US-China relief sparks world stock melt up

Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

A burst of optimism and relief around US-China trade talks provided the rocket fuel to boost world stocks to new highs on Monday, while Argentina's markets surged after a thumping mid-term election victory for President Javier Milei's ruling party.

In my column today, I caution that when it comes to US-Sino trade, we've been here before. U.S. President Donald Trump triumphantly claimed in June that a trade deal with China was done, only for that not to be the case. Of course, it may be different this time, right?

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* Optimism around US-China ...

So, it looks like a trade deal could be imminent. Even if it is essentially a placeholder deal that kicks the really thorny issues like U.S. tariffs on Chinese goods and China's controls over rare earth exports down the road, it buys time. 

For investors, that's more time to maintain a pro-risk stance supported by earnings, dovish central banks, and AI optimism that has been in place since April. Until fatigue really sets in or there's a catalyst to reverse it, perhaps the 'risk on' rally grinds on.  

* ... and Argentina

Argentina's markets soared on Monday following the convincing - and surprising - victory of President Javier Milei's ruling party in the mid-term elections. The peso leaped 10%, bonds 15%, and stocks 20%.

It's a clear victory for Milei, and Washington too, given the scale of financial support the Trump administration has provided Buenos Aires in recent weeks. As always, the question once this relief rally fades is whether Argentina will be on a more stable financial footing for the long term. 

* Central bank bonanza

Investors are preparing for a raft of major central bank meetings this week, with the Fed taking center stage on Wednesday, and ably supported by the Bank of Canada, Bank of Japan, and European Central Bank.

Only the Fed is expected to cut rates, and by 25 basis points, which is fully priced into financial markets. But the overarching tone will probably be dovish, further supporting the 'melt up' rally sweeping through global equity markets. 

The United States and China appear to have hammered out the framework of a trade deal in advance of Presidents Donald Trump and Xi Jinping's meeting this week, removing the threat of an imminent collapse in trade between the world's two largest economies. World markets have welcomed the news, but, far from a game changer, this just looks like déjà vu. 

Remember this?

"OUR DEAL WITH CHINA IS DONE, SUBJECT TO FINAL APPROVAL WITH PRESIDENT XI AND ME," Trump wrote on Truth Social on June 11, adding: "RELATIONSHIP IS EXCELLENT!" 

As it turned out, the deal was not done, and the relationship was not excellent. 

So much so, an emboldened Beijing earlier this month put extra controls on rare earth exports, and Washington responded with threats of 100% tariffs on U.S.-bound shipments of goods from China. U.S. Treasury Secretary Scott Bessent also publicly criticized top Chinese trade negotiator Li Chenggang as "unhinged".

However, the two men appear to have put these differences aside following talks in Malaysia over the weekend, agreeing to the roots of a preliminary deal in which China will delay its expanded licensing regime for rare earths and the U.S. will drastically lower its threatened tariffs on Chinese goods.

Soundings from the White House are upbeat, while the Chinese side is taking a more cautious line. 

But how should investors view the news?

Find ROI on the Reuters website, and join the debate on LinkedIn and X.

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