China Inc. bets Beijing will keep tight grip on yuan as US tariff fears persist

Chinese businesses and investors are primed for the yuan to stay steady for now and eventually depreciate as US trade tensions drag on, and a string of measures and hints from monetary authorities suggest they may be on the money.

A growing pile of foreign exchange deposits at banks and a rise in currency swaps show Chinese corporates and households are wagering they can exchange their dollars for more yuan if they wait.

That conviction, in the face of the US dollar’s broad-based slide against most other currencies, is driven for the most part by central bank’s efforts to keep the currency steady and even encourage more investment offshore.

It also shows the People’s Bank of China (PBOC) is in a bind. A sudden yuan move in either direction could trigger a wave of selling of billions of dollars by businesses and households, either to catch better yuan levels or to stave off losses.

China’s yuan has strengthened 1.5% against the flagging dollar since April 2, when US President Donald Trump announced punishing trade tariffs on scores of countries, leading to market ructions that have eroded confidence in US economic policymaking and the dollar’s haven appeal.

In the same period, currencies such as the Thai baht, South Korea’s won and Taiwan dollar have risen between 6% and 14%.

The yuan has spent most of 2025 in a narrow range between 7.15 and 7.35 to the dollar, its weakest levels in 4-1/2-years in trade-weighted terms.

The export sector, comprising a fifth of economic growth, is grappling with higher US import tariffs of as much as 55% going by the latest trade framework agreed between the world’s two biggest economies in early June.

China was initially singled out with tariffs exceeding 100% and has until August 12 to reach an agreement with the White House to keep Trump from reinstating additional import curbs imposed during tit-for-tat tariff exchanges in April and May.

“Considering the external risks from US trade policies, China needs to maintain a very competitive currency with respect to other markets outside the US,” said Eugenia Victorino, head of Asia strategy at SEB.

PBOC SIGNALS

The PBOC did not respond to a Reuters request for comments.

Since May, it has managed its daily yuan “guidance” settings to indicate it doesn’t desire too much strength in the yuan.

It has also signalled willingness for mainland investors to shift some of their money from low-yielding onshore markets to stocks and bonds in Hong Kong, which some analysts suspect is to generate some selling pressure on the yuan.

Authorities approved a fresh USD 3.08 billion quota for domestic institutions (QDII) to invest in overseas assets in June. On Tuesday, the PBOC said the southbound leg of the Bond Connect scheme, which enables institutions on the mainland to access Hong Kong’s bond market, will be expanded to brokerages, insurers, mutual funds and wealth managers.

China’s central bank also surveyed some financial institutions last week asking them about their views on recent US dollar weakness, sources told Reuters on Monday.

“The PBOC has been prioritising currency stability for quite some time, so while most of the focus the past couple of years has been on preventing rapid depreciation, this also applies to manage the pace of appreciation as we’re now seeing,” said Lynn Song, chief economist for Greater China at ING.

“My forecast band for this year was set at 7 to 7.4, and I believe it is likely that this band will still hold through the year.”

Unsurprisingly, rampant dollar hoarding by Chinese businesses has continued, encouraged also by the high yields on US dollar assets.

Foreign exchange deposits grew USD 137.2 billion in the first five months of this year, or 19% year-on-year, to USD 990.1 billion at end-May, PBOC data showed. Reuters calculations showed the conversion ratio – a gauge that measures households’ and corporates’ willingness to sell dollars for yuan – has slipped.

Wary of missing out on potential gains from yuan depreciation, exporters have turned to currency swaps to temporarily obtain yuan.

Commercial banks facilitated USD 277.5 billion of currency swaps on behalf of their clients between January and May, a 10% increase over the same period last year, according to data from regulators.

(Reporting by Reuters Staff; Editing by Vidya Ranganathan and Kim Coghill)

US yields rise on tariff concerns before long-dated auctions

US Treasury yields rose on Tuesday as President Donald Trump announced more tariffs and before the Treasury will auction 10-year and 30-year debt in the coming days.

