07:59 AM EDT, 05/12/2025 (MT Newswires) -- The 90-day pause in the trade war between the United States and China is driving a solid risk-on session to start the week, noted Scotiabank.

U.S. S&P equity futures are up by 3.25% with a percentage point more for the Nasdaq, while European cash markets are gaining by between 0.5% and 1.5%, said the bank. Mainland China's stocks rallied by between 0.75% and 1.75%.

U.S. Treasury yields are bear flattening with the two-year yield up 10bps as Federal Reserve cut pricing is being scaled back to about 50bps this year, including nothing in June, and the first full cut priced for September, stated Scotiabank. Compare that with roughly 125bps of cuts that were being priced for this year a little over a month ago as markets went way overboard.

The US dollar is broadly stronger with only the CNH and CNY also firming. Oil is up by over 3% and gold is down by over $100.

The U.S. and China agreed to step back from some of their tariffs on each other for a period of 90 days. The U.S. will temporarily drop its tariffs to 30% from 145% and China will reduce its duties to 10% from 125%, which is better, but still punishing with huge caveats, pointed out the bank.

For one, all tariffs before April 2 -- when President Donald Trump's trade wars escalated will remain in place, including sector-specific U.S. tariffs on Chinese electric vehicles, solar panels, semiconductors, steel and aluminum and select other goods. "De minimis" exemptions are still gone as of last week, slamming low-value trade. China's other measures, such as restrictions on critical minerals and measures targeting individual U.S. companies also remain in place.

For another, a 90-day suspension leaves great uncertainty in place. Will Trump and Chinese President Xi Jinping put rings on each other's fingers and, if so, would the engagement last, asked Scotiabank This is not a deal, it's just a de-escalation of tariff" lunacy" and the bank has seen temporary deals fall apart in the past. None of the core issues are being addressed.

Third, it's unclear that 30% plus pre-existing tariffs don't still grind U.S.-China commerce to a halt, added the bank. Worsened data, product shortages and inflation are still coming.

So, celebrate for now, but the volatile history of relations between these two countries combined with Trump's extremely erratic ways will leave markets on "tenterhooks" into the mid-August timeframe by which point either some heroic attempt at a grand deal is miraculously pulled off in record time, or it's back at it all again, according to Scotiabank.

There is one sector not celebrating, however, as Big Pharma doesn't like Trump's plans to sign an executive to address soaring prices, noted the bank. Trump claims he'll cut pharmaceutical prices by 30%-80% by implementing a most-favored nation policy to pay no more than people in countries that have the lowest price.

No details at all, not least of which, whether it's referring to government-run programs or broader reductions, which drugs, and how it would be executed. "All hubris" in the bank's opinion. If successfully pulled off it would probably "drastically" impact access to drugs in the U.S. and future innovation.