S&P 500 hits two-month high on US-China tariff truce

General market commentary

US equity markets enjoyed their biggest one-day gains in over a month on Monday, with all major indexes rising sharply following the announcement of a 90-day suspension of tariffs between the US and China. The Nasdaq, S&P 500, and Dow all posted impressive gains, driven by optimism around the tariff rollback and the hope that trade tensions between the world's two largest economies would ease. The move to reduce tariffs has been seen as a positive step for global economic stability, potentially alleviating recession fears and boosting sentiment in sectors such as consumer discretionary and technology. Notably, shares in Amazon, Meta, and Tesla saw significant rallies, with investor confidence growing in the wake of the tariff news.

Despite the strong gains, market participants remain cautious, awaiting key economic data, including inflation reports and retail sales figures, to gauge the broader health of the US economy. Treasury yields rose in response to the tariff suspension, as investors revised their expectations for interest rate cuts by the Federal Reserve. Global markets followed suit, with positive performance in Asia and Europe, further buoyed by the US-China trade developments. Commodity markets also saw a boost, with oil prices climbing above $60 a barrel, driven by hopes of increased demand. However, there are still uncertainties, especially regarding the potential for future tariffs and ongoing trade negotiations, making the situation fluid as markets adjust to the evolving landscape.

Latest market and economic update

Most Asian share markets rose on Tuesday following a significant deescalation in the U.S.-China trade war, though Chinese equities underperformed due to profit-taking and uncertainty over further domestic stimulus. Indian equities were poised to cool after strong gains driven by a U.S.-brokered ceasefire with Pakistan, with investors awaiting inflation data for further cues.

U.S. equity futures edged lower overnight as investors awaited the latest Consumer Price Index report for insights into the impact of the new tariff regime on inflation, with retail sales and producer price data also due later in the week. Market sentiment remains cautious ahead of these key economic indicators, with investors keen to assess the health of the economy moving forward.

European equity indices closed higher on Monday, driven by optimism from positive developments in U.S.-China trade talks, with the DAX up 0.3%, the CAC 40 gaining 1.4%, and the FTSE 100 rising 0.6%. The mood was further supported by hopes of a resolution to the U.S.-China trade war and geopolitical tensions easing between India and Pakistan.

The dollar index held near one-month highs around 101.6 on Tuesday, boosted by optimism following the US-China tariff agreement, which eased recession concerns. The greenback's strength was reflected in the euro, which traded at 1.1111, as investors awaited the latest US consumer inflation data to gauge the impact of the new tariff regime.

Oil prices edged lower this morning after hitting a two-week high, as caution set in ahead of key U.S. inflation data and concerns persisted over future demand despite easing U.S.-China trade tensions. Markets also weighed OPEC+ plans to boost output and rising geopolitical risks, including India-Pakistan tensions and President Trump’s upcoming visit to the Middle East.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Apple is developing an AI-based battery management mode for iOS 19 to optimise iPhone battery life, while also considering price hikes for its upcoming iPhone lineup to offset rising costs, potentially linked to new features and an ultrathin design. However, analysts caution that the price increases could impact market share, especially as competition from rivals like Samsung intensifies, with U.S. tariffs on Chinese imports still at 30%.

Samsung unveiled its slimmest flagship model yet, the S25 Edge, designed to meet growing demand for more portable smartphones, with advanced AI features and a slim 5.8mm body. The launch, ahead of Apple’s anticipated thinner iPhone, aims to capture market share, with the S25 Edge set to roll out globally starting at $1,099 on May 23 in South Korea and May 30 in the U.S.

UniCredit raised its 2025 profit outlook after posting a surprise quarterly profit, driven by higher fee and trading income, but remains cautious on M&A deals, emphasising that it will only pursue acquisitions that enhance its standalone prospects. CEO Andrea Orcel stressed that the bank would not engage in value-destroying deals, with ongoing uncertainties around its offers for Banco BPM and Commerzbank amid opposition from the Italian and German governments.

Grifols reported a 7.4% year-on-year rise in first-quarter revenue to €1.79 billion, driven by strong biopharma demand, particularly a 13.2% increase in immunoglobulin sales, while group profit surged 179% to €60 million. The company improved free cash flow and reaffirmed its 2025 outlook, with plans to launch its fibrinogen therapy in Europe later this year and in the U.S. by mid-2026.

Xiaomi shares fell in Hong Kong today after reports of customers seeking refunds for the SU7 Ultra EV over allegedly misleading claims about a carbon fibre hood add-on. The controversy, along with earlier backlash over driving modes and a fatal crash, has dented sentiment around Xiaomi’s EV push, though it still targets 350,000 sales in 2025.

Shares of Coinbase Global rose over 10% in after-hours trading after it was announced that the cryptocurrency exchange would join the S&P 500 index, replacing Discover Financial Services on May 19. Despite a drop in first-quarter profits and a missed earnings forecast, the move highlights Coinbase's growing influence in the financial sector.

FedEx shares rose 1% in after-hours trading following reports of a new partnership with Amazon, marking a reversal of their 2019 split. The deal will see FedEx assist Amazon in filling gaps left by UPS, offering cost advantages and helping Amazon address capacity constraints, although the specifics of the agreement remain unclear.

Citi upgraded PDD Holdings to Buy with a $165 price target, citing reduced U.S. tariffs as a clear benefit for its Temu platform and improved profit potential in Q2 2025. The bank highlighted manageable tariff costs for Chinese sellers, aided by expense cuts and pricing power, though risks such as ADR delisting and limited transparency remain.

Goldman Sachs upgraded Anheuser-Busch InBev to "buy" from "neutral," raising its price target to €78, citing strong debt reduction, improving margins, and growth outside the U.S. The bank expects volume growth, stable revenue, and better margins, with a focus on deleveraging, while noting risks such as slower progress in debt reduction and weak trends in China.

Morgan Stanley downgraded BP to Underweight, citing a deteriorating oil price outlook and increased balance sheet risks, while upgrading TotalEnergies to Overweight for its defensive positioning and strategic consistency. The bank now expects Brent crude to fall to $55 per barrel in 2026, with the sector facing downside risks to earnings, buybacks, and equity performance due to weaker demand, rising non-OPEC supply, and OPEC easing production cuts.

RBC Capital Markets initiated coverage on Hermès with an "outperform" rating and a €2,600 price target, highlighting its strong financials, 10% annual revenue and EBIT growth, and a supply-constrained model. The company’s mono-brand strategy, deep vertical integration, and pricing power are seen as key factors behind its consistent growth and premium valuation.

Citi analysts said the sharp U.S.-China tariff reductions were more positive than expected and should boost Chinese and Hong Kong equities, though they noted the move lessens the urgency for further fiscal stimulus from Beijing. While the deescalation supports China’s exports and economic outlook, weak recent data highlights ongoing challenges such as disinflation.

Upcoming data and events

Today in the US, CPI and Core CPI data will provide an update on inflation. The API Weekly Crude Stock report will offer insight into oil demand. Among companies reporting earnings are Munich Re and Bayer AG.

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