Trump on Monday told 14 nations, from powerhouse suppliers such as Japan and South Korea to minor trade players, that they will face sharply higher tariffs from a new deadline of August 1.

He also broadened his global trade war on Tuesday as he announced a 50% tariff on
imported copper
and said long-threatened levies on semiconductors and pharmaceuticals were coming soon.

Investors are concerned that higher tariffs will increase inflation and slow economic growth, though so far price pressures have remained relatively contained.

The US Congress also last week passed the Trump-backed “Big Beautiful Bill,” which will add trillions of debt over the coming decade and raises the debt ceiling by USD 5 trillion.

“There’s plenty of concern about what the one ‘Big Beautiful Bill’ means and if tariffs are going to produce inflation that we really haven’t seen yet,” said Zachary Griffiths, head of IG and macro strategy at CreditSights in Charlotte, North Carolina. “A lot is going to hinge on this CPI print.”

The US Labor Department is due to release the Consumer Price Index for June on July 15.

The Treasury saw soft demand for a USD 58 billion auction of three-year notes on Tuesday. The debt sold at a high yield of 3.891%, around half a basis points above where it traded before the sale. Demand was below average at 2.51 times the amount of debt on offer.

The Treasury will sell USD 39 billion in 10-year notes on Wednesday and USD 22 billion in 30-year bonds on Thursday.

Longer-dated yields have risen more than shorter-dated ones this week, which may help boost interest in the upcoming auctions.

“To the extent we’ve seen the curve steepen over the past couple of days, maybe that adds to the likelihood of a decent bid for tens and thirties,” Griffiths said.

Demand for longer-dated debt may also be supported after Treasury Secretary Scott Bessent last week said he does not plan to increase the auction sizes of the debt at current interest rates.

The yield on benchmark US 10-year notes was last up 2.2 basis points on the day at 4.417% and reached 4.435%, the highest level since June 20.

The 30-year bond yield rose 1.7 basis points to 4.947% and reached 4.974%, the highest level since June 9.

The interest rate sensitive 2-year note yield rose half a basis point to 3.909% and got as high as 3.92%, the highest level since June 23.

The yield curve between two-year and 10-year notes steepened by around two basis points to 51 basis points.

A global bond selloff including Japanese and German bonds helped to pull US yields higher on Tuesday.

Yields have also increased this week after a stronger-than-expected jobs report for June on Thursday led traders to pare bets on how many times the Federal Reserve is likely to cut rates this year.

The Treasury said on Tuesday that it will increase its issuance of 4-, 6- and 8-week Treasury bills as it rebuilds its cash balance after the increase in the debt ceiling.

(Reporting by Karen Brettell; Editing by Paul Simao and Nick Zieminski)

Yen struggles after Trump tariff letter; Aussie jumps after RBA hold

NEW YORK – The yen took a hit on Tuesday after US President Donald Trump reiterated his plan to impose 25% tariffs on goods from Japan and South Korea in the latest twist of his unpredictable trade war.

The Australian dollar charged higher after the country’s central bank defied market expectations and left its cash rate steady at 3.85%.

Trump on Monday began telling trade partners – from powerhouse suppliers such as Japan and South Korea to minor players – that sharply higher US tariffs will start August 1, but he later said he was open to extensions if countries made proposals.

The yen weakened on Tuesday, leaving the dollar up 0.38% at 146.625.

Prime Minister Shigeru Ishiba said on Tuesday he would continue negotiations with the US to seek a mutually beneficial trade deal.

“Market participants overwhelmingly expect the administration to keep kicking the can down the road,” said Karl Schamotta, chief market strategist at Corpay, in a research note.

“Although heightened uncertainty levels will unquestionably take a meaningful toll on business investment in the near term, Trump is seen raising effective tariff rates incrementally… while stopping short of inflicting a devastating supply shock on the American economy.”

The European Union will not receive a tariff letter and could secure exemptions from the US baseline rate of 10%, EU sources familiar with the matter told Reuters on Monday.

