A wave of relief swept across Asian markets on Tuesday, igniting a powerful rally led by technology shares after President Donald Trump signaled a crucial softening in the US tech war with China and extended a vital trade truce.
The news sent investors flocking back to risk assets, hopeful that the world’s two largest economies were stepping back from a costly confrontation.
The optimism was most palpable in Japan, where the Nikkei-225 index was the day’s standout performer, surging an incredible 2.5% to a new record high.
Across the region, MSCI’s Asia Pacific index climbed 0.5% as chip-related stocks like Advantest Corp. soared. The positive sentiment was bolstered by a rosy outlook from Micron Technology Inc. and easing tensions at Intel Corp., creating a perfect storm of good news for the semiconductor sector.
A truce in the tech war
The rally’s main catalyst was President Trump’s unexpected indication that he would be open to allowing Nvidia Corp. to sell a scaled-back version of its most advanced AI chip to China.
This olive branch helped quell rising fears of escalating technology sanctions and the severe supply-chain disruptions they could trigger.
The move was coupled with a formal extension of a pause on sky-high tariffs on Chinese goods through November 10, averting a hike that was scheduled for Tuesday. This dual dose of de-escalation provided a much-needed injection of stability into the markets.
Mumbai bourses poised to join rally
This wave of optimism is expected to ripple through to Indian equities. Benchmark indices Nifty and Sensex are set for a positive start on Tuesday, building on the powerful momentum from a strong opening to the week.
Around 8 am, GIFT Nifty was trading up 26 points, or 0.1 percent, at 24,597, signaling a steady opening for domestic markets.
The positive outlook follows a session where bulls staged a decisive comeback. On August 11, both the Sensex and Nifty climbed nearly a percent each, fueled by robust buying in PSU banking, realty, and auto stocks.
That rebound saw investors finally shake off the tariff-induced volatility of the prior week, which had dragged the Nifty to a three-month low and saddled the index with its longest weekly losing streak in five years.
A fragile peace on borrowed time
Despite the celebration, a note of caution lingered beneath the surface. Seasoned observers warned that the truce, while welcome, is far from permanent. The deep-seated conflicts between the US and China have not been resolved, merely postponed.
With the immediate threat of tariffs delayed, market attention now pivots sharply to the next major test: crucial U.S. inflation data due later Tuesday.
The report is forecast to show that the core consumer price index, which strips out volatile food and energy costs, rose 0.3% in July. This single data point carries immense weight, as it will heavily influence the Federal Reserve’s path on interest rates.
“The market’s reaction to any surprises in the numbers could be exaggerated — especially if a significantly hotter-than-expected CPI print leads traders to believe the Fed may not cut rates at its next meeting,” said Chris Larkin at ETrade from Morgan Stanley told Bloomberg.
Currently, money markets show traders have confidently priced in more than two rate reductions by December, with a roughly 90% probability of a quarter-point cut next month.
That conviction could be shaken if inflation proves stickier than anticipated, setting the stage for a volatile session.
As the market digests the inflation numbers, it will also be keeping an eye on Washington, where officials are already considering Fed Vice Chairs Michelle Bowman and Philip Jefferson, and Dallas Fed President Lorie Logan, as potential successors to the central bank’s top job next year.
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