President Trump declared that China agreed to remove non-tariff trade barriers, and it probably stands as a reference to the country’s scarce earth export controls imposed on the United States back in April. The market rally also appears to pause for now, as investors still wait to hear more details of the US-China trade agreement.
After trade talks, US President Donald Trump declared to reporters at the White House that “China will also suspend and eliminate all of its non-monetary barriers. They have agreed to do that,” as he explained. “It will take a while to paper it. That’s not really the easiest thing to paper,” as he later added.
In early April, China also imposed rare earth export restrictions on the United States, as a major non-tariff countermeasure to Trump’s reciprocal tariffs. The export controls affected no less than seven critical minerals, on which the United States heavily relies.
All those minerals are quite essential components in the manufacturing of electric vehicles and electronic devices. Trump’s remarks would also suggest that whether China decides to suspend or remove its export controls on the aforementioned minerals is probably the most important term in their negotiations.
The removal or even suspension of the controls could only bolster more optimism, especially surrounding a de-escalation of trade tensions. On Monday, the world’s largest economies also reached an agreement to pause tariffs for 90 days. The US could reduce tariffs on China to 30% from 145%, while China will lower import levies on US goods to 10% from 125%.
Stock market rally loses its steam
The broad-based market rally showed many signs of retreat during Tuesday’s Asian session, indicating investor caution over the marked progress of US-China negotiations. Even if both sides agreed to fully establish a mechanism for the upcoming discussions following the weekend’s talks, no specific dates have yet been set for future meetings.
US stock futures declined, which points to a lower open. As of 4:50 am CEST, the Dow Jones Industrial Average dropped 0.25%, the S&P 500 dropped by 0.38%, and the Nasdaq Composite slid 0.47%. By contrast, European major index futures were far more resilient, with the Euro Stoxx 600 slipping 0.17%, the DAX flat, and the FTSE 100 falling by 0.23%.
Markets still wait for more details of the agreement, especially regarding China’s non-tariff countermeasures. Investors are also wildly concerned about whether a comprehensive trade deal can be efficiently secured between the two nations, especially after the 90-day break.
“The critical issue from here is trying to solidify trade deals, as well as making sure the reduced tariffs don’t lapse after 90 days,” wrote Kyle Rodda, a senior market analyst at Capital.com. He also mentioned that markets are looking to see whether or not the US keeps this momentum and nut out other deals with its other trading partners. If that were to actually take place, the recovery in equities and the dollar would continue.
Euro rebounds from month-low
The US dollar tweaked slightly against other bigger G10 currencies, especially during the early Asian session. The EUR/USD pair rapidly rebounded to above 1.11, right after falling to as low as 1.1065 at the beginning of the month, which was its lowest since April 10.
These days, the euro was seen as a great haven asset in April, especially since the trade war heightened fears of a global economic recession. The common currency basically surged against the greenback last month to the highest level it has ever achieved since November 2021. But the euro’s rally could potentially reverse course, especially if future US-China negotiations lead to further de-escalation of trade tensions.
At the moment, investors seem to be seeking bargains in US assets amid an increase in risk-off sentiment. Despite this trade war, the impact on America’s economy is expected to stop at the moment. The market sell-off has been driven more by deteriorating sentiment than by any downturn.
Markets will soon turn their attention to the United States Consumer Price Index (CPI) for April, which is bound for release on Wednesday. Sticky inflation could only drive up the dollar, hence putting more pressure on the euro. Markets also expect the Federal Reserve to reduce interest rates twice this year, as a response to tariff-driven inflationary risks.
Equity markets’ reaction to Trump’s tariff announcements
While he was campaigning for a second term, President Donald Trump committed the United States to sweeping tariffs with no precedent since the Second World War. Right after his inauguration, Trump issued more than one Executive Order (EO) and a press release, both meant to either enact or reverse the tariffs. Anticipation, enactment, and then pauses in this tariff agenda ultimately affected US and global equity markets.
Next up on the diplomatic front: Trump joins Russia-Ukraine direct peace talks in Istanbul
United States President Donald Trump offered to participate in the peace talks that Russia’s President Vladimir Putin suggested should be held directly with Ukraine, especially after criticism of the Western “ultimatums” to finally end the conflict between the two Slavic nations.
Trump also declared that he was “thinking of actually flying over” to the Turkish city of Istanbul to attend the negotiations bound to take place on Thursday. The initiative was very welcomed by Ukraine’s President Volodymyr Zelenskyy.
As he stated, “all of us in Ukraine would deeply appreciate it if President Trump were able to attend this meeting in Turkey. This is the right idea. We can change a lot.” Trump also publicly asked Zelenskyy to attend, right after Putin proposed the direct talks following a rejection of a 30-day ceasefire, especially after Ukraine’s Western allies insisted it should come first.
The Ukrainian leader agreed to it but mentioned that Putin should also attend in person. On Tuesday, his adviser, Mykhailo Podolyak, reiterated that Zelenskyy would only meet Putin, with no other member of the Russian delegation.
The Kremlin made no comment on whether or not Putin plans to travel to Turkiye himself. ‘We are fully committed to a serious search for ways of a long-term peaceful settlement.” said Dmitry Peskov, Kremlin spokesman.
In the meantime, Ukraine stated that its air defence units completely destroyed all 10 drones that Russia launched overnight on Tuesday. So far, this is the lowest number of drones Russia has ever launched in an overnight attack in weeks.
Zelenskyy and Turkish President Tayyip Erdogan discussed the talks so far, which Zelenskyy believes might “help end the war.” Erdogan also described the proposed meeting as a brand-new window of opportunity. Russian Foreign Minister Sergei Lavrov also discussed on the telephone with his Turkish counterpart, Hakan Fidan, about Putin’s proposed talks with Ukraine on Thursday. However, a brief Russian foreign ministry account gave zero indication whether or not Putin would even accept the Ukrainian president’s proposal to meet him.
Moreover, the German government said Europe would start preparing brand new sanctions against Russia, unless the Kremlin starts abiding by a 30-day ceasefire in its war with Ukraine.
In the meantime, Ukraine’s military declared that Russia conducted plenty of attacks along the front in eastern Ukraine, despite the ceasefire proposal from Europe and Kyiv. “The clock is ticking,” a German government spokesperson declared at a news conference in Berlin.
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