Reflecting the contrasting fortunes of the two trading partners, the euro hit a one-year high against the yen and was last up 0.58% at 171.980.

The euro also rose against the dollar, up 0.17% to USD 1.1729.

“There is still a lot of uncertainty as to where tariff rates will eventually settle and which countries will get what rates, so uncertainty about the global economy is still high and that will keep investors on edge for the time being,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

RBA STUNS MARKETS

The standout performer among the major currencies on Tuesday was the Aussie dollar, which rose more than 1% in response to the RBA’s surprise decision to leave rates unchanged. It was last up 0.6% at USD 0.653.

Markets had positioned for a cut, yet the central bank said the board “judged that it could wait for a little more information” to confirm that inflation was slowing.

Still, the board noted that the risks to inflation were more balanced and appeared to be waiting for a reading on second-quarter prices due at the end of July before deciding.

“The uncertainty around Trump’s tariffs means that it doesn’t embolden a decisive decision, whereas the need for more assurance over inflation means they probably want to wait out this meeting and get into August,” said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho.

The New Zealand dollar was last down 0.03% at USD 0.6, while sterling fell 0.04% to USD 1.3597.

(Additional reporting by Yoruk Bahceli in London and Rae Wee in Singapore; Editing by Chizu Nomiyama, Rod Nickel, and Nick Zieminski)

Oil prices ease as traders assess US tariffs, OPEC+ output hike

Oil prices eased on Tuesday after rising almost 2% in the previous session, as investors assessed new developments on US tariffs and a higher-than-expected OPEC+ output hike for August.

Brent crude futures dropped 21 cents at USD 69.37 a barrel by 0041 GMT. US West Texas Intermediate crude fell 24 cents at USD 67.69 a barrel.

US President Donald Trump on Monday began telling trade partners, which included major suppliers South Korea and Japan as well as smaller US exporters like Serbia, Thailand, and Tunisia, that sharply higher US tariffs will start August 1, marking a new phase in the trade war he launched earlier this year.

Trump’s tariffs have prompted uncertainty across the market and concerns that they could have a negative effect on the global economy and, consequently, on oil demand.

However, there are some signs that current demand remains strong, particularly in the US, the world’s biggest oil consumer, which has supported prices. A record 72.2 million Americans were projected to travel more than 50 miles (80 km) for Fourth of July vacations, data from travel group AAA showed last week.

Investors were bullish heading into the holiday period, with data from the US Commodity Futures Trading Commission released on Monday showing money managers raised their net-long futures and options positions in crude oil contracts in the week up to July 1.

Regarding supplies, on Saturday the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+, agreed to raise production by 548,000 barrels per day in August, exceeding the 411,000-bpd hikes they made for the prior three months.

The decision removes nearly all of the 2.2 million-bpd of voluntary cuts, and analysts at Goldman Sachs expect OPEC+ to announce a final 550,000-bpd increase for September at the next meeting on August 3.

However, the actual output increase has been smaller than the announced levels so far and most of the supply has been from Saudi Arabia, analysts said.

(Reporting by Stephanie Kelly; Editing by Christian Schmollinger)

Dollar rises after Trump announces Japan, South Korea tariffs

NEW YORK – The dollar rose sharply against other major currencies on Monday, after US President Donald Trump announced new tariffs set to go into effect August 1 for a spate of countries, including Japan and South Korea.

Trump posted letters to the leaders of several countries on his social media platform, saying that he would impose tariffs of 25% on Japan and South Korea. He also sent letters to the leaders of Malaysia, Kazakhstan, Myanmar, South Africa and Laos, all of which outlined tariffs close to the levels previously announced for each country in April.

The dollar’s rise was most pronounced against the yen, and was last up 1.09% at 146.130.

The dollar was up 0.38% to 0.798 against the Swiss franc on Monday.

“There were some country-specific things that were already putting some of these currencies on the back foot,” said Brad Bechtel, global head of FX at Jefferies. “But clearly, the news this morning out of the US with Trump and the tariffs is definitely hitting currencies other than the dollar, for a change.”

