China agree to temporary tariff cuts boosting global markets rally

Global stock markets surged on news that the United States and China have agreed to temporarily reduce trade tariffs, creating a 90-day negotiation period to seek a long-term resolution. This unexpected shift in trade policy sparked strong gains across major indices, with investors viewing it as a positive step towards stabilising global economic growth.

Germany’s DAX index closed at another record high, rising 0.3 per cent to 23,566.54, while France’s CAC 40 surged 1.4 per cent for its best day in two weeks. In London, the FTSE 100 climbed 50.18 points, or 0.6 per cent, closing at 8,604.98, its highest level since early April. The more domestically focused FTSE 250 also reflected optimism, adding 123.01 points to hit 20,627.38. Analysts described the move as the “best-case scenario” for markets.

Across the Atlantic, US indices rallied sharply. The technology-heavy Nasdaq Composite led the way, gaining 4.4 per cent, while the S&P 500 rose 3.3 per cent to 5,866.75. The Dow Jones Industrial Average added 2.8 per cent, closing at 42,410.10. The sharp rebound in equities indicated renewed investor confidence after weeks of volatile trading spurred by tariff fears.

Safe-haven assets, including gold, experienced a sharp sell-off as investors adjusted to the more positive outlook. Gold prices fell by 3.5 per cent to $3,220 an ounce, recording their biggest drop in three weeks. Oil markets also rose, with Brent crude climbing 1.6 per cent to $64.96 a barrel, reflecting optimism that a resolution to US-China tensions could spur global energy demand.

While this de-escalation offers hope, analysts have warned that long-term economic stability hinges on whether President Trump and President Xi can finalise a comprehensive trade agreement. Although the temporary reduction in tariffs was widely celebrated, experts remain cautious. Citigroup analysts reminded markets that a similar 90-day truce in 2018 failed to bring a lasting resolution, suggesting that challenges remain in reconciling major policy differences between the world’s two largest economies.

The yield on ten-year US Treasuries climbed to 4.45 per cent, reflecting a tempered outlook among bond investors. The dollar strengthened against global currencies, highlighting optimism among foreign exchange markets. However, some experts noted that Trump’s trade policy could continue to incentivise protectionist measures, which may dampen global growth prospects over the long term.

The move to reduce tariffs has been seen as a rare compromise amid the escalating trade tensions of recent years. With significant gains in equity markets and improved economic sentiment, this temporary thaw in relations has bought time for negotiators on both sides to work towards a more permanent solution.