Markets rise as US–China talks show detailed progress

The US dollar soared against everything in early trade. The currency market was broadly positive in overnight trade. But news of the US-China tariff slash gave the greenback an additional lift.

The Dollar Index traded above 101.00 for the first time in a month. Today’s move has helped push the greenback up from its heavily oversold condition three weeks ago, and the daily MACD still suggests that the momentum is to the upside. 

Meanwhile, traditional safe havens such as the Japanese yen and Swiss franc took a beating. Investors rushed to rotate into higher-yielding, higher risk, and more growth-oriented currencies as trade tensions improved dramatically.

Gold was weaker overnight but then slumped further as details of the US-China tariff slashing emerged. Gold lost close to 3% early in the European session, crashing over $100 from its overnight high and coming close to hitting $3,200 per ounce.

Investors rushed to dump gold, claiming fears of a protracted US-China trade war were no longer warranted. Few observers expected a significant agreement to be reached over the weekend, and the size of the 90-day tariff reduction was degrees larger than most could have anticipated.

So, the question now is whether investors will be as anxious to hold gold any longer as a hedge against economic and geopolitical uncertainty. Today’s sell-off suggests that gold’s best days may be behind it.

On the other hand, these big intra-day price swings are what investors should expect during a pullback after a long bull run. The ongoing sell-off is also helping to reset the previously overbought daily MACD. This has turned sharply lower over the past three weeks, suggesting that momentum is to the downside.

However, if gold can find support, either at $3,200 or even $3,000, then this will give the MACD time to reset, and possibly provide the right environment for another push to all-time highs.

Crude oil was also firmer overnight. It got an additional boost after details of the US-China tariff agreement were released at 08:00 this morning. Oil was up around 3% at one stage, as front-month WTI briefly broke back above $63 per barrel, hitting a two-week high.

Meanwhile, natural gas edged lower, though it remains in a constructive position overall, having held recent support levels around the 3.5 btu mark.

Cryptocurrencies had perhaps the most volatile reaction to the tariff news. Bitcoin was relatively subdued overnight, as it consolidated comfortably above $100,000 following last week’s surge higher. It spiked up this morning as details of the US-China tariff slashing occurred. But it went on to give back those gains as quickly as it made them. Ether has behaved more reasonably and has pushed back above $2,500 this morning.

The VIX experienced a pronounced drop and is now edging closer to the psychologically important 20 level. Though still elevated, the recent downward move in the volatility index reflects easing investor anxiety and greater confidence in the near-term market outlook. Nonetheless, traders remain alert to sudden tone shifts with key developments still pending.

On the geopolitical front, the first Chinese freight shipment to the US since the 145% tariff imposition has now arrived, highlighting the tangible impact of the current trade framework.

Meanwhile, President Trump heads to the Middle East for high-level trade, oil, and political cooperation discussions. The fragile ceasefire between India and Pakistan held over the weekend, helping to boost India’s Nifty 50 by close to 4%. At the same time, Russian President Putin has proposed a ceasefire, with Ukrainian President Zelenskyy reportedly waiting in Turkey ahead of a Thursday meeting.

US stock index futures were sharply higher in early trade. It seems no one expected such concrete progress to come from this weekend’s US–China discussions. Tariffs have been sharply cut for the next three months, giving both sides time to negotiate. But that also means three months when investors could be starved of trade news.

Could this create a vacuum in which risk assets take another dive? In the meantime, US rate cut expectations have been dialled back sharply, and tomorrow’s inflation data will add another layer to the evolving macro picture.