S&P 500, Nasdaq 100 Soar amid 90-day U.S.-China Trade War Truce

Also, 10-year T-note, gold, crude oil and euro futures

1. Nasdaq 100 E-mini futures (/NQ): +3.25% 
2. 10-year T-note futures (/ZN): -0.56% 
3. Gold futures (/GC): -3.05% 
4. Crude oil futures (/CL): +2.85% 
5. Euro futures (/6E): -1.99% 

A weekend of talks between American and Chinese trade officials yielded an immediate, positive outcome: a truce in the trade war between the world’s two largest economies. The 90-day pause will temporarily see tariff rates slashed by 110%, paving the path for more constructive dialogue between the US and China through the summer. It’s a big sigh of relief for markets, which now can clip off the worst case scenarios for trade, growth, and the US dollar’s role in the global economy. Attention now shifts back to normal programming: When will the Federal Reserve cut rates, and what will the new Trump tax bill look like? 

U.S. equity markets surged higher to start the week as a jubilant mood washes over Wall Street following news that the United States and China agreed to cut tariffs temporarily. Nasdaq 100 futures (/NQM5) rose over 3% in early trading. Hertz (HTZ) and AST SpaceMobile (ASTS) are set to report earnings after the bell. High impact earnings this week include JD. Com (JD), Cisco (CSCO), Walmart (WMT), Alibaba Group (BABA) and Applied Materials (AMAT). Outside of trade headlines, traders have several economic reports due this week that could influence market sentiment, including inflation and retail sales data from the United States. 

Treasuries fell across the curve to start the week as a risk-on mood took control on Wall Street. The positive headlines on a US-China trade deal pushed capital into the equity market as traders deployed sidelined cash that was stowed away during the market volatility of the past couple of months. 10-year T-note futures (/ZNM5) were down 0.65% in early New York trading. 

Gold prices (/GCM5) dropped over 3% to start the week as traders sold the safe-haven metal. The shift in sentiment to the risk-on side boded poorly for the metal, which just came off a winning week. Prices are now trading near a zone of support around the 3,220 level that held up in early May. Higher yields and a stronger dollar worked against gold. A drop below support could introduce more selling and put the psychologically imposing 3,000 level in focus. Tomorrow’s CPI data will likely provide the next directional cue for the metal. 

Early signs of negotiations between the US and China pointed away from a prolonged trade war. The momentum in talks between the two countries removes much of the risk for a global recession, which sent demand-sensitive crude oil prices (/CLM5) over 3% higher. China’s data for oil imports showed April imports totaled 11.7 million barrels per day, higher than the same period a year ago but down slightly from last month. China is taking in a lot of oil from Russia and Iran because of steep discounts amid fresh US sanctions.  

The dollar surged against its peers as traders moved back into the US currency on the positive news flow around trade. The yen, which has benefited from safe haven flows, fell nearly 2% in early trading. This week’s CPI and retail sales data will offer investors clues about how the trade war has impacted U.S. consumers. Upbeat data may push back the bets for a cut in interest rates from the Federal Reserve. That will likely support the strength of the dollar if those prints impress the market.  

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. #@fxwestwater
Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
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