Good news from Geneva

The weekend brought good news. The negotiations between American and Chinese officials this weekend in Geneva went well – apparently – as US Treasury Secretary Bessent said that ‘substantial progress was made.’ The comments were more measured from the Chinese side, but officials there also said they had made ‘sound sustainable development.’ What exactly that means will be clearer later today, when the two countries are expected to make an official announcement. But the foretaste of de-escalation is giving a boost to risk appetite this morning – though gains in Asian indices remain moderated. The CSI 300, for example, opened the week above its 50-DMA and traded past the 100-DMA, but the index pared earlier gains and is currently up by only 0.61%. The Japanese Nikkei kicked off above its own 100-DMA but failed to clear the 200-DMA offers; the index is up by 0.26%. Meanwhile, European and US futures are in the green and pointing to a solid start to a promising day. Nasdaq futures are leading the gains with an almost 2% advance in the early hours of the trading week, while pharma stocks are under pressure on Trump’s plans to order a cut in US prescription drug costs – he doesn’t want Americans to pay more than people in countries with the lowest price...

In FX, the US dollar is slightly softer this morning – on the back of trade optimism – while the Swiss franc and gold retreat. An ounce of gold is trading 1.5% lower on easing trade fears. China- and commodity-sensitive AUD feels bullish, but trading in oil and copper hints at cautious optimism as investors still have doubts that the upcoming statement will bring ‘substantial’ change to the situation. Trump has been calling for tariff relief on Chinese imports from 145% down to 80%. According to Kalshi, US tariffs on China are expected to land around 68%, and participants on the platform see no more than a 36% chance for the tariff rate to go below the 50% mark. So I’am afraid the journey to a reasonable outcome will be long and bumpy, but the fact that the first talks went relatively well is obviously a good sign and couldn’t come at a better time – for both sides.

In the US, company executives have been warning that excessive tariffs could lead to pandemic-like disruptions, empty shelves, and rocketing prices. Meanwhile, the Chinese are seeing their exports take a severe hit from the tariffs and from the end of the ‘de minimis’ exemption for low-price Chinese retailers. Temu and Shein reportedly saw a double-digit decline in their exports to the US.

China Big Tech earnings in focus

JD.com, Tencent, and Alibaba will report earnings this week. The first quarter is also the first quarter in which Chinese companies have effectively entered the AI race. Their results could bring Chinese AI talk back to the table.

Looking back, the arrival of DeepSeek opened the door to other Chinese AI models. Alibaba’s helped almost double its stock price between January and March, but trade tensions took a toll, and the stock gave back two-thirds of its early-year gains before rebounding strongly. Taking a longer-term approach, the Chinese AI story is just beginning and offers tech investors an excellent opportunity to diversify. Not only has the AI buzz not been fully priced into Chinese equities, but the government’s support for tech and broader economic stimulus should help maintain appetite and support the rally in China’s tech champions through 2025.

Good news can’t come soon enough

Investors will also focus on Walmart’s results and guidance this week. Walmart initially wanted the Chinese to absorb the full cost of US tariffs – to which China said ‘no, thank you.’ Eventually, the company decided to bear the cost itself to avoid disrupting its supply chain – at least for now – a move that contrasts with competitors who’ve reduced their Chinese imports. The fact is, Walmart is well-positioned to attract consumers when economic conditions are strained, and purchasing power is falling – which likely explains why its share price remains close to all-time highs.

But sentiment is gloomier, elsewhere. Note that 62% of American CEOs expect a slowdown or recession in the next six months – which weighs on investment plans and earnings forecasts. Inflation expectations have also shot up in recent months, and the Federal Reserve (Fed) has sounded cautious about how tariffs could impact growth and inflation – warning that inflation could experience a stickier rise than just a one-off heat-up.

Tomorrow, the US will release its latest CPI data. Both headline and core inflation figures are expected to have rebounded in April. A stronger-than-expected reading could embolden the Fed hawks and the argument to hold off on rate cuts to avoid losing control of inflation. A softer print, however, could add to trade optimism and revive the Fed doves. Fed funds futures currently price in less than a 15% chance of a rate cut in June – so, easing trade tensions is really the only thing keeping optimism alive. And good news can’t come soon enough.