The euro slipped 0.57% to USD 1.172 having rallied over 13% so far this year.

Investors are concerned that Brussels might not be able to secure deals with Washington ahead of the deadline as progress on agreements with the European Union has been slow, despite multiple rounds of negotiations.

Most US trade partners face the prospect of steeper duties at the end of the 90-day moratorium on US President Donald Trump’s “Liberation Day” reciprocal tariffs on Wednesday.

Trump has also threatened an additional 10% tariff on nations aligning with what he deemed to be the “anti-American” policies of the BRICS emerging economies.

The dollar index, which measures the currency against six major counterparts, rose 0.517% to 97.467, reaching a one-week high.

The index extended gains from last week when data reflecting labour market resilience pushed back expectations for imminent monetary policy easing by the Federal Reserve.

Still, the index is close to a 3-1/2-year trough and has declined 10% so far this year as investors questioned the safe-haven status of the US currency and reassessed earlier expectations that the US could be spared in the event of a global economic slowdown.

Sterling weakened 0.26% to USD 1.362, but stayed near its strongest level since October 2021.

Currencies positively correlated to risk appetite, such as the Aussie dollar and the New Zealand dollar lost 0.79% and 0.74%, respectively, ahead of monetary policy decisions in both countries in the coming two days.

The Reserve Bank of Australia is widely expected to cut the cash rate by another quarter point on Tuesday, while New Zealand’s central bank is predicted to hold rates steady on Wednesday.

US policy uncertainty weighing on the dollar “may not be as potent as in early April, but we think this correlation still matters,” Paul Mackel, global head of FX research at HSBC, said.

(Reporting by Hannah Lang; additional reporting by Johann M Cherian and Kevin Buckland; Editing by Christian Schmollinger, Rachna Uppal, Gareth Jones, Barbara Lewis, and Cynthia Osterman)

Stocks sell off, dollar gains as Trump plans 25% tariffs on Japan, South Korea

NEW YORK – Major stock indexes declined while the dollar strengthened on Monday as US President Donald Trump unveiled sharply higher US tariffs on goods from Japan, South Korea, and other countries in the latest development in the US trade war.

Longer-dated US Treasury yields rose.

Trump on Monday began telling trade partners, including Japan and South Kore,a that the higher US tariffs will start August 1.

Trump in April capped all of the so-called reciprocal tariffs with trading partners at 10% until July 9 to allow for negotiations. Only two agreements, with Britain and Vietnam, have been reached.

“Trade, inflation, and earnings are going to be the next three catalysts that will drive the market higher or lower, depending on how they unfold,” said Adam Sarhan, chief executive of 50 Park Investments in New York.

“But markets like certainty, and today’s news increases the level of uncertainty, hence the selloff,” he said.

Tariffs are expected to increase prices and to slow down growth, though uncertainty over the ultimate policies may be a bigger drag as it leads businesses to postpone decisions.

S&P 500 companies next week are expected to begin reporting results on the second quarter.

The Dow Jones Industrial Average fell 422.17 points, or 0.94%, to 44,406.36, the S&P 500 fell 49.37 points, or 0.79%, to 6,229.98, and the Nasdaq Composite fell 188.59 points, or 0.91%, to 20,412.52.

US-listed shares of Japanese automotive companies fell, with Toyota Motor down 4% and Honda Motor off by 3.9%.

Also, electric vehicle maker Tesla shares fell 6.8% after CEO Elon Musk announced the formation of a US political party named the “American Party.”

MSCI’s gauge of stocks across the globe fell 5.80 points, or 0.63%, to 919.93. The pan-European STOXX 600 index closed up 0.44%.

The yield on benchmark US 10-year notes was last up 5.7 basis points on the day at 4.397%. The interest rate-sensitive two-year yield rose 1.9 basis points to 3.901%.

