💬 Market returns to peace, with some exceptions

A series of seemingly disconnected but inter-related events that could make you feel ‘disoriented’ if you don’t read it one after another, but I am here to help.

Economy

US & China agreed to a massive de-escalation in tariffs, slashing duties on Chinese products from 145% to 30%, and dropping levy on most US goods to 10% for a 90-day period.

It’s like going from a fiery hot sauce to a mild salsa—still spicy, but much more palatable.

The stock market, which had been on a rollercoaster ride, finally found a moment to exhale, much like a parent who just got their toddler to nap.

In the end, both sides left Switzerland with a handshake and a promise to keep talking.

Meanwhile:

Bank of England (UK): Cut interest rates by a quarter point to 4.25% as a response to the global trade war’s impact on UK growth. This decision was a bit of a split among officials, with some wanting a larger cut and others preferring to hold steady.

Bank Negara Malaysia: Kept its overnight policy rate steady at 3% but adopted a more dovish tone, signaling that rate cuts could happen as early as July if the economy slows down. They also slashed the reserve ratio to 1%, a 14-year low, releasing RM19 billion into the banking system to encourage more credit and support economic activities.

People’s Bank of China: Reduced its policy rate and lowered the reserve requirement ratio (RRR) by half a percentage point. This move was part of their efforts to provide ample liquidity and support the economy amid the ongoing trade tensions with the US.

With the latest US inflation rate at 2.3%, lowest since early 2021, the market currently also expects the Federal Reserve to implement 2 rate cuts by the end of this year.

This expectation has been adjusted from earlier predictions, reflecting the evolving economic landscape and trade developments.

Market

Widespread positive sentiment followed the trade truce. US stocks, especially, technology stocks, saw notable gains.

While China’s market rebound was capped by some turbulence due to concerns about Beijing’s lack of urgency in ramping up growth stimulus, Taiwan, Japan and Hong Kong stock markets all rebounded.

Even Malaysia experienced its largest foreign inflow in 15 months, with RM1.5 billion entering the Bursa.

Speed Bumps

Healthcare sector: UnitedHealth Group stocks saw a significant drop of 5.1% after reports emerged about the company secretly paying nursing homes bonuses to reduce hospital transfers for ailing residents. This news impacted investor sentiment and investor perceptions.

US Gov Bond market sentiment spilling over to the stock market: Moody’s recently downgraded the US sovereign credit rating from “Aaa” to “Aa1.”

This decision was driven by concerns over the US government’s rising national debt.

Moody’s cited the growing debt and budget deficits, along with political polarization, as key reasons for the downgrade.

This move by Moody’s follows similar actions by other major credit rating agencies in previous years, due to 2 key reasons:

Rising National Debt: The US debt has ballooned to $36 trillion, raising negative sentiment about the country’s fiscal sustainability.
Budget Deficits: Persistent budget deficits have contributed to the growing debt burden, with little sign of narrowing.

Adding fuel to fire:

Trump’s ‘Big & Beautiful’ Tax Bill: Recently approved tax breaks included spending hikes. While intended to stimulate economic growth, these measures will significantly increase the federal budget deficit & debt.

Finally, the severity of the impact from the “lower-but-still-higher-before-Trump2.0” tariff rates on corporate earnings is a big unknown for the rest of the year.

For context, before 2025 ~

US Tariffs on China: