Global Market Update : Stock futures increase on trade talks, China rate cut

Delhi, 7 May (H.S.): Equity-index futures rose as optimism about trade negotiations between China and the US increased, suggesting that tensions may ease between the world’s two largest economies. Specifically, futures for the S&P 500 and the Nasdaq 100 both rose by 0.6% following the announcement of meetings between US and Chinese officials in Switzerland this week. Meanwhile, Asian stocks increased by 0.2%, despite earlier gains peaking at 0.7%, as China undertook actions to reduce its policy rate and lower reserve requirements for lenders. The dollar index strengthened, breaking a three-day decline, while gold prices fell by up to 2.1%, and treasury yields decreased.

In India, the rupee slightly weakened, yet stocks in Mumbai experienced a 0.2% increase as investors chose to focus on developing trade discussions amidst recent military tensions between India and Pakistan. Notably, India and the UK finalized a significant trade agreement on Tuesday.

This meeting marks the first confirmed discussions regarding trade between the US and China since President Trump announced extensive tariffs earlier last month, including very high rates on various Chinese imports. The announcement of the upcoming talks is seen as a sign that trade hostilities might be cooling, offering the markets a temporary relief. However, analysts caution that substantial market rallies will hinge on the actual outcomes of these negotiations. Charu Chanana, chief investment strategist for Saxo Markets, emphasized that while the meeting creates a positive impression, it is premature to anticipate significant breakthroughs, given the complexities involved in such discussions.

The impending talks have the potential to excite investors who are hopeful for a reduction in tariffs that threaten to cripple trade relations between the two nations. Trump’s imposition of tariffs as high as 145% on numerous Chinese goods prompted China to retaliate with equivalent taxes ranging around 125% on American products. This tit-for-tat exchange has led some companies to withdraw earnings forecasts and raises concerns about inflated prices for both manufacturing supplies and everyday consumer goods, such as clothing and toys.

Additionally, Trump indicated on Tuesday that he would determine tariff levels and trade concessions for countries seeking to avoid increased duties, indicating a shift away from traditional negotiation strategies. US Treasury Secretary Scott Bessent, speaking on Fox News, echoed concerns about the sustainability of current tariff levels. He noted that the forthcoming talks will focus on de-escalation rather than establishing a comprehensive trade agreement, highlighting the need for a reduction of tensions before substantial progress can be made.

Aidan Yao, Senior Investment Strategist at Amundi Investment Institute, noted on Bloomberg Television that dwindling external pressures may lead to successful negotiations and potential reductions in tariff rates. Franklin Templeton’s CEO, Jenny Johnson, highlighted the interconnected concerns involving tariffs, taxes, and deregulation, forecasting one interest rate cut from the Federal Reserve this year.

In parallel, Hong Kong’s stock market experienced a modest rise of 0.5%, pulling back from earlier gains of 2.4%, largely influenced by China’s recent rate cuts aimed at stabilizing its economy amid ongoing trade tensions with the US. The People’s Bank of China reduced the seven-day reverse repurchase rate from 1.5% to 1.4% and announced a cut to the reserve requirement ratio by half a percentage point, according to Governor Pan Gongsheng. While the immediate impact of these measures may be limited, Sat Duhra, a portfolio manager at Janus Henderson Investors, expressed the sentiment that such actions, while marginal, would offer some support to the markets and improve liquidity. However, he emphasized that the results of ongoing trade discussions would be of greater significance.

Investors’ attention is also directed towards the Federal Reserve’s rate decision anticipated on Wednesday, where traders expect the Fed to maintain its current stance. Despite pressure from Trump for additional rate cuts, officials have signaled a cautious approach, opting to assess the implications of recently announced trade policies.

Key events are highlighted for the week, with various market movements noted:

Stocks:

– S&P 500 futures experienced a 0.6% uptick as of 12:28 p.m. in Tokyo.

– Japan’s Topix increased by 0.4%.

– Australia’s S&P/ASX 200 gained 0.2%.

– Hong Kong’s Hang Seng index rose 0.6%.

– The Shanghai Composite climbed 0.6%.

– Euro Stoxx 50 futures showed little movement.

Currencies:

– The Bloomberg Dollar Spot Index rose by 0.3%.

– The euro dipped 0.3% to $1.1338.

– The Japanese yen decreased by 0.5% to 143.14 per dollar.