The US and China surprised investors by slashing their tit-for-tat tariffs as they seek to reset their relationship, with presidents Donald Trump and Xi Jinping potentially talking at the end of the week.
Stocks on Wall Street surged on the better-than-expected reprieve, with the Magnificent 7 propelling the market higher as Amazon and Meta Platforms led gains among the megastocks.
The greenback rallied on the news, knocking about three-quarters of a cent off the kiwi, which will bode well for local exporters such as Fisher & Paykel Healthcare and The a2 Milk Co.
Meanwhile, artificial intelligence startup Perplexity is raising money, valuing it at US$14 billion, and plans to launch its own web browser to challenge Google Chrome and Apple’s Safari.
Happy days
“The new week has begun with some significant moves in market prices, following de-escalation of the US-China trade war, with both parties agreeing to temporarily reduce tariffs to more palatable levels ahead of further talks,” Bank of New Zealand senior markets strategist Jason Wong said in a note. “The reduction in tariffs is only temporary and therefore some uncertainty continues to overhang businesses and the market, but many will now assume that the new level will probably become permanent and more punitive tariffs probably won’t return.”
The Nasdaq surged 4% and the S&P 500 was up 3% after the US and China announced the thawing in their tense relations, with a 90-day reprieve on the most punitive tariffs while negotiations continue.
The US has knocked its 125% reciprocal tariff down to 10% and will keep the 20% tariff over China’s role in the fentanyl trade, while China cut its 125% retaliatory tariff to 10%.
Trump said the talks over the weekend achieved a total reset with China and that he might speak with Xi at the end of the week.
The tariff regime boosted the US federal government’s books in the month of April, with net customs duties of US$16 billion up by US$9 billion a year earlier.
Just magnificent
The major US tech stocks were all stronger, with Amazon posting the biggest gain as it advanced 8% and Meta up 7.6%, while Microsoft rose a more modest 2.1% and Google-parent Alphabet was up 3.9%.
Perplexity was reportedly in talks to raise US$500 million, with venture capital firm Accel set to lead the round, in a deal valuing the AI startup at US$14 billion. The company plans to launch a new browser to challenge the incumbents, providing summarised answers as opposed to links to websites.
The European Union is analysing the deal as it prepares for its own negotiations with the US, and Trump described the bloc as treating the US “very unfairly”.
Everything’s fine
Stock markets in Europe were also stronger with the UK’s FTSE 100 index increasing 0.6% and France’s CAC 40 climbing 1.4%.
Sportswear makers Puma and Adidas and logistics firms Maersk and Hapag-Lloyd were among the companies to rally.
Meanwhile, defence stocks were weaker ahead of peace talks between the Ukraine and Russia on Thursday.
The tariff reprieve also supported demand for the greenback, pushing the kiwi dollar down to 58.56 US cents at 7am in Auckland from 59.27 cents yesterday, while safe-haven assets such as gold were weaker, with futures down 3.3% at US$3,233 an ounce.
The investor optimism is set to continue into the local trading session with Australian futures pointing to a 1% gain for the S&P/ASX 200 index.
There’s no local data scheduled today, while across the Tasman there are separate business and consumer confidence surveys.
Reporting by Paul McBeth. Image from Stella Guan on Unsplash.