Asian stocks rose and the dollar strengthened as China cut rates and confirmed plans to have talks with the US, spurring optimism trade tensions between the world’s two largest economies will ease.
A gauge of regional equities rose 0.4% as China lowered its policy rate. Index futures for the S&P 500 gained 0.7% on news Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer will meet with the Chinese government this week in Switzerland. A gauge of the dollar’s strength advanced 0.3%, snapping three days of declines. Gold dropped as much as 2.1% and Treasuries fell.
Meeting between the US and China will be first confirmed trade talks between the countries since President Donald Trump announced sweeping tariffs last month, led by punishing levies on China. Financial markets had gyrated on concerns Trump ratcheting up his global trade war by imposing the highest levies in a century - and Beijing retaliating - will push the global economy into a recession.
“The US-China headlines helped to stabilize sentiment,” said Christopher Wong, a foreign-exchange strategist at Oversea-Chinese Banking Corp. The announcement is “aiding the rebound in pro-cyclical currencies,” while safe haven proxies, including long positions in the yen, Swiss franc and gold are unwound, he said.
The planned talks may encourage investors eager to see a reduction in tariffs that risk crippling trade between the countries. Trump placed duties as high as 145% on many Chinese imports, and Beijing retaliated with import taxes of 125% on American goods. The moves prompted companies to withdraw guidance and threatened to drive up prices for manufacturing equipment as well as day-to-day items such as clothing and toys.
While sentiment improved after the announcement of talks, investors said they are focused on what will be the outcome.
“While the optics are reassuring, it’s still too early to expect meaningful breakthroughs from the US-China trade talks, given the complexity of negotiations,” said Charu Chanana, chief investment strategist for Saxo Markets in Singapore.
In geopolitical news, India said it conducted targeted military strikes against Pakistan, an expected move after it pledged retaliation for a militant attack last month in Kashmir that killed 26 people. Pakistan said it shot down five Indian airplanes.
Meanwhile, shares in Hong Kong surged as China lowered its rates. Beijing is ramping up efforts to help an economy caught in a second trade war with the US.
The People’s Bank of China cut the seven-day reverse repurchase rate to 1.4% from 1.5%, according to Governor Pan Gongsheng. The central bank will also trim the reserve requirement ratio by half a percentage point, Pan said at a briefing on Wednesday, without saying when that would be effective.
“The real impact is quite limited, but helps at the margin to support markets and provide liquidity,” said Sat Duhra, a portfolio manager at Janus Henderson Investors. “It’s the trade talks that matter much more here.”
Investors are also focused on Wednesday’s rate decision by the Federal Reserve, with traders expecting policymakers to stay on hold.
While Trump has been ratcheting up pressure on the central bank to resume cutting rates, officials have mostly emphasized a need to wait and see how trade policies implemented last month affect the economy.
“If traders wish to believe that the Fed will come to the rescue of the world tomorrow and assuage the recent rise in policy uncertainty and political uncertainty with a signal of overt ‘dovishness’, they should think again,” said Thierry Wizman at Macquarie.
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