Asian markets and global equities surged following reports that the United States and China made “substantial progress” in their recent trade talks, lifting investor sentiment and fueling a broad-based rally across risk assets. The positive momentum comes after two days of high-level discussions in Geneva, where both sides expressed optimism about narrowing differences, signaling a potential resolution to the prolonged trade war.

Asia-Pacific Equities Soar

Shares in Japan, Australia, and South Korea opened higher, with the Topix index marking its 12th consecutive day of gains, the longest streak since October 2017. This upward momentum mirrored futures movements in the US, with contracts on the S&P 500 and Nasdaq 100 jumping more than 1.2%, reflecting growing confidence that a truce—or at least a pause—in trade tensions is within reach.

Dollar Strengthens, Safe-Haven Assets Fall

As investors embraced risk, the dollar strengthened against major currencies, while gold fell by 1.5%, highlighting a shift away from safe-haven assets. At the same time, oil prices edged higher, supported by both improved demand sentiment and geopolitical developments. The yield on the 10-year US Treasury rose by 3 basis points, suggesting rising optimism about future economic growth.

US-China Trade Talks Offer Hope

During their post-meeting statements, US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer said they were encouraged by the negotiations and planned to share more details soon. Greer emphasized that the differences between both sides were “not as large as maybe thought.” Chinese officials echoed similar optimism, stating the talks had fostered “sound sustainable development” in bilateral ties.

This development marks a significant moment for markets, particularly because tariffs imposed by both nations have weighed heavily on global growth, raised prices, and disrupted trade flows. The two nations account for $700 billion in annual two-way trade, and China holds an estimated $1.4 trillion in US portfolio investments.

Market Sentiment Hinges on De-escalation

Despite the current rally, analysts caution that further gains hinge on tangible actions, such as tariff rollbacks. Rounds of retaliation have escalated US tariffs on Chinese imports to 145%, while China has imposed duties as high as 125% on American goods. Before the weekend, insiders noted that the US aims to lower tariffs below 60% as an initial step, with hopes that China may reciprocate.

President Donald Trump, though, has been erratic on the issue. In a recent social media post, he suggested an 80% tariff “seems right”, prompting concerns over the long-term stability of any agreement.

Global Business Impact Remains Noticeable

The trade war has already taken a toll on American businesses. Companies like UPS, Ford Motor Co., and Mattel Inc. have withdrawn earnings guidance citing uncertainty. According to Bloomberg Intelligence, the average S&P 500 company earned 6.1% of its 2024 revenue from China, underscoring the deep commercial ties at stake.

Strategic Views from Analysts

According to Homin Lee, senior macro strategist at Lombard Odier Singapore Ltd, although investors are still awaiting concrete details, the overall tone is encouraging. “This should lift sentiment toward China and the broader Asia-Pacific region,” he noted.

Valentin Marinov, head of G-10 FX research at Credit Agricole, added that reduced geopolitical and trade tensions could significantly benefit risk-linked assets. He predicted gains in emerging market currencies and risk-sensitive equities, while safe-haven assets like the yen, Swiss franc, and euro may weaken.

Other Global Developments Fuel Sentiment

Beyond the US-China dialogue, a ceasefire between India and Pakistan, as well as prospects of a meeting between Russian President Vladimir Putin and Ukraine’s Volodymyr Zelenskiy, also contributed to the improved global outlook. These developments have collectively reduced market anxieties about geopolitical flashpoints.

Cautious Optimism for the Future

While the current rally reflects a genuine shift in sentiment, experts warn that investor enthusiasm may be tempered if progress stalls or if either side reverts to hardline positions. The situation remains dynamic, with Trump’s policy unpredictability and China’s strategic patience adding layers of complexity.

In conclusion, the latest developments between the US and China have offered global markets a much-needed boost, but sustained momentum will depend on concrete steps toward de-escalation. Investors remain hopeful, yet cautious, as they await details on tariff reductions, long-term economic cooperation, and broader geopolitical stability.

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