Markets rally on hopes of U.S.-China trade de-escalation

[WORLD] U.S. stock futures rebounded and Asian currencies strengthened on Wednesday as investors reacted positively to news of a forthcoming meeting between senior trade officials from the United States and China, scheduled for the weekend in Switzerland. The talks are being viewed as a potential step toward easing ongoing trade tensions.

The planned dialogue between U.S. Trade Representative Katherine Tai and Chinese Vice Premier Liu He marks the first major trade engagement since President Joe Biden assumed office. Analysts believe the meeting could pave the way for easing some tariffs, though both sides are expected to tread carefully on major policy shifts. Markets are particularly attuned to any updates regarding technology export controls, a persistent flashpoint in U.S.-China relations.

“My sense is this will be about de-escalation,” U.S. Treasury Secretary Scott Bessent told Fox News. Futures tied to the S&P 500 rose roughly 0.9%, recovering losses from the previous session after former President Donald Trump adopted a more confrontational posture. Stock indexes in Japan and Australia also posted modest gains.

Asian equity markets drew further support from unexpectedly strong export data out of South Korea and Taiwan, bolstering confidence in the region’s economic durability. South Korea's exports surged 16.6% year-over-year in April, while Taiwan saw a 13.3% jump, fueled largely by solid demand for semiconductors. The data helped soothe worries over global trade momentum, lifting risk sentiment in regional markets.

Currency markets mirrored the upbeat tone. The U.S. dollar gained slightly against the yen but weakened against other Asian units. The offshore yuan edged toward a six-month peak, while the Australian dollar touched a five-month high, trading just above 65 U.S. cents.

“There appears to be genuine willingness on both sides to engage at a high level, which can only be seen as constructive,” said Ray Attrill, head of foreign exchange research at National Australia Bank. “This is broadly supportive for Asian FX,” he added.

In China, the central bank continued its liquidity support, injecting the most net cash into the financial system in three months. The People’s Bank of China’s move aims to stabilize financial markets amid global uncertainty and has helped underpin the yuan and other currencies linked to China’s trade flows.

The Taiwan dollar led regional currency gains, boosted by speculation that Trump’s trade stance favors a softer dollar. At the same time, institutional investors have been scaling back longstanding bullish positions in U.S. assets. Commodities saw mixed movements—gold slipped 1%, while oil gained about 1%. Benchmark 10-year U.S. Treasury yields held steady at 4.3238%.

Attention now turns to the Federal Reserve’s policy decision later Wednesday. While no immediate move is expected, the market has significantly trimmed its expectations for rate cuts this year. Persistently high inflation has prompted Fed officials, including Chair Jerome Powell, to stress the need for further data before making any adjustments. Traders now assign just a 33% probability to a rate cut in June, down from 64% a month earlier.

In geopolitical developments, the most intense fighting in more than 20 years has broken out between India and Pakistan, with reports of cross-border shelling in Kashmir and Indian strikes on Pakistani territory.

“This adds another layer to geopolitical risk,” noted NAB’s Attrill, suggesting it could weigh on India’s rupee.

In Europe, the euro remained firm above $1.13 after German conservative leader Friedrich Merz secured the chancellorship in a second-round vote, following an unexpected defeat in his alliance’s initial bid with the Social Democrats.