The dollar’s rise was most notable against the yen. It was up 1.09% at 146.130. The euro slipped 0.57% to USD 1.172, having rallied over 13% so far this year.

The dollar index, which measures the currency against six major counterparts, rose 0.517% to 97.467, reaching a one-week high.

Minutes of the last Federal Reserve meeting are also due this week. Investors are weighing how many times the Fed is likely to cut interest rates this year after jobs data for June on Thursday showed that employers added more jobs than economists had forecast.

Oil prices rose as signs of strong demand offset the impact of a higher-than-expected OPEC+ output hike for August and concerns about possible tariff impacts.

Brent crude futures rose USD 1.28, or 1.9%, to settle at USD 69.58. US West Texas Intermediate crude gained 93 cents or 1.4%, to settle at USD 67.93.

(Reporting by Caroline Valetkevitch in New York; Additional reporting by Lawrence White in London and Wayne Cole in Sydney; Editing by Cynthia Osterman and Stephen Coates)

Stocks, dollar dip as Trump passes spending bill, trade deal deadline nears

LONDON – Stocks slipped on Friday as US President Donald Trump got his signature tax cut bill over the line and attention turned to his July 9 deadline for countries to secure trade deals with the world’s biggest economy.

The dollar also fell against major currencies, with US markets already shut for the holiday-shortened week, as traders considered the impact of Trump’s sweeping spending bill that is expected to add an estimated USD 3.4 trillion to the national debt.

The pan-European STOXX 600 index fell 0.5%, with banks, mining-related stocks, and retailers among the top laggards.

US S&P 500 futures EScv1 edged down 0.6%, following a 0.8% overnight advance for the cash index to an all-time closing peak. Wall Street was closed on Friday for the Independence Day holiday.

Trump said Washington would start sending letters to countries on Friday specifying what tariff rates they would face on exports to the United States, a clear shift from earlier pledges to strike scores of individual deals before a July 9 deadline when tariffs could rise sharply.

Investors are “now just waiting for July 9”, said Tony Sycamore, an analyst at IG, with the market’s lack of optimism for trade deals responsible for some of the equity weakness in export-reliant Asia, particularly Japan and South Korea.

At the same time, investors cheered a surprisingly robust US jobs report on Thursday, sending all three of the main US equity indexes climbing in a shortened session.

“The US economy is holding together better than most people expected, which suggests to me that markets can easily continue to do better (from here),” Sycamore said.

Following Thursday’s close, the House narrowly approved Trump’s signature, 869-page bill, which averts the near-term prospect of a US government default but adds trillions to the national debt to fuel spending on border security and the military.

TRADE THE KEY FOCUS IN ASIA

Trump said he expected “a couple” more trade agreements, after announcing a deal with Vietnam on Wednesday to add to framework agreements with China and Britain as the only successes so far.

US Treasury Secretary Scott Bessent said earlier this week that a deal with India was close. However, progress on agreements with Japan and South Korea, once touted by the White House as likely to be among the earliest to be announced, appears to have broken down.

The US dollar index had its worst first half since 1973 as Trump’s chaotic roll-out of sweeping tariffs heightened concerns about the US economy and the safety of Treasuries, but had rallied 0.4% on Thursday before retracing some of those gains on Friday.

As of 1430 GMT it was down 0.1% at 96.94.

The euro added 0.2% to USD 1.1778, while sterling held steady at USD 1.3662 as British assets steadied following investor fright over the last two days at a tearful appearance by Finance Minister Rachel Reeves in parliament on Wednesday.

The US Treasury bond market was closed on Friday for the holiday, but 10-year yields rose 4.7 basis points (bps) to 4.34%, while the 2-year yield jumped 9.3 bps to 3.882%.

Gold firmed 0.4% to USD 3,336 per ounce, on track for a weekly gain as investors again sought refuge in safe-haven assets due to concerns over the US’s fiscal position and tariffs.

Brent crude futures fell 57 cents to USD 68.23 a barrel, while US West Texas Intermediate crude dropped 66 cents to USD 66.34, as Iran reaffirmed its commitment to nuclear non-proliferation.

