Stocks, dollar surge as US and China agree 90-day tariff relief

By Naomi Rovnick

LONDON (Reuters) - Wall Street stock futures surged, the dollar rallied and gold prices slumped on Monday as the U.S. and China agreed to temporarily slash the harsh tariffs imposed on each other and work together to limit economically damaging trade spats.

Following weekend talks in Geneva, both sides agreed that the U.S. would drop levies on Chinese imports from 145% to 30% during a 90-day negotiation period, while China would cut reciprocal duties from 125% to 10%.

Futures tracking Wall Street's S&P 500 index were 2.7% higher and contracts following the Nasdaq 100 index jumped 3.8%, setting the tech-heavy U.S. stock index up for its best trading day in more than a month.

An index tracking the dollar against other major currencies rose further from last month's three-year trough, with a 0.9% gain, while equity bourses from Hong Kong to Frankfurt rose in a global relief rally.

In a joint statement, Washington and Beijing also said they recognised the importance of their bilateral trade relationship to both countries and the global economy, in language that analysts widely said had brightened the market outlook.

"This announcement is not only better than we expected but also better than the market would have expected back in March," Deutsche Bank strategists said in a note to clients.

Kit Juckes, chief FX strategist at Societe Generale, said the tariff pause was a "substantial relief" for the U.S. and China.

Data over the weekend showed Chinese factory-gate prices posted the steepest drop in six months in April as trade fears hit business and consumer sentiment globally.

Trump's erratic trade policies had also sparked fears for U.S. corporate earnings, with investors having entered this week nervous about an impending update from retail giant Walmart after a slew of U.S. multi-nationals pulled their forecasts.

Brent crude oil futures were almost 3% higher at $65.69 a barrel and U.S. West Texas Intermediate (WTI) crude futures gained 3% to $62.90.

Germany's DAX share index rose 1.5% to a record high in early European trading and Italy's FTSE MIB hit its highest level since 2007. Europe's regional STOXX 600 was last trading 1% higher and Hong Kong's Hang Seng Index ended the day with an almost 3% gain.

SAFE HAVENS STUMBLE

The safe-haven assets that investors herded into after U.S. President Donald Trump's April 2 Liberation Day tariff blitz were firmly out of favour on Monday as traders reassessed the risks of a global trade war and a U.S. recession.

Spot gold prices, which hit an all-time high of $3,500 last month and often move inversely to the dollar, slid almost 3% to $3,227 an ounce.

The resurgent greenback gained strongly against Japan's yen, last up 1.9% at 148.15 yen, and pushed Switzerland's franc 1.6% lower on the day in a jolt of relief for Swiss exporters and the nation's central bank.

The euro, which surged in April as investors questioned the dollar's long-held status as the world's reserve currency, was 1% lower at $1.1138.

As anxiety about high tariffs causing a U.S. economic slowdown seeped out of markets on Monday, traditionally low-risk debt assets also came under pressure.

The 10-year U.S. Treasury yield hit a one-month high of 4.447%, up 5 basis points (bps) on the day, as the price of the government debt instrument fell.

German Bunds suffered as interest in European haven assets fell back to reflect improved sentiment about the U.S. economy, with the yield on the benchmark euro zone debt instrument rising 8 bps to 2.629%.

FURTHER TO RUN?

While Trump's April 2 tariff announcement initially caused world stocks to drop sharply, MSCI's index of global shares, which is U.S. dominated, was on Monday trading back at levels last seen in late March.

Some analysts and investors warned, however, that this was not the end of unpredictable trade talks between the White House and Beijing and that any relief may soon be overshadowed by data showing the U.S. economy had slowed.

Sheldon MacDonald, CIO at UK asset manager Marlborough, said that even if the U.S. maintained 30% China tariffs that was still "negative" for growth with "no all clear on recession fears just yet".

Meanwhile, Goshawk Asset Management fund manager Simon Edelsten said it was too early to expect an easy resolution of long-standing issues between the U.S. and China and cautioned that even modestly higher tariffs could disrupt trade flows.

"China may devalue the renminbi to make up for the change of terms of trade, which will reignite another old argument. This is like a mix of Chinese opera and soap opera (with) colourful characters and a plot that takes years to unfold,” he said.

(Additional reporting by Wayne Cole in Sydney and Vidya Ranganathan in Singapore; Editing by Amanda Cooper and Kirsten Donovan)