12.06.25 - Deal

Following a high-level meeting in London, the US and China reached a new trade agreement aimed at preserving the fragile truce established in Geneva. President Donald Trump announced that US tariffs will be maintained at 55%, while China will hold its own at 10%. The deal includes the removal of Chinese export restrictions on rare earth minerals and lifts curbs on magnets vital for high-tech and defense industries. It also reopens access for Chinese students to US universities.
Cantor Fitzgerald CEO Howard Lutnick noted the deal's importance in securing supply chains for critical minerals, while Bessent clarified that no ‘quid pro quo’ had been made regarding U.S. high-end chip exports in return.

Markets: Major Asian markets down with Hang Send index -1.36%, European equities down between -0.5% to -1%, US Futures slightly down -0.3%; falling yields on interest rates globally, while US dollar continues to drop; gold price stagnate with other commodity prices; Cryptos see some profit taking

My view: For some, it may be surprising that markets did not cheer the news. But the reality is more sobering. The “deal” essentially confirms that tariffs are not being lifted. Tariffs are being cemented at a slightly lower level. The narrative is being spun as progress, but in fact, it institutionalizes a new baseline of trade friction between the world’s two largest economies. And this will also count for other trade partners which have not yet settled a deal.
To keep in mind, the US is forced to generate income to find a balance on its bill and the gap with financing its debt and lower taxes .

While short-term disruptions may ease, the structural decoupling continues. Investors have priced in a rebound with full normalization. This deal framework should definitely raise red flags.
The euphoria built on hopes of resolution may begin to unwind once investors realize the tariffs are not going away. It’s not a rollback, it's a realignment. And sooner or later, that will be felt in corporate margins, supply chains, earnings guidance as well as economic data like inflation, slowdown labor market.

I took some profit on investments done recently, few days after the ‘Liberation Day’ during market lows. On the other hand I increased my position betting on rising volatility as well as increased my exposure towards falling stock prices in the chip sector. Investors were heavily betting that the export restrictions will be eased with this deal.

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