The easing of tariff and trade tensions between the US and China has provided temporary relief to macroeconomic conditions globally, according to international credit rating agency Standard & Poor’s (S&P).
Also, the VIX Index, or the fear gauge that measures market volatility, dropped early last week since Washington’s sweeping tariffs were unveiled last month.
“This tariff climbdown improves our macroeconomic outlook, considering the direct effects of lower bilateral tariffs on the world’s two largest economies, reduced policy uncertainty, more buoyant asset prices, and some reopening of markets,” S&P said in a statement over the weekend.
It added that the latest positive developments between the US and China on tariffs and trade is a good development. However, the global trade environment will continue to put pressure on credit conditions although some risks have subsided for now.
China and the US issued a joint statement on Monday for the first time in many years after talks in Geneva, Switzerland over the weekend. Both countries said that they would temporarily reduce tariffs mutually by 115 percent for 90 days as of May 14.
Also, the US would reduce its tariff rate on China to 30 percent from 145 percent and China would reduce its rate against the US to 10 percent from 125 percent.
Relatedly, the VIX, which shows fluctuations in the S&P 500, fell 17 percent to 18.2 percent, reaching levels of the pre-tariff reciprocity period, or before April 2, the so-called Liberation Day.
To recall, the VIX index went up to 60.13 in April due to the effects of the tariffs and US negotiations with major trade partners.
Zafer Ergezen, a futures and commodity markets expert, said that the easing of tariff and trade tensions between the US and China eased some of the global uncertainties, pulling down the VIX Index.
“As the VIX declined, the US Dollar Index began to rise again and oil prices went up, while the safe-haven gold recorded significant losses with uncertainties waning,” he said.
“We have yet to see the full effect of the expectations to end the war in Ukraine, the easing of the conditions in the Middle East, and falling geopolitical risks but these have, so far, raised the optimism in the markets,” Ergezen added.
