The word from President Trump on Friday was that an 80% tariff rate for China seems right, but that it is up to Scott B. Well, Scott B. (i.e., Treasury Secretary Bessent) came up with a plan, along with Chinese counterpart He Lifeng in Switzerland over the weekend, that will cut the tariff rate on imported Chinese goods to the U.S. from 145% to 30% and imported U.S. goods to China from 125% to 10% for a 90-day period.<\/p>\n\n\n\n
The market is loving this much better than expected news! The S&P 500 futures are up 170 points and are trading 3.0% above fair value, the Nasdaq 100 futures are up 781 points and are trading 3.9% above fair value, and the Dow Jones Industrial Average futures are up 1,046 points and are trading 2.5% above fair value.<\/p>\n\n\n\n
There isn’t any hangup at the moment about this not being a permanent change. Market participants simply care that it represents a major de-escalation and a move to a tariff area that is at least workable for U.S. businesses and the global trade order.<\/p>\n\n\n\n
There is a presumption, too, that this de-escalation will lower the probability of a recession, which is fostering some sense of relief on the earnings estimate front and some unwinding of safe-haven trades. The 2-yr note yield is up 12 basis points to 4.00%, as the fed funds futures market is now pricing in the next rate cut at the September meeting (versus July before the weekend meeting), and the 10-yr note yield is up eight basis points to 4.46%.<\/p>\n\n\n\n
Separately, gold futures are down 3.3% to $3,232.20\/troy oz; the U.S. Dollar Index is up 1.3% to 101.67, and the CBOE Volatility Index is down 9.4% to 19.84.<\/p>\n\n\n\n
There is a risk-on mentality permeating today’s marketplace. Material price gains, exacerbated by short-covering activity and a fear of missing out on further gains, are being registered across industry groups and sectors in pre-market trading.<\/p>\n\n\n\n
The pharmaceutical stocks, though, are a notable exception. They are mostly lower following the news that President Trump will sign an executive order that will require the government to adopt a “most favored nation” pricing model for prescription drugs. In brief, the U.S. “will pay the same price as the nation that pays the lowest price anywhere in the world.”<\/p>\n\n\n\n