Yesterday's announcement of a temporary truce in the trade war between the US and China lifted investors' mood,particularly in US assets. Both countries agreed that for the next 90 days the US will reduce the tariffs it imposed on Chineseimports last month from 145% to 30%, and that Chinese tariffs on US imports will fall from 125% to 10%.
Fed officials speaking on the day acknowledged that the deal reduced the risks to inflation and growth and thus the chancesof rate cuts. Investors seemed to share this view and the market shifted to discount only two Fed cuts in 2025. Markets stilldiscount two more ECB cuts in 2025. On both sides of the Atlantic, government bond yields rose and the curves flattened.
Equities rallied across the board on the news, especially in the US. In the currency market, the dollar strengthened againstits major peers. In commodities, the price of energy assets rose on hopes of higher global demand, while havens such as gold fellas risk appetite increased.
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