Copyright Investing.com
Markets began the week in rally mode as signals of improving US–China relations restored confidence in the global trade outlook. Asian equities surged, U.S. futures advanced, and regional currencies strengthened, reflecting renewed appetite for risk after months of policy-driven uncertainty. The immediate catalyst was a breakthrough in weekend trade discussions between Washington and Beijing that produced a preliminary framework for further talks. The removal of the threat of new 100% tariffs on Chinese exports, including rare-earth materials, shifted sentiment sharply. Investors interpreted the move as evidence that the world’s two largest economies are stepping back from confrontation, setting the stage for more predictable trade conditions. The market reaction was broad and swift. Japan’s climbed above 50,000 for the first time, supported by a softer and growing confidence in domestic stimulus. South Korea’s Kospi broke above 4,000, led by gains in semiconductor and export-focused names. China’s Shanghai Composite touched a ten-year high while the ChiNext Index rose 1.5%, signaling renewed optimism toward the country’s technology sector. Hong Kong’s Index added nearly 1%, with tech shares leading the advance. Futures in the U.S. also pointed higher, with the up 0.6%, the gaining 0.7%, and the rising 1.0%. The move suggests that global investors see the trade thaw as a stabilizing factor for corporate earnings and supply chains that had been clouded by tariff risks. Improved visibility on trade flows could extend the equity rally into year-end, particularly if corporate guidance in the upcoming earnings cycle confirms sustained demand. In commodities, the shift toward risk-taking pressured , which fell 0.8% to $4,077 per ounce. The metal’s retreat reflects an unwind of defensive positioning as capital rotates back into equities and higher-beta assets. The softened against most Asian currencies, while regional FX saw broad gains. The relief in currency markets underscores that investors are pricing in lower trade friction and steadier capital flows across Asia. Still, the optimism remains fragile. The framework between Washington and Beijing lacks binding commitments, and key issues—such as technology transfers, industrial subsidies, and sector-specific tariffs—remain unresolved. Without clarity on these fronts, the recent rally could stall as quickly as it began. The test will come later this week when leaders meet to finalize the agenda. If talks advance and formal tariff rollback measures follow, risk assets could extend gains through the next quarter, supported by accommodative monetary policy in major economies. Central banks in Asia, already biased toward easing, would likely welcome the external stability and maintain liquidity support. But if negotiations falter or rhetoric hardens again, investors should expect a swift flight back to safety—stronger dollar, lower yields, and renewed demand for gold. The base case favors gradual progress and a continuation of the global equity uptrend into early 2026, driven by reduced policy uncertainty and resilient earnings from trade-exposed sectors. The alternative, where talks collapse, would likely trigger another round of volatility as markets reprice risk premiums for global growth. For investors, the strategic takeaway is to maintain selective exposure to Asia’s cyclical and export-linked equities while hedging against short-term volatility with modest allocations to gold or longer-duration bonds. The opportunity lies in a controlled normalization of trade policy. The key risk is complacency—if the détente proves temporary, the adjustment could be swift and unforgiving.
