Investors Dive Into American Exceptionalism Trades Following Positive Geneva Weekend: May 12, 2025

The American exceptionalism trades are on high gear today following positive discussions between Beijing and Washington in Geneva over the weekend. Reports that the two largest economies are going to offer bilateral tariff reprieves while they work towards a comprehensive path forward are sending stocks and the greenback to the nosebleeds. Indeed, investors are benefitting from a surge of illumination in the Trump trade tunnel, which was incredibly somber last month when folks were doubtful about the potential for constructive developments on the cross-border commerce front. The well-received outcome, meanwhile, is bolstering economic growth expectations but pushing back rate cut projections, however, with the yield-curve shifting in bear-flattening motion led north by the short-end. Market participants are bringing out the enthusiasm and are on the offensive to begin the week by increasing their exposures to US equities, the dollar, cyclical commodities and forecast contracts. Meanwhile, safe-havens are being ditched amidst declining interest for instruments with defensive characteristics, namely shares in the utility and consumer staple sectors, Treasuries, gold bars, put options and volatility call derivatives.

Clear Skies Ahead

This weekend’s positive news is carving the path forward for further stock gains. Trade uncertainty was the most substantial headwind of the Trump policy mix, which is why we’ve experienced this significant roundtrip in equities amounting to 1,000 points on the S&P 500 since the April 7 low. Wall Street is now ready to accept 10% minimum tariffs on everybody amidst greater, alternative levies reasonably imposed on a case-by-case basis. The momentum of the cross-border handshakes is also paramount, and market participants are asking each other, who’s next? India, EU, South Korea, Japan, Mexico, Canada, etc.? The dynamics signal a bullish landscape where the focus is shifting in force to reaccelerating economic growth on the back of robust capital expenditures, lighter taxation, milder regulations, low energy costs and incremental progress in onshoring manufacturing activities. We’re poised to turn the page of asset price volatility and recession worries stemming from international commerce.

International Roundup

China Deflation Fears Intensify

China’s Consumer Price Index (CPI) increased 0.1% in April relative to March, but retail and gate charges continued to lose momentum compared to the year-ago period, according to the National Bureau of Statistics. At a time when the country’s factories are underutilized and international commerce is being challenged, the latest data is worrisome as they relate to Beijing’s ambitious economic growth targets.

The April month-over-month (m/m) CPI gain followed a 0.4% retreat in March, but its year-over-year y/y drop of 0.1% matched both the preceding month’s result and the consensus expectation. Imported oil prices fell approximately 10%, accounting for the lion’s share of the y/y fall. Indeed, the core CPI, which excludes food and energy costs, climbed 0.5% y/y. In another deflationary development, the Producer Price Index (PPI), sank 2.7% y/y last month, with the decline accelerating from -2.6% in March. It was the 31st consecutive monthly descent and worse than the median estimate of -2.7%. The cost weakness is occurring despite the Chinese government trying to support consumption by providing subsidies to trade in old goods and appliances and rebates for Chinese-made electric vehicles.