Asian markets soared on Tuesday following a strong overnight rally in US equities, as a breakthrough in US-China trade relations renewed investor confidence and sparked a global risk-on sentiment. The truce in tariffs between the world’s two largest economies marks a significant shift away from the escalating trade war that had roiled global markets for over a year.

Broad Market Gains Across Asia

Japanese shares extended their winning streak, with the Topix index rising for a 13th straight session, the longest stretch in 16 years. Similarly, Australia’s stock market opened stronger, tracking Wall Street’s rally. The Hang Seng China Enterprises Index and the Hang Seng Index in Hong Kong jumped around 3% on Monday, reflecting relief in Chinese markets.

This broad-based rally followed a surge in the S&P 500, which closed more than 3% higher, and a 5.4% gain in US-listed Chinese stocks, their best performance in over two months.

Details of the US-China Truce

The renewed market enthusiasm was driven by a joint statement from the US and China, which revealed the following steps toward de-escalation:

• US tariffs on Chinese goods were cut from 145% to 30% for a 90-day period.

• China reduced levies on most US goods to 10%, effective immediately.

This deal marked the most significant cooling in tensions since the onset of the trade war, sending a clear signal to markets that both sides are willing to compromise.

Impact on Currency and Bond Markets

The US dollar remained largely unchanged in Asia after jumping on Monday. However, US Treasury yields surged as traders reassessed the path of Federal Reserve interest-rate cuts. The 10-year yield rose nine basis points Monday before easing slightly on Tuesday.

Swaps markets now show only 56 basis points of expected Fed easing by December, down from nearly 75 basis points last week. The first anticipated rate cut is now pushed to September, showing less urgency for monetary support amid a more stable economic outlook.

Rebound in Risk Appetite

The current optimism is seen as a reversal from April’s chaos, when:

• Investors took defensive positions

• Popular trades included shorting the dollar and betting on aggressive Fed cuts

• Stock volatility surged amid geopolitical and economic fears

The rebound in equity markets, especially in sectors hit hardest by tariffs, is being partially fueled by the unwinding of these trades, providing a technical lift to prices.

Tech Surge and Bull Market Signals

In the US, big tech stocks led the charge, helping to push the Nasdaq 100 back into bull market territory, just a month after it plunged 20% from a previous high. This V-shaped recovery signals renewed investor confidence, particularly in growth sectors like technology.

President Donald Trump, who dubbed April 2 as “Liberation Day” with new tariff announcements, later reversed some of the toughest measures on April 9. He also encouraged investors to buy stocks, and those who followed his advice have seen one of the strongest rallies during his administration.

Market Outlook and Sectoral Opportunities

Analysts at HSBC Bank, including Max Kettner, wrote that this trade breakthrough raises the likelihood of further deals, potentially driving more upside risk across risk assets. However, they cautioned that future negotiations may still be bumpy, and any temporary weakness could be viewed as a buying opportunity.

In China, Daiwa Capital’s equity strategist Patrick Pan projected further gains in Chinese equities, especially for tariff-hit sectors such as:

• Electronics

• Textiles

• Shipping

• Electrical equipment

These tactical opportunities could offer short-term profits for traders anticipating a sustained rebound from the easing trade tensions.

Japanese and Chinese Leaders Respond

In Japan, Prime Minister Shigeru Ishiba maintained a cautious tone, stating that no trade agreement would be accepted unless it included autos, highlighting the continued strategic importance of automotive trade in US-Japan relations.

In China, the swift resolution of tariff issues was seen as a win for stability, allowing local markets to recover and potentially drive short-term performance in mainland and Hong Kong indices.

US Central Bank and Inflation Concerns

Fed Governor Adriana Kugler highlighted the ongoing risk of inflation due to the Trump administration’s shifting trade policies, even with the recent reduction in tariffs. Speaking at an event in Dublin, she noted that:

“Trade policies are evolving and are likely to continue shifting… they appear likely to generate significant economic effects even if tariffs stay close to the currently announced levels.”

This means that while market sentiment is currently positive, macroeconomic risks from policy uncertainty have not disappeared.

Conclusion: Mixed Signals Amid Optimism

While markets have welcomed the trade truce, investors must remain cautious. The Fed’s rate path, trade policy volatility, and ongoing geopolitical negotiations all point to continued uncertainty. However, the current rally, especially in tech and China-exposed sectors, suggests that investor confidence is returning, at least in the short term.

Those betting on a sustained bull market may want to look toward tariff-hit industries, Asian indices, and US tech stocks as potential outperformers in the near future.

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