ASX 200 soars on US-China tariff pause, but Macquarie cautions against chasing the rally

The S&P/ASX 200 opened sharply higher on Tuesday after the US and China agreed to temporarily slash tariffs following constructive negotiations over the weekend in Switzerland.

US benchmarks soared overnight, with the S&P 500 up 3.2%, nearing breakeven year-to-date and within 5% of its record February close.

Treasury Secretary Scott Bessent said the talks with China were "very productive" and both countries agreed to temporarily cut tariffs for 90 days. US tariffs on Chinese goods were reduced to 30% (from 145%), and Chinese tariffs on US imports were cut to 10% (from 125%).

Macquarie says the temporary easing of US-China tariffs is set to spark a near-term surge in Australian industrial activity, offering a lifeline to cyclical and resource stocks. The 90-day tariff pause was more aggressive than anticipated, as previous reports suggested the US might lower the tariff rate to around 50%, while Trump proposed an 80% rate last Friday.

De-escalation winners and losers

"Equities and commodities (ex-gold) are the key asset class winners, as global growth will be stronger in the near term," the analysts said in a note this morning.

They also noted the US dollar as another beneficiary as investors 'turn more positive on US activity,' while flagging bonds as a loser due to residual inflation risks and potentially fewer Fed rate cuts.

While the catalyst was viewed as a near-term positive for the ASX, the broader market impact may be modest, with a likely rotation in investment focus, including:

Cyclical stocks with high US exposure are poised to benefit from increased US economic activity and a stronger US dollar. Key stocks include:

• Block (ASX: XYZ)

• Breville (ASX: BRG)

• Computershare (ASX: CPU)

• Flight Centre (ASX: FLT)

• James Hardie (ASX: JHX)

• Light & Wonder (ASX: LNW)

• Lovisa (ASX: LOV)

• Reece (ASX: REH)

• Reliance Worldwide (ASX: RWC)

• Worley (ASX: WOR)

Resource stocks (excluding precious metals) are expected to gain as investors, likely underweight, respond to increased industrial activity driven by the US-China deal. While a stronger US dollar may pressure commodity prices, positive sentiment from China should offset this. Top-rated resource stocks include:

• BHP (ASX: BHP)

• Capricorn Metals (ASX: CSC)

• IGO (ASX: IGO)

• Iluka Resources (ASX: ILU)

• Mineral Resources (ASX: MIN)

• Santos (ASX: STO)

• South32 (ASX: S32)

They warned that defensive sectors that rallied post-"Liberation Day" (e.g., supermarkets, gold, telecom) may underperform in the near term. While bond proxies like Transurban could face challenges due to lower rate cut expectations.

The report also flagged large, liquid ASX stocks, such as Commonwealth Bank and Wesfarmers, that attracted investment inflows to Australian markets, as likely to lag in the near term.

"Warning of adding much risk"

While the tariff pause is a boon for equities and commodities, Macquarie warns of challenges ahead. Bonds may struggle as inflation persists even at lower tariff levels, and higher bond yields could dampen US housing and medium-term growth.

The ASX’s recent rally leaves valuations stretched, and the temporary nature of the pause — coupled with ongoing tariff uncertainty — suggests caution.

"As a result, we still anticipate weaker US growth in the medium term after the initial boost from the tariff pause fades," Macquarie analysts wrote, adding that "the ongoing uncertainty around tariffs is unlikely to support re-shoring or provide companies with the policy certainty needed to increase US investment."