On May 12, 2025, global equity markets witnessed a strong rally after the US-China announced a 90-day truce in their escalating trade dispute. This development marked a critical shift in investor sentiment, reversing weeks of uncertainty and fueling optimism across Asia, Europe, and North America. Major indices in India, the United States, and other global exchanges responded positively, with significant gains recorded in a single trading session.
This article analyzes the key elements of the US-China trade pause, its implications for global markets, and the immediate reactions from investors and sectors around the world.
US and China Announce a 90-Day Trade Truce
The United States and China jointly declared a temporary suspension of new tariffs, agreeing to enter a 90-day negotiation window aimed at resolving outstanding trade conflicts. The decision came after a series of high-level discussions between US Treasury Secretary Janet Yellen and Chinese Vice Premier Liu He. Both countries committed to refraining from imposing new duties and pledged to revisit terms related to technology transfers, intellectual property, and market access.
Officials from both sides emphasized that they would work intensively during this truce period to find common ground. The agreement relieved investors who had feared that escalating trade tensions would stifle global economic growth and disrupt international supply chains.
Market Reaction: Rally Across Major Indices
Equity markets reacted swiftly and decisively to the announcement. In the United States, the Dow Jones Industrial Average surged over 1,000 points, closing at 41,823.58, up by 2.47%. The Nasdaq Composite rose nearly 4%, led by gains in tech heavyweights like Apple, Nvidia, and Microsoft. The S&P 500 gained 3.1%, closing at 5,315.40, recording one of its best single-day performances of 2025.
In Asia, the Nikkei 225 in Japan climbed 2.8%, while Hong Kong’s Hang Seng Index jumped 3.5%. The Shanghai Composite gained 2.9%, reflecting strong investor confidence in the prospects of improved US-China relations.
Indian markets, already buoyed by domestic positive developments, also reacted strongly to the news. The NSE Nifty 50 surged by 916.70 points (3.82%) to close at 24,924.70, and the BSE Sensex rose 2,975 points (3.74%) to end at 82,429.90. Analysts attributed a significant portion of these gains to the relief rally triggered by the US-China ceasefire.
Technology and Export-Oriented Sectors Lead Gains
Technology stocks led the rally globally. In the United States, chipmakers and hardware firms posted double-digit intraday gains. Nvidia surged by 7.6%, while AMD jumped 6.9%. Apple and Microsoft each rose more than 5%, bolstered by investor optimism about reduced risks to global production and exports.
In India, the Nifty IT index gained 6.70%, driven by strong performances from Infosys, HCL Technologies, and Tech Mahindra. Investors believe that improved trade relations between the world’s two largest economies will stabilize outsourcing demand and reduce cost uncertainties related to tech exports.
Export-oriented sectors such as manufacturing, logistics, and consumer electronics also posted impressive gains. In China, companies like Huawei and BYD recorded significant rallies, as investors bet on eased export restrictions and renewed partnerships.
Investor Sentiment Turns Optimistic
The trade truce provided much-needed relief to institutional and retail investors, who had grown increasingly anxious over the long-term economic implications of an unresolved US-China conflict. Market sentiment shifted from caution to optimism, as evidenced by a sharp decline in the CBOE Volatility Index (VIX), which dropped by 12.3%.
In India, the India VIX fell significantly, ending a prolonged streak of rising volatility. Domestic institutional investors increased their exposure to equities, and foreign portfolio investors turned net buyers after several sessions of cautious trading.
Market analysts noted that the swift reaction from investors indicated how deeply trade uncertainty had weighed on sentiment in the past few months. With the ceasefire now in effect, investors expect negotiations to pave the way for longer-term stability and policy clarity.
Sectoral Breakdown: Winners and Laggards
Not all sectors benefited equally from the rally. While tech and exports led the way, defensive sectors like pharmaceuticals and FMCG recorded more modest gains. Investors rotated funds out of safe-haven sectors and into growth-oriented equities, anticipating a revival in global demand.
In the Indian market, Infosys, Adani Enterprises, HCL Technologies, and Trent emerged as top gainers. Conversely, Sun Pharma and IndusInd Bank underperformed the broader indices. This divergence reflected investor preference for sectors directly tied to global trade flows.
In the US, energy and materials stocks also gained, driven by expectations of increased industrial activity and commodity demand. However, real estate investment trusts (REITs) and utilities showed limited movement, suggesting that interest rate concerns still linger in some pockets of the market.
Implications for Global Trade and Supply Chains
The truce between the US and China has broader implications beyond financial markets. Multinational corporations welcomed the move, hoping for smoother trade facilitation and reduced uncertainty in supply chains. Global exporters, particularly in Southeast Asia and India, see this as a chance to stabilize shipments and renegotiate trade agreements that had faced disruptions due to tariff impositions.
Analysts suggest that sectors such as automotive, semiconductors, apparel, and consumer durables could benefit the most if the truce leads to a longer-term trade resolution. Companies that rely on cross-border manufacturing and just-in-time delivery systems stand to regain efficiency and cost predictability.
Oil, Currency, and Commodity Markets React
Global commodity markets also responded to the truce. Brent crude prices rose by 2.3% to close at $89.70 per barrel, as traders priced in higher future demand for oil. Base metals like copper and aluminum gained on the London Metal Exchange, driven by expectations of increased industrial activity.
The US dollar weakened slightly against major currencies as investors reduced safe-haven demand. The Indian rupee appreciated to ₹82.30/USD, gaining 44 paise in intraday trade, supported by strong foreign inflows into equity markets.
Gold, traditionally a safe-haven asset, saw a minor decline as risk-on sentiment returned. Spot gold prices dropped by 0.9%, reflecting a shift in investor preference toward equities.
Challenges Remain Despite Truce
Despite the market euphoria, several experts cautioned that the 90-day truce only provides a temporary reprieve. Key structural issues, including data security, intellectual property rights, and geopolitical tensions, remain unresolved. If negotiations fail to yield substantial progress, markets may reverse their gains.
Market strategist Rajesh Mehta of Axis Securities remarked, “Investors must remain vigilant. While today’s rally is significant, it reflects expectations. The actual outcomes of the 90-day negotiation window will determine whether this optimism sustains.”
Conclusion
The US-China trade truce on May 12, 2025, catalyzed a powerful rally across global stock markets, with technology and export sectors leading the charge. The temporary ceasefire revived investor confidence and reduced volatility, while also improving prospects for trade, supply chains, and international economic cooperation.
However, the rally also reflects heightened expectations from policymakers. Markets now await concrete actions and tangible progress during the truce period. If negotiators succeed in bridging the gaps, the relief rally may turn into a sustainable uptrend. Otherwise, the euphoria may prove short-lived.