(Reporting by Lawrence White in London and Kevin Buckland in Tokyo; Editing by Stephen Coates, Kim Coghill, Alexandra Hudson, Joe Bavier, and Alex Richardson)

Oil falls slightly ahead of expected OPEC+ output increase

CALGARY – Oil futures slipped slightly in thin holiday trading on Friday, as the market looked ahead to this weekend’s OPEC+ meeting and the likelihood that member countries will decide to raise output.

Brent crude futures settled down 50 cents, or 0.7%, at USD 68.30 a barrel while US West Texas Intermediate crude was down 50 cents, or 0.75%, at USD 66.50 just before 1300 EDT (1700 GMT). Trade was sparse due to the US Independence Day holiday.

Brent settled about 0.8% higher than last Friday’s close and WTI was around 1.5% higher.

Eight OPEC+ countries are likely to make another oil output increase for August at a meeting on Saturday in their push to boost market share. The meeting was moved forward a day to Saturday.

“If the group decides to increase its output by another 411,000 barrels per day (bpd) in August, as expected, for the fourth successive month, oil balance estimates for the second half of the year will be reassessed and will suggest accelerated swelling in global oil reserves,” said PVM analyst Tamas Varga.

“There seems to be some profit-taking on concerns that OPEC will raise production by more than expected,” said Phil Flynn, senior analyst with the Price Futures group.

He added that investors seem to be in wait-and-see mode, getting ready to react to OPEC’s move while also watching for implications of US President Donald Trump’s massive package of tax and spending cuts, which was set to be signed into law at a ceremony at the White House on Friday.

Crude prices also came under pressure from a report on US news website Axios, which said the United States was planning to resume nuclear talks with Iran next week, while Iranian foreign minister Abbas Araqchi said Tehran remained committed to the nuclear Non-Proliferation Treaty.

Meanwhile, uncertainty over US tariff policy was back in the spotlight as the end of a 90-day pause on higher levies approaches.

European Union negotiators have failed so far to achieve a breakthrough in trade negotiations with the Trump administration and may now seek to extend the status quo to avoid tariff hikes, six EU diplomats briefed on the talks said on Friday.

Separately, Barclays said it had raised its Brent oil price forecast by USD 6 to USD 72 a barrel for 2025 and by USD 10 to USD 70 a barrel for 2026 on an improved demand outlook.

(Reporting by Amanda Stephenson in Calgary, Robert Harvey in London, Mohi Narayan in New Delhi, and Florence Tan in Singapore; Additional reporting by Arathy Somasekhar in Houston;
Editing by Emelia Sithole-Matarise, Chizu Nomiyama, and Matthew Lewis)

Gold poised for weekly gain on dollar weakness, safe-haven demand

Gold prices rebounded on Friday and were heading for a weekly gain, helped by a retreat in the US dollar and safe-haven inflows, as US President Donald Trump’s deadline for trade deals loomed.

Spot gold was up 0.3% to USD 3,336.39 per ounce, as of 1211 GMT. The precious metal is up about 1.9% this week.

US gold futures gained 0.1% to USD 3,346.60.

The dollar index slipped 0.2% and was on track for a second week of decline, making gold less expensive for other currency holders.

“The apprehension about the fiscal situation in the US (after Trump’s sweeping tax-cut bill passed Congress) and the lingering uncertainty over the approaching July 9 deadline for the tariff issue has boosted safe-haven demand,” said Ricardo Evangelista, senior analyst at brokerage firm ActivTrades.

Trump announced that Washington will start sending letters to countries on Friday, marking a shift from earlier plans for individual trade deals. On April 2, he announced reciprocal tariffs of 10%-50%, but later reduced most to 10% until July 9 to allow for negotiations.

Meanwhile, Trump’s tax-cut legislation cleared its final hurdle in Congress on Thursday, making his 2017 cuts permanent, funding his immigration crackdown and adding new tax breaks promised during Trump’s 2024 campaign.

