Global markets limped into the weekend, consolidating gains fueled by a temporary reprieve in the China-US trade war. Investors breathed a sigh of relief after Washington and Beijing agreed to slash tariffs for 90 days to facilitate talks. However, analysts caution that this euphoria might be short-lived, given the still-elevated levies posing a threat to economic growth.
“The US has higher tariffs on China and appears to be trying to rally countries to introduce restrictions on trade with China,” said Mark Williams, chief Asia economist at Capital Economics. The 90-day truce will see the US reduce duties on China to 30%, while China will lower its levy on US imports to 10%.
IG chief market analyst Chris Beauchamp warned, “Even if more trade deals are announced, it is still the case that tariffs on goods entering the US will be much higher than anyone dared to contemplate. This should result in a not insignificant hit to earnings, though the impact will only start to become clear in future earnings reports.”
US retail giant Walmart’s CEO Doug McMillon echoed similar concerns, stating, “We will do our best to keep our prices as low as possible but given the magnitude of the tariffs, even at the reduced levels, we aren’t able to absorb all the pressure.”
Market Performance
- Asian markets dropped in morning trade, with Tokyo’s Nikkei 225 down 0.5% and Hong Kong’s Hang Seng Index down 0.6%.
- Alibaba shed over 4% after reporting a disappointing rise in first-quarter revenue.
- Oil prices inched up, with West Texas Intermediate up 0.1% at $61.65 per barrel and Brent North Sea Crude up 0.1% at $64.56 per barrel.
Economic Outlook
The temporary tariff truce has sparked hopes that the Federal Reserve might cut interest rates this year, following below-forecast consumer inflation figures and flat retail sales. However, experts predict that the trade war’s impact on economic growth will only become clearer in future earnings reports.