US-China Trade Truce and Polish Market Sentiment: A Confluence of Opportunities in Equities and Rates

The global investment landscape is at a crossroads. A temporary truce in US-China trade tensions, coupled with the European Central Bank's (ECB) rate-cut cycle and Poland's resilient equity market, has created a fertile environment for strategic allocations. Investors should lean into cyclical sectors—technology, industrials, and materials—while hedging against bond-market volatility ahead of the critical US jobs report. Here's why this confluence of macro and geopolitical factors demands a bold, equity-focused strategy.

The Trade Truce: A Catalyst for Risk-On Sentiment

The 90-day US-China tariff truce, which slashed headline tariffs from 145% to 30%, has injected a much-needed dose of optimism into global markets. Equity indices like the S&P 500 have climbed toward record highs, while bond yields have risen as trade-war fears recede. The truce's immediate impact is clear:

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However, the truce is far from a permanent fix. Uncertainty lingers over whether tariffs will be reinstated after August 2025. Yet, for now, the reduced tension has reignited risk appetite, particularly in sectors exposed to global trade. Technology and industrials, which rely on cross-border supply chains, are prime beneficiaries.

ECB Rate Cuts and Poland's Outperformance

While the ECB's eighth rate cut in a year—lowering the deposit rate to 2%—has drawn skepticism about its efficacy, the move underscores support for Europe's struggling economy. Inflation near target and fiscal stimulus (e.g., NextGenerationEU funds) have given Poland a critical edge. The WIG index, Poland's flagship equity benchmark, has surged 28.6% year-to-date, outpacing the S&P 500's paltry 1% gain.

Polish equities are cheap by global standards. The WIG trades at a P/E ratio of 12.4x, below emerging markets' average of 13.8x. Key sectors like IT and banking are undervalued yet robust:
- IT: Firms like Asseco Poland (ACP) benefit from a 400,000-strong tech workforce and EU digitization funds.
- Banking: PKO Bank Polski (PKO) and mBank (MBK) thrive on Poland's 2.8% unemployment rate and strong consumer spending.

The US Jobs Report: A Pivot Point for Rates and Bonds

On June 6, the US May jobs report will test the Fed's resolve. Consensus forecasts a 4.2% unemployment rate and 130,000 payroll gains—both in line with the Fed's “soft landing” narrative. However, a weaker-than-expected report (e.g., unemployment above 4.3%) could force the Fed to cut rates sooner, accelerating the shift from bonds to equities.

Rate-sensitive bonds are vulnerable here. The ECB's near-end to its rate-cut cycle and the Fed's potential easing create a “goldilocks” scenario for growth stocks: lower bond yields mean higher equity valuations.

Investment Strategy: Overweight Cyclicals, Underweight Bonds

1. Cyclical Sectors:
2. Technology: Poland's IT sector (e.g., ACP) and global leaders like ASML (ASML) benefit from reduced supply-chain risks.

3. Industrials: Companies exposed to infrastructure spending (e.g., Caterpillar (CAT)) and defense (despite rare-earth constraints) are poised for gains.

4. Polish Equities:

5. The WIG's undervaluation and defensive macro backdrop (GDP growth of 3.9% in 2024) make it a standout play. ETFs like the iShares MSCI Poland ETF (EPOL) offer diversified exposure.

6. Underweight Bonds:

7. Rate-sensitive sectors like utilities and REITs face headwinds if the Fed signals cuts. Short-term Treasuries or inverse bond ETFs (e.g., TLT) may hedge against yield spikes.

Risks to Monitor

• Trade Truce Expiration: August 2025 could reignite volatility if talks stall.
• Polish Political Uncertainty: The June presidential election could disrupt reforms if eurosceptic candidate Karol Nawrocki wins.

Conclusion

The alignment of reduced trade tensions, ECB support, and Poland's equity resilience creates a compelling case for overweighting cyclical equities and underweighting bonds. With the Fed's pivot on the horizon, now is the time to position for growth. The WIG's valuation and sectoral strengths make it a standout regional play, while tech and industrials offer global exposure to the post-trade-war recovery.

Investors who act now can capitalize on this confluence—but they must stay agile as August's tariff deadline and the Fed's next moves loom.