Wall Street Positive on US-Sino Talks

The majority of US equity indices closed the session slightly up on Monday, 09 June, as earlier gains stemming from positive US-Sino (China) tariff talks in London lost steam into the close, with traders waiting for further progress on day two, Tuesday.

The Nasdaq (NQ) rose  0.3% as the two delegations held fruitful talks about technology and rare earths, the S&P500 (ES) rose 0.1% to trade 2.3% shy of record highs, and Dow Jones (YM) ended the session flat.

Many market participants will want to see whether the talks lead to trade normalisation between the US and China. Still, they will likely monitor US data coming up this week, specifically on Wednesday and Thursday, with CPI and PPI on the agenda. (Source: Barron's)

US-Sino Talks Progress in London

Following a phone call between US President Donald Trump and Chinese counterpart Xi Jinping last Thursday, delegates of the two parties met in London on Monday to resume trade talks. The call was scheduled to discuss violations of the 90-day truce deal signed earlier that brought down levies on Chinese imports to the US to around 30% from 145%. 

As part of the duty reductions in the truce deal, China promised to lift export controls on critical minerals the US uses to manufacture smartphones and electric vehicles, like gallium, germanium, and antimony, which China has failed to roll back since. However, ahead of the high-stakes meeting, the Chinese Ministry of Commerce said that some export controls have been lifted. On Monday, the issuance of rare earth licences to three Detroit suppliers and temporary licences to General Motors (GM), Ford (F) and Stellantis (STLA) was indeed confirmed. However, China had restricted seven rare earth mineral suppliers in April: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. Nonetheless, MP Materials (MP) soared 8% on the back of the announcement on Monday. 

Meanwhile, ahead of the talks on Monday, Trump authorised Treasury Secretary Scott Bessent to negotiate lifting tech sales controls to China, including software to produce chips and ethane to manufacture plastics. As a result, chip design software makers, including Qualcomm (QCOM), Advanced Micro Devices (AMD), Synopsys, and Nvidia (NVDA), all rose on Monday.

Outlook for Continued Negotiations

Following a first “good meeting” on Monday, the two delegations are expected to continue talks on Tuesday. Despite the positive sentiment, White House economist Kevin Hassett argued that the export controls are being removed at a slower pace than agreed in Geneva. Adding to that, some experts even argue that China is not likely to give away much of its control of essential minerals, possibly using its “near-monopoly” as a bargaining chip to negotiate better terms. If the US also draws a line on export control to China, optimism from the fruitful meeting on day one may sour sentiment quickly. In fact, experts at Capital Economics believe that access to rare earths will be more stringent than before April.

Notably, the news comes as Chinese exports to the US have taken a beating. Trade data from China on Monday showed a 35% year-on-year drop last month, which is the biggest decline since 1984, excluding Covid. However, in dollar (DX) terms, Chinese exports rose 4.8% for the same period. Some argue that despite having faced substantial tariff increases, China’s economy has shown resilience. Coupled with the fact that the US suffers more from shortages in rare earths than China does from chip restrictions, China might have the upper hand in negotiations, suggesting a wait-and-see approach with short-term volatility bursts depending on the headlines. Meanwhile, Trump faces protests and trade challenges at home, a controversy involving Tesla (TSLA) CEO Elon Musk, and heightened scrutiny surrounding his government spending bill, with his policies likely to impact economies on a global scale.

Market Catalysts to Watch

Beyond Monday’s headlines, trade barriers introduced by the Trump administration have “weakened economic prospects”, with the Organisation for Economic Co-operation and Development (OECD) expecting growth to increase only to 2.9% from 3.1% previously. Still, the S&P 500 trades positively year-to-date and is only 2.3% shy of its record high and could be set for a recovery for the history books, as traders have been expecting trade tensions to normalise since ‘Liberation Day’ lows. 

In the short term, Wall Street awaits inflation data this week to shape momentum. However, only a significant discrepancy between the actuals and expectations will dim the light from US-China talks. Notably, since talks took a turn for the better, inflation expectations have cooled down, which places the 10 August truce deadline at the centre of focus.

Conclusion

Despite kicking the week off on a positive footing, markets remain cautiously optimistic as the US-Sino trade talks on rare earth minerals and technology export controls progress. Sentiment has improved, but challenges remain before trade normalisation can be achieved, with the 10 August truce deadline looming large. 

Meanwhile, as traders try to balance positive signals against economic data, major indices hover near records despite recent volatility. However, market direction in the short term might hinge on Tuesday's progress, with investors preparing headline-driven price action unless inflation data this week surprises on one side or the other.

*Past performance does not guarantee future results