- US-China tariff pause lifts sentiment but worries linger
- Traders lower bets of Fed rate cut this year
- Focus now on economic data, US inflation set for Tuesday
TOKYO, May 13 (Reuters) - A rally in Asian stocks ran out of steam and the dollar stuttered on Tuesday as resurgent worries about U.S. President Donald Trump's trade policies and their impact on the global economy kept risk sentiment in check.
European futures pointed to a weaker open while Chinese stocks were flat, failing to latch onto the strong Wall Street rally that followed a 90-day halt in the Sino-U.S. trade war.
Futures for S&P 500 and Nasdaq were also slightly lower in Asia's afternoon, underscoring the cautious mood in the markets.
"A de-escalation was inevitable and I think it's clear there won't be much durable that comes out of these talks," said Christopher Hodge, chief U.S. economist at Natixis.
"When all is said and done, tariffs will still be dramatically higher and will weigh on U.S. growth."
MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.2% having touched a more than six-month high earlier in the session.
Ratings agency Fitch estimated that 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 much higher than the 2.3% it was at the end of 2024.
Worries about U.S. growth and the lack of progress in hashing out deals between the U.S. and its trade partners have roiled markets since Trump unveiled his sweeping tariffs in early April.
Since then, investors have exited U.S. assets, pushing safe havens, including the yen, Swiss franc and gold, higher.
While the dollar surged initially on Monday after the announcement of a pause in tit-for-tat tariffs, it was weaker in the Tuesday Asian afternoon as the rally fizzled out.
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%.
That gave markets some relief although concerns that tariffs could hurt the global economy prevail.
Hong Kong's Hang Seng index was 1.67% lower, while Japan's Nikkei soared over 2% to its highest level since February 25.
"Fundamentally, uncertainty still lingers, especially around the potential pullback in consumer and corporate spending," said Charu Chanana, chief investment strategist at Saxo in Singapore.
"That said, institutional investors were largely on the sidelines during this rally, holding broadly neutral on U.S. equities. This creates the potential for aggressive dip buying on any retracement."
US INFLATION TEST
Investor focus will now switch to details of the agreement and what happens after 90 days.
Before that, however, the spotlight will be on U.S. inflation data later on Tuesday.
"Should we be treated to another set of soft CPI figures, it could allow traders to refocus on Fed policy and the potential for cuts, and take some steam out of the dollar's rebound," said Matt Simpson, senior market analyst at City Index.
The shift in U.S.-China trade relations has led traders to pare Federal Reserve rate cut bets, expecting policymakers will likely be under less pressure to ease rates to boost growth.
Traders are now pricing in 56 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 rose to a one-month high on Monday and were hovering near that level in early trading on Tuesday. The two-year yield was at 3.9873%, while the benchmark 10-year yield was last at 4.4512%.
In cryptocurrencies, bitcoin was flat at $102,676 on Tuesday, remaining above the key $100,000 level it breached last week.
Oil prices eased a bit on Tuesday after hitting a two-week high in the previous session on trade deal optimism, while gold prices recouped some of their losses having fallen 2% on Monday as investors exited some safe havens.
Reporing by Ankur Banerjee and Rocky Swift in Tokyo; Editing by Muralikumar Anantharaman and Sam Holmes
Source: Reuters