The US stocks soared yesterday after the US and China announced massive tariff cuts for 90 days following trade talks. The US said it would cut tariffs on Chinese goods from 145% to 30%, while China would cut duties on US imports from 125% to 10%. At Monday’s close, the Dow Jones Industrial Average (US30) was up 3.26%. The S&P 500 Index (US500) added 2.81%. The Nasdaq Technology Index (US100) closed higher by 4.35%. Technology stocks rose strongly, with Apple (+6.3%), Nvidia (+5.4%), Amazon (+8.1%), Meta (+7.9%), Alphabet (+3.4%), and Tesla (+6.7%). On the other hand, pharmaceutical stocks declined after Trump said he would sign an executive order to lower prescription drug prices.

Traders will be watching inflation data closely today, looking for signs of how the new tariff regime could affect prices. If the inflation data matches market expectations, it will likely have a moderately negative impact on the dollar. However, an unexpected jump in inflation could be a driver for the Dollar Index while adding pressure to stock markets. The scenario of accelerating inflation amid stagnant or declining GDP raises the risk of recession.

The Canadian dollar slipped below 1.4 per US dollar, retreating from the strongest level since October at 1.378, recorded on May 6. A rebound in the US dollar, driven by a 90-day tariff truce between the US and China, has attracted fresh capital into dollar assets, boosting the US dollar and pressuring the Loonie into broad-based appreciation. Domestically, Friday’s jobs report, which showed disappointing job growth along with a rise in the unemployment rate, dampened expectations of further policy tightening by the Bank of Canada, and markets cut bets on Fed policy easing, pushing US and Canadian yield spreads higher.

The Mexican peso weakened to 19.6 per dollar as the 90-day tariff truce between the US and China sparked renewed demand for US assets, strengthening the dollar’s appeal, while the Bank of Mexico is widely expected to cut the benchmark rate by another 50 basis points this Thursday. This policy easing continues to narrow the rate differential between Mexico and the Federal Reserve, reducing the attractiveness of the peso.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) rose by 0.29%, France’s CAC 40 (FR40) closed 1.37% higher, Spain’s IBEX35 (ES35) Index gained 0.75%, and the UK’s FTSE 100 (UK100) closed positive 0.59%.

WTI crude oil prices rose to $63 per barrel on Monday, hitting a two-week high, after the US and China agreed to cut most tariffs on each other’s goods. This major trade breakthrough signaled a reduction in tensions between the world’s two largest oil consumers, reducing risks to oil demand. Meanwhile, exerting a bearish influence on oil, OPEC+ plans to accelerate production increases in May and June.

Asian markets were predominantly rising yesterday. Japan’s Nikkei 225 (JP225) rose by 0.38%, China’s FTSE China A50 (CHA50) gained 0.88%, Hong Kong’s Hang Seng (HK50) added 2.98%, and Australia’s ASX 200 (AU200) posted a positive 0.03%.

Signs of weakening demand from China, New Zealand’s largest trading partner, had a negative impact on the NZD. Chinese data released over the weekend showed a third consecutive monthly decline in consumer prices and the sharpest fall in producer prices in six months. On the domestic front, the currency remains under pressure amid expectations that the Reserve Bank of New Zealand will cut interest rates by 25bps later this month. The current cash rate of 3.5% is expected to fall to 2.8% by the end of the year.

The Bank of Japan (BoJ) is taking a cautious stance amid uncertainty over US tariff policy, according to a summary of its April 30-May 1 meeting. The prolonged persistence of high tariffs could prompt Japanese exporters to restructure operations, including shifting production to the US and rationalizing supply chains, which could hurt small and medium-sized firms, which account for 70% of employment in Japan. On the other hand, if the current economic and price outlook persists, the Bank of Japan plans to continue gradually raising interest rates while remaining flexible to changing conditions.