The Morning Edge: Tariff Truce Sparks Economic Optimism—But Caution Lingers

QUICK SNAPSHOT
Global Sentiment: Risk-on
Factors: US-China Trade Deal; India-Pakistan Tension

TODAY’S WATCHLIST
 - India April CPI data
 - US April Core CPI data
 - Tata Motors, Bharti Airtel, Cipla earnings

THE BIG STORY
A sudden thaw in US-China trade tensions has sent a ripple of optimism through financial markets, with JPMorgan upgrading China’s growth forecast after what it called a “surprisingly positive” deal. Under the agreement, both nations will temporarily slash their punishing tariffs, offering a 90-day reprieve from the tit-for-tat duties that have strained the global economy. US levies on Chinese imports will drop from a staggering 145% to 30%, while China’s tariffs on US goods will fall from 125% to 10%. JPMorgan now sees China’s full-year GDP hitting 4.8%—a notable jump from its earlier 4.1% projection—and no longer expects Beijing to roll out additional fiscal stimulus.

But while the short-term relief has been welcomed, central bankers remain measured in their assessments of the economic fallout. Federal Reserve Governor Adriana Kugler acknowledged the temporary de-escalation as a clear improvement yet cautioned that even reduced tariffs at 30% are “pretty high” and could still dampen growth. Speaking in Dublin, she noted that the price impact and slowdown may be more subdued than initially feared, reducing the likelihood of imminent interest rate cuts by the Fed. For now, the world’s two largest economies appear to have stepped back from the brink—but policymakers and markets alike are keeping one eye on what happens when the 90-day clock runs out.

DATA
The US government recorded a $258 billion budget surplus in April, up 23% from a year earlier, driven by strong tax receipts and record-high tariff collections, according to the Treasury Department. Customs duties surged to $16 billion during the month—more than $500 million a day—amid sharply higher tariffs on Chinese goods and new levies on other imports. For the fiscal year to date, net customs duties reached $63 billion, a significant increase from $48 billion in the same period last year. In the first seven months of fiscal 2025, which commenced on October 1, the Treasury reported a budget deficit of $1.049 trillion, a 23% increase from the previous year, or $194 billion.

WHAT HAPPENED OVERNIGHT
US stocks rallied sharply on Monday, with the S&P 500 hitting its highest level since early March after the US and China agreed to temporarily slash reciprocal tariffs – reducing US duties to 30% from 145% and Chinese levies to 10% from 125%. The S&P, Nasdaq, and Dow notched their best daily gains since 9 April, boosted by Apple’s 6.3% jump on iPhone pricing reports and NRG Energy’s 26.2% surge after a $12bn acquisition deal. 

The 10-year US Treasury yield surged nearly 10 basis points on Monday, mirroring moves in German Bunds and UK gilts, as the US-China tariff truce reduced safe-haven demand for government debt. However, Citi analysts cautioned the rally might prove temporary, noting Trump's political base may oppose compromise and recalling how a similar 90-day ceasefire in 2018-2019 ultimately collapsed. 

The US dollar surged on Monday after the US and China reached a temporary tariff-cutting deal, easing fears of a global recession. The dollar index jumped 1.5% to 101.91, while the euro dropped 1.54% to $1.1074, marking its steepest one-day fall since November 6. The trade breakthrough reinforced the greenback's dominance as investors moved back into safe-haven assets.

Brent crude oil prices rallied sharply on Monday, with Brent crude for June delivery jumping 1.9% to $65.10 per barrel−up from $57 a week ago level as traders reassessed recession risks following the US-China tariff truce. The rebound reflects easing demand concerns, though market participants remain wary of potential breakdowns in negotiations given the temporary 90-day nature of the agreement. Energy markets appear to be pricing in reduced but still-present trade war risks.

Day’s Ledger

Economic Data:

• India CPI for April
• Germany May ZEW Economic Sentiment index
• US CPI for April
• US Johnson Redbook Retail Sales Index

Corporate Action:

• Jan-Mar earnings: Aditya Birla Capital, Advanced Enzyme Technologies, Alembic, Aurionpro Solutions, Bharti Hexacom, Bharti Airtel, Cipla, Dalmia Bharat Sugar and Industries, GAIL (India), Garden Reach Shipbuilders & Engineers, GlaxoSmithKline Pharmaceuticals, Hero Motocorp, Honeywell Automation India, Indo Rama Synthetics (India), ITD Cementation India, Jubilant Ingrevia, Manali Petrochemicals, Max Financial Services, Mcnally Bharat Engineering Co, Metropolis Healthcare, NIIT, Patel Engineering, Siemens, Suven Life Sciences, Tamil Nadu Newsprint & Papers, Tata Motors, VIP Industries, VST Tillers Tractors
• Indian Infotech & Software to consider rights issue
• Mahindra Lifespace to consider rights issue
• Suven Life Sciences to consider raising funds

Policy Events

• ECOFIN meeting of EU finance ministers
• German Buba Balz Speaks
• BoE Gov Bailey Speak
• BoE MPC Member Pill Speaks

TICKERS

• Carborundum March quarter PAT slumps 78.4% YoY to ₹291.4 million
• Chalet Hotels March quarter PAT jumps 50%+ YoY to ₹1.24 billion
• HFCL wins ₹1.57 bn order for BharatNet Phase III in West Bengal
• KEC International wins ₹10 billion orders across segments
• Novelis March quarter net jumps 77% to $294 mn; sales up 13% at $4.59 bn
• Piramal Pharma to invest $90 mn in US units via loans, accruals
• SRF March quarter PAT beats estimates on stronger volumes, prices
• Tata Steel March quarter sales, PAT beat estimates; revenue down 4.2% YoY
• Tanla promoter ups stake to 23.10% after buying 1.86 mn shares
• UPL guides 4–8% FY26 growth, expects weak Apr–Sep half
• UPL spins off specialty biz as Superform to expand beyond agchem
• YES Bank may get 51% stake bid from Sumitomo Mitsui this week.

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