Markets Surge as U.S.-China Reach Tentative Tariff Truce

In a surprise development over the weekend, the United States and China announced a provisional agreement to slash tariffs on each other’s goods, marking a significant thaw in trade tensions that had severely disrupted global markets. After marathon negotiations in Geneva, Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng jointly acknowledged "substantial progress" though specifics remain murky ahead of an anticipated 8:30 a.m. ET press conference.

What Happened in Geneva

The face-to-face meetings marked the first high-level economic engagement between the two countries since President Trump imposed sweeping tariffs in April. The agreement, effective for 90 days, reduces U.S. tariffs on Chinese imports to 30% from 145% and cuts China’s retaliatory duties on U.S. goods to 10% from 125%. While this isn't full tariff elimination, it represents the steepest reduction since the trade war reignited.

Officials characterized the discussions as constructive. Bessent stated that the U.S. wants strategic decoupling only in critical sectors like semiconductors, steel, and pharmaceuticals, while opening pathways for American firms to sell more easily into China. He Lifeng signaled a readiness to address U.S. concerns over fentanyl and commit to further consultations.

Market Reaction

Investors greeted the news with unrestrained optimism. Futures exploded higher: Nasdaq 100 surged 3.9%, the S&P 500 jumped 3.1%, and Dow Jones futures leapt 2.5%. Asian and European bourses followed suit, with Hong Kong’s Hang Seng up nearly 3% and the Stoxx 600 rising over 1%.

The risk-on rally extended to commodities. Brent crude spiked more than 2% to $65.67, while gold dropped 3.3% as safe-haven demand evaporated. The 10-year Treasury yield climbed to 4.45%, and the CBOE VIX index fell below 20 for the first time since March, signaling reduced investor anxiety.

Top Movers

Mega-cap tech led the charge. Apple, Meta, and Amazon rose between 6-8% premarket, with Nvidia up 5% despite recent volatility. Tesla gained nearly 8%, buoyed by optimism about China sales. Chinese ADRs soared: Alibaba rose 7%, JD.com added 5.7%, and PDD Holdings exploded 8.5%.

On the downside, pharmaceutical stocks sank after President Trump announced an executive order implementing a "most favored nation" policy for drug pricing. Eli Lilly, Pfizer, Merck, and Bristol Myers were all down over 2%, while Newmont fell 6% as gold prices cratered.

What to Watch at 8:30 A.M. ET

Today’s scheduled press conference could bring long-awaited clarity on enforcement mechanisms, timelines, and sector-specific exclusions. Markets will look for:

• Confirmation of the 90-day tariff freeze
• Details on a potential purchasing agreement by China
• Clarity on non-tariff barrier negotiations
• Any signs of permanence or plans to extend the deal

If the White House or Beijing adds any nuance indicating the deal is merely a ceasefire rather than a structural fix, expect some market retracement.

Next Steps in the Process

The two sides agreed to establish a permanent economic and trade consultation mechanism. Bessent suggested more talks could occur within weeks, and Chinese officials hinted at upcoming meetings between Cosco executives and U.S. port authorities. This mechanism may resemble past Strategic Economic Dialogues but with a more focused agenda on fentanyl, advanced tech, and reciprocal market access.

Should Markets Celebrate?

While the move is undoubtedly market-friendly, not all risks have vanished. A 30% tariff is still burdensome, and key sectors remain shielded. Citi analysts cautioned that valuation concerns may return if the rally outpaces fundamental earnings growth. For now, however, markets are celebrating a reprieve from trade escalation.

In short, the market is treating this as the best-case scenario from an ugly trade standoff. But the true test will come in how durable this framework proves once the 90-day window closes and political stakes rise again.

Stay tuned at 8:30 a.m. ET for what may be the most consequential press conference of Q2.