To The Moon

Performance of Global Equity Indices(in US Dollar)

• Last week, progress was made on the U.S. tariff front. The U.S. and U.K. reached their first official agreement, which, while still lacking finalized details, revealed a key structure: a 10% baseline tariff appears to be Trump’s bottom line, while additional surcharges serve as bargaining tools that could be reduced or waived through other means. 

• Over the weekend, the first high-level U.S.-China meeting delivered a surprisingly positive outcome, with both sides issuing a Joint Statement from Geneva. The two countries agreed to cancel 91% of tariffs and suspend an additional 24%. As it stands, the U.S. has imposed a net 30% tariff increase on China, while China has raised tariffs on the U.S. by 10%. This outcome boosted market sentiment significantly, sending the Nasdaq and Hang Seng Tech Index up nearly 5% intraday. That said, we view this as merely the start of renewed negotiations—core structural issues remain unaddressed. As the effects of tariffs begin to materialize in economic data, investors should remain cautious.

• Key focus this week includes U.S. April CPI, PPI, and retail sales data, as well as progress in tariff negotiations.

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Key Market Themes

China–U.S. Talks Exceed Expectations — What’s Next? 

Last week brought positive developments in U.S. tariff negotiations. Midweek, the U.S. and U.K. formally announced a trade agreement. Though still a broad framework, it marks the first bilateral deal signed under Trump’s new tariff regime. In essence, the U.S. will maintain a minimum 10% tariff while offering sector-specific relief on steel, aluminum, and automobiles. In return, the U.K. agreed to lower its average tariff on U.S. goods from 5.1% to 1.8%, expand market access for ethanol, beef, and fruit, and purchase an additional $10 billion in Boeing aircraft. While the agreement lacks granular detail, it does clarify several important takeaways:

• The 10% baseline tariff is Trump’s non-negotiable floor. If even the U.K.—the first to sign—didn’t receive a lower rate, other countries are unlikely to negotiate below that threshold.

• The “reciprocal tariff” add-ons are flexible and negotiable. They can be lowered from the levels announced on April 2—or even reduced to zero—but in exchange, the counterparty must make concessions, such as opening up markets or buying U.S. goods.

The weekend’s China–U.S. economic and trade negotiations were full of twists and turns, yet the final outcome exceeded everyone's expectations. On Monday, both sides issued a joint statement, announcing that they would mutually cancel 91% of tariffs and suspend an additional 24%. As a result, U.S. tariffs on China dropped from 145% to 30%, and China’s tariffs on the U.S. fell from 115% to 10%—a result that surpassed even the market’s most optimistic forecasts. Unsurprisingly, markets responded with euphoria: both the Nasdaq and Hang Seng Tech Index surged nearly 5% in a single day. Admittedly, the outcome of this first round of talks was far better than we anticipated. But it also reinforces two key points discussed earlier:

• The 10% baseline tariff is non-negotiable—Trump will not walk it back.

• The additional tariff rates are bargaining chips, subject to gradual negotiation and tied to reciprocal concessions.

While the results were highly favorable, we advise a more cautious interpretation:

• First, despite exceeding expectations, this deal merely resets the clock to the pre–April 2nd status—and with a new 10% baseline tariff still in place. In essence, the two sides have paused the fight, but core issues remain unresolved. Technology competition continues, and the trade imbalance persists. Future negotiations will likely shift toward specific industries and sensitive sectors, where addressing fundamental conflicts will be far more complex. This is only the beginning.

• Second, Trump has a history of backtracking. In May 2018, the U.S. and China similarly issued a joint statement calling for reconciliation—but just weeks later, Washington unilaterally escalated the conflict by imposing new tariffs. That said, the current landscape is very different: China now has more negotiating leverage, and this time the joint statement includes substantive, mutual tariff reductions—something that did not happen in 2018. This signals that complete decoupling is untenable for both sides.

In short, it’s undeniably positive that negotiations have resumed—but one should not underestimate the difficulties ahead. Whether it’s China’s rare earths or America’s semiconductors, the stakes are not merely economic—they’re strategic. That’s why we previously identified April 2 as the most pessimistic point in the tariff cycle, and now, May 12 may well represent its most optimistic moment.

On the other hand, last week's May FOMC meeting delivered no surprises—and no shocks either. Chair Powell reiterated that the Fed is in no hurry to cut rates, continued to emphasize uncertainty, and opted once again for a wait-and-see approach. Interestingly, Powell explicitly stated that "if tariffs remain in place, there will be no progress on the dual mandate this year." Translated: If Trump doesn’t adjust his tariff policy, I won’t be able to lower rates. Meanwhile, the Q1 U.S. earnings season has been very strong. So far, S&P 500 EPS has grown 12% year-over-year, double the 6% growth expected by analysts. The "Magnificent 7" continue to act as the primary growth engine, widening their performance gap over the remaining 493 companies. Notably, tech giants like Meta, Google, and Microsoft have all reiterated—or raised—their capital expenditure guidance. We believe this strong fundamental backdrop is providing meaningful support for equity markets. Looking ahead, however, the real test lies in how hard data evolves under the new tariff regime. The recent market rally has been more a reflection of emotional relief than of a clear-eyed repricing of tariff risks. In short: stay alert, and avoid blind optimism.