Global markets extended a sharp rebound in mid-May 2025 after the United States and China agreed to a 90-day tariff truce, and a softer-than-expected April inflation report the following day reinforced the recovery. The pause, announced after weekend talks in Geneva, slashed tariffs both countries had escalated to prohibitive levels, easing fears of a trade-driven recession. Yet the temporary nature of the deal left traders weighing renewed optimism against the risk that tensions could resurface once the 90 days expired, a tension that would come to define positioning across equities, currencies and commodities for the rest of the quarter.
The Pause That Sparked the Rebound
On May 12, Washington and Beijing agreed to cut tariffs for 90 days, with U.S. duties on Chinese goods dropping from 145% to 30% and Chinese tariffs on U.S. goods falling from 125% to 10%. Both sides committed to refraining from new tariffs during the truce, effective May 14. Equity markets reacted immediately: the S&P 500 jumped 3.26% to 5,844.19, the Dow surged 1,160.72 points, or 2.81%, to 42,410.10, and the Nasdaq Composite leapt 4.35% to 18,708.34, led by China-exposed names like Apple and Tesla. The rally marked one of the strongest single sessions of the year and erased much of the losses accumulated during the preceding weeks of tariff escalation.
Inflation Data Aligns With the Rally
The following day, the April Consumer Price Index added further support, showing headline inflation rising just 0.2% month-on-month and slowing to 2.3% year-on-year, its lowest level since February 2021. Core CPI also rose 0.2% on the month, with the annual rate at 2.8%. The alignment between cooling inflation and the trade de-escalation gave investors two simultaneous reasons to reduce hedges, feeding hopes that the Federal Reserve would have room to ease policy later in the year. Bond markets echoed the mood, with short-dated Treasury yields holding steady as traders balanced improved growth prospects against a still-uncertain tariff outlook.
A Rally Built on a Fragile Truce
Despite the enthusiasm, strategists were quick to flag the truce as fragile. Economists warned that April's soft CPI reading likely represented a low point for 2025, since tariff-related cost pressures take time to filter through supply chains and could push inflation higher again over the summer. With the tariff reduction set to expire in 90 days absent a broader agreement, currency and equity markets remained sensitive to any signs that negotiations between Washington and Beijing were stalling. Analysts also noted that the truce did not remove tariffs on numerous other trading partners, leaving a broader web of trade friction still to be resolved even as the U.S.-China relationship thawed.
What It Means for Traders
The episode illustrated how quickly sentiment can swing on policy headlines, and how a single data point, like the April CPI, can either validate or undercut a fast-moving rally. For traders, the temporary nature of the truce argued for treating the rebound as conditional rather than a durable trend reversal, with the 90-day deadline itself becoming a tradable event risk worth calendaring alongside the usual macro releases, much like a scheduled central bank meeting or major data print.
Daily market analysis by BCM Markets.