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US-China tariff pause lifts sentiment but worries linger

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Traders lower bets of Fed rate cut this year

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Focus now on economic data, US inflation set for Tuesday

(Updates throughout)

By Amanda Cooper

LONDON, May 13 (Reuters) - A rally in global stocks and

the dollar lost some momentum on Tuesday, as initial euphoria

over a trade truce between the United States and China gave way

to the persistent concern among investors over the impact of the

standoff on the global economy.

The world's two largest economies have initiated a 90-day

pause in their trade war, bringing down reciprocal tariffs and

removing other measures while they negotiate a more permanent

arrangement.

The agreement has reignited investor appetite for stocks,

cryptocurrencies and commodities, unleashing a 3.3% rally on

Wall Street the previous day.

By Tuesday, some of that enthusiasm had ebbed, leaving

European stocks up 0.2% in early trading, boosted by

upbeat corporate results from the likes of German pharma group

Bayer and Danish wind turbine maker Vestas,

which both rose 10%.

Futures on the S&P 500 and Nasdaq fell 0.4%,

underscoring the caution towards U.S. assets.

"It's the pause that refreshes and makes you feel better.

You just hope that there is more to come. It does show you that

this administration is not immune to market volatility. It does

have a breaking point," IG chief market strategist Chris

Beauchamp said.

Following the Geneva talks, the U.S. said it will cut

tariffs imposed on Chinese imports to 30% from 145% while China

said it would cut duties on U.S. imports to 10% from 125%.

Ratings agency Fitch estimates the U.S. effective tariff

rate is now 13.1%, a notable decline from 22.8% prior to the

agreement but still at levels unseen since 1941 and above the

2.3% that prevailed at the end of 2024.

The U.S. government went one step further on Tuesday,

announcing it will cut the "de minimis" tariff on Chinese

shipments of items valued at up to $800.

The broader markets offered little reaction to this latest

U.S. concession. Shares in Amazon ( AMZN ) eased 0.5% in

premarket trading, following Monday's 8% rally.

FAREWELL 'CRAZY US EXCEPTIONALISM'?

Trump's unpredictable approach to the economy, trade and

international diplomacy have fanned concern about the outlook

for U.S. growth. Together with a lack of progress in hashing out

deals with trade partners, these factors have driven investors

out of U.S. assets for weeks, to the benefit of safe-havens like

gold, the Japanese yen and Swiss franc.

Economists, fund managers and analysts have said that while

the 90-day pause is welcome, it has not changed the bigger

picture.

"When all is said and done, tariffs will still be

dramatically higher and will weigh on U.S. growth,"

Christopher Hodge, chief U.S. economist at Natixis, said.

The dollar surged against a basket of currencies on

Monday by the most in a day since April 22. By Tuesday, some of

that had faded, leaving most other major currencies stronger

across the board.

The euro was up 0.17% at $1.1108, while the yen

strengthened, leaving the dollar down 0.4% at 147.88,

and the pound rose 0.2% to $1.3207.

"You still get that sense from people generally that for the

moment, we will be putting more money back to work in the U.S.,

but we won't be going back to this crazy 'U.S. exceptionalism

trade' of December of just whatever you do, it has to be in the

US. We've got to be a bit more circumspect now," IG's Beauchamp

said.

For now, investors will focus on U.S. inflation data on

Tuesday.

The shift in U.S.-China trade relations has led traders to

reduce their expectations for Federal Reserve rate cuts, as they

believe policymakers may have more leeway if the risks to

inflation abate.

Traders are now pricing in 58 basis points of cuts this

year, down from over 100 basis points during the height of

tariff-induced anxiety in mid-April.

U.S. Treasury yields were around one-month highs, with the

benchmark 10-year yield flat at 4.453%.

Oil prices steadied on Tuesday, having risen 1.2% on Monday

to a two-week high above $65 a barrel. Gold held around $3,260

an ounce, having fallen 2% on Monday as investors ditched some

safe havens.

(Additional reporting by Ankur Banerjee and Rocky Swift in

Tokyo; Editing by Muralikumar Anantharaman, Sam Holmes and Ros

Russell)