Following trade talks, US President Donald Trump told White House reporters on Monday: “It’s going to take some time to turn it into paper. You know, it’s not the easiest thing to do with paper,” he added.
In early April, China imposed rare earth export restrictions on the United States as a major non-tariff countermeasure in response to Trump’s mutual tariffs. Export control affects seven important minerals and is heavily dependent on the US. These minerals are essential components in the manufacture of electric vehicles and electronic equipment.
Trump’s remarks suggest that whether China will suspend or remove export controls for these major minerals will become a central term for negotiations. The removal or halt of control could further strengthen the optimism surrounding the elimination of trade tensions.
On Monday, the two largest economies in the world reached an agreement to suspend 90-day tariffs. The US will reduce China’s tariffs from 145% to 30%, while China will reduce US import taxes from 125% to 10%.
Stock market rally loses steam
The wide-ranging market rally showed signs of retreat during Tuesday’s Asian session, showing investors’ attention on the progress of US-China negotiations. Both sides agreed to establish a mechanism for further discussion following the weekend talks, but no specific dates have been set for future meetings.
US stock futures were declining, pointing to a lower open. As of 4:50am, the Dow Jones industrial average fell by 0.25%, the S&P 500 fell by 0.38%, and the NASDAQ composite slided by 0.47%. In contrast, major European index futures are more resilient, with the Euro STOXX 600 falling 0.17%, DAX Flat and FTSE 100 falling 0.23%.
The market is awaiting further details of the contract, particularly regarding China’s non-tariff measures. Investors are also concerned about whether a comprehensive trade agreement can be secured between the two countries after the 90-day suspension.
“The major issue from here is to strengthen trade transactions and ensure that the tariff declines do not expire after 90 days,” wrote Kyle Rodda, senior market analyst at Capital.com in Australia, in an email. He added that the market will also begin to see if the US can achieve trade deals with other partners. “The market also hopes that the US will maintain this momentum and remove any deals with other trading partners. If that happens, the stock and dollar recovery should continue,” he said.
The euro rebound is one month later
The US dollar was slightly weakened against other major G10 currencies during the early Asian sessions. The EUR/USD pair rebounded above 1.11 after dropping low to 1.1065 on Monday.
The euro was considered a major shelter asset in April as the trade war increased fears about a global economic recession. The general currency has skyrocketed to its highest level since November 2021 against greenback last month. However, if future US-China negotiations led to further expansion of trade tensions, the euro rallies could reverse the course.
Investors appear to be looking for bargains in US assets amid mitigating risk-off sentiment. Despite the trade war, the impact on the US economy is expected to remain limited to date. Market divestment is driven by worsening emotions than materialized recession.
The market will also turn its attention to the April US Consumer Price Index (CPI), which is scheduled to be released on Wednesday. Sticky inflation could raise the dollar even further, which could put pressure on the euro. The market expects the Federal Reserve to cut interest rates twice this year in response to tariff-driven inflation risks. Meanwhile, the European Central Bank is also expected to continue its rate reduction cycle based on economic grounds, despite being based on conferences.