Data showed US job growth was unexpectedly solid in June, but nearly half of the increase in nonfarm payrolls came from the government sector, with private industry gains being the smallest in eight months as businesses battled rising economic headwinds.

“The latest US payroll data supports the case of a slowdown of the economy, but no standstill, slowing the pressure on the Fed to cut interest rates anytime soon,” said UBS commodity analyst Giovanni Staunovo.

Elsewhere, spot silver edged 0.2% higher to USD 36.9 per ounce and palladium eased 0.1% to USD 1,135.79. Platinum rose 1.5% to USD 1,387.54 per ounce and was heading for its fifth straight week of gains.

(Reporting by Brijesh Patel in Bengaluru, additional reporting by Ishaan Arora; Editing by Harikrishnan Nair and Vijay Kishore)

Investors eye tariff deadline as US stocks rally

NEW YORK – Investors will be keeping a close eye on tariff headlines out of Washington next week, as a temporary suspension of punitive import levies is set to expire. If that Wednesday deadline passes without an increase in trade tensions, it could prove positive for the markets.

Negotiators from more than a dozen major US trading partners are rushing to reach agreements with US President Donald Trump’s administration by July 9 to avoid even higher tariffs, and Trump and his team have kept up the pressure in recent days.

On Wednesday, Trump announced a deal with Vietnam that he says will impose a lower-than-promised 20% tariff on many Vietnamese exports. While the administration has teased a forthcoming deal with India, talks with Japan, the sixth-largest US trading partner and closest ally in Asia, appeared to hit roadblocks.

Investors have shifted from panicking about tariffs to relief buying, recently lifting the US stock market back to record highs, with corporate earnings and the US economy holding up better than many had expected through a period of dramatic policy change.

The S&P 500 has risen about 26% from April 8, when stocks bottomed following Trump’s draconian April 2 tariff announcement.

But much of the rally has been driven by retail market participants and corporate share buybacks, even as institutional investors have been more reticent.

Despite the S&P 500 making new highs, equity positioning is far below February levels as investors remain underweight stocks, according to Deutsche Bank estimates.

“This has definitely been a junkier rally, a more speculative rally,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.

“In the last week or so, it’s been driven a lot more, I think, by retail than it has been by institutions. Institutional positioning is really just average,” she said.

While many factors are keeping investors cautious, including worries about US economic growth and lofty stock market valuations, getting past the tariff deadline without a major escalation in tensions would be one less thing to worry about in the near term, analysts said.

“I think that there may be some threats and saber-rattling, but I don’t really think that any of that now poses a major danger to the market,” said Irene Tunkel, chief US equities strategist, BCA Research.

Still, investors don’t expect the tariff deadline to put an end to trade tensions for good.

“I don’t view it necessarily as a hard deadline,” said Julian McManus, portfolio manager at Janus Henderson Investors.

“The 90-day pause itself was instituted because the markets were falling apart, and I think policymakers needed breathing room and time to try and negotiate these deals or find some kind of off-ramp,” he said.

Investors’ cautious approach to boosting equity exposure now is reminiscent of their behavior immediately after the pandemic market drop of March 2020, when allocations to stocks recovered more slowly than major market indexes, Deutsche Bank strategist Parag Thatte, said.

“It does mean that there is room for exposures to keep rising, which is a positive for equities all else equal,” Thatte said.

After a roller-coaster first half, the S&P 500 is entering a historically strong period. Over the past 20 years, July has been the strongest month for the benchmark index with an average return of 2.5%, according to a Reuters analysis of LSEG data.

Investors will also be keeping an eye on economic data – especially inflation numbers – and second quarter results in the coming weeks for clues to the health of the US economy, and the Federal Reserve interest rate outlook.

“We’re right at the point where institutions are going to have to decide one way or the other, do they believe the rally or not,” Morgan Stanley’s Shalett said.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Laura Matthews; Editing by Alden Bentley and Nick Zieminski)

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