Asian stocks, US futures gain on China trade talks

The fear is that unless reversed, tit-for-tat tariffs risk dealing a stagflationary blow to global economies by driving them into recession while boosting inflation at the same time.

Asian stocks and US equity-index futures rose while the dollar strengthened as China and the US made “substantial progress” on their trade talks, spurring a risk-on mode.

Shares in Australia, Japan and South Korea advanced at the open, with the Topix index gaining for a 12th day for its longest winning streak since October 2017. Futures contract for the S&P 500 and the Nasdaq 100 both climbed more than 1.2%, while oil rose and gold fell 1.5%. The greenback climbed against major peers while the yield on the 10-year US Treasury rose 3 basis points.

While stocks have rallied recently - the S&P 500 Index has almost risen back to where it was prior to President Donald Trump’s announcement of reciprocal tariffs in early April - further gains will depend on the de-escalation of the trade war between the US and China. The fear is that unless reversed, tit-for-tat tariffs risk dealing a stagflationary blow to global economies by driving them into recession while boosting inflation at the same time.

“Although investors are still waiting for details of the US-China agreement, the overall positive tone of the talks should boost their sentiment toward China and Asia-Pacific equity markets,” said Homin Lee, senior macro strategist at Lombard Odier Singapore Ltd.

Speaking after two days of negotiations in Geneva, US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer said that they will share more information on Monday. Greer told reporters “differences were not as large as maybe thought.” Chinese officials echoed the message during a separate briefing on Sunday, saying that talks between the two sides achieved a “sound sustainable development’ for the Chinese-US relationship.

Trump had paused the steepest of the tariffs on most countries other than China, sparking a rally in the S&P 500. A trade deal struck with the UK last week also helped lift confidence that pacts were possible although the details disappointed.

“The de-escalation of trade, economic and geopolitical tensions could give market risk sentiment a boost,” said Valentin Marinov, head of G-10 FX research and strategy at Credit Agricole. “The latest developments could become a boon for risk-correlated assets and currencies and a blow to safe-haven currencies like the yen, Swiss franc and even the euro.”

Risk assets may also benefit from the ceasefire between India and Pakistan, as well as signs the leaders of Russia and Ukraine may meet this week.