A tentative breakthrough in U.S.–China discussions has sparked cautious optimism on Wall Street – but emerging Middle East tensions and stretched equity valuations are keeping investors on edge. Here’s a conversational breakdown of how markets are digesting the news as of June 11–12, 2025.
A Positive Step for U.S.–China Trade
This week, U.S. and Chinese negotiators struck a framework agreement focused on easing China’s export controls over rare-earth minerals and scaling back U.S. tariffs – though many details were left undefined. The deal aims to:
- Resume rare-earth export licenses with global trade implications,
- Maintain tariff levels until a more formal agreement is signed, and
- Keep a broader negotiation timeline open until an August deadline.
Wall Street responded cautiously. U.S. equity futures slipped slightly, while Chinese rare-earth stocks jumped on export hopes. Analysts described the mood as “a sigh of relief – but with skepticism” given the lack of actionable details .
Macro Backdrop: Global Jitters
Investors were already under pressure from rising geopolitical risk. Middle East tensions intensified after the U.S. reportedly began preparing for embassy evacuations and other precaution escalations . Global markets reflected this unease:
- Oil prices surged more than 4% on news of rising Gaza and Houthi-linked tensions.
- Treasury yields dropped, with the 10-year sliding to around 4.41% as investors sought haven assets.
- U.S. equity futures softened, amid uncertainty on how strong the trade agreement really is.
Market Reaction: Mixed Sentiment
U.S. stocks responded modestly.
- S&P 500 SPX– futures dipped slightly on the news.
- On Tuesday, June 10, the S&P closed nearly flat, with Tesla and AI stocks providing modest support.
Asian and Gulf markets varied.
Europe was mostly flat, the DAX and CAC hovered, and Gulf bourses showed little movement – markets were cautious and awaiting final details.
Valuation concerns are resurging.
Market metrics like the equity risk premium remain near historic lows. Analysts warned that U.S. equities could be overvalued relative to bond markets. Stocks might keep climbing, but correction risks are rising.
What’s Behind the Skepticism?
- No specific tariff rollback yet.
The deal maintains current tariff levels and merely sets a framework – no tariffs have been officially removed. - Limited scope on restricted exports.
China reportedly agreed to permit rare-earth exports only for six months, a move many call “temporary relief”. - Incomplete coverage.
Key issues – like continued U.S. export restrictions on AI chips and intellectual property details – haven’t been addressed, leaving room for future tensions.
Why Markets Were Also Cautiously Positive
- Rare-earth sector rallied, since these exports are crucial for tech and defense industries.
- Global inflation signs softened, helping sentiment amid this backdrop.
- Bond yields eased as yields dropped into safe-haven territory.
What to Track From Here
- Watch for presidential signoff. The deal still needs approval from Trump and Xi before becoming official.
- Monitor broader tariff discussions. Investors want clarity on electronics, medical goods, and auto tariffs – all still unresolved.
- Geopolitical watch. Middle East tensions could flare again, disrupting both markets and trade dynamics.
- Check valuation signals. Keep an eye on metrics like ERP and earnings yields – stretch valuations may amplify any negative shock.
Bottom Line
Yes, the U.S.–China trade framework is a step forward. Rare‑earth exporters are benefiting. But markets didn’t rally because the deal lacks depth, timeframe clarity, and scope. Middle East flashpoints and stretched valuations are restraining enthusiasm. So far, it’s a cautious “glass-half-full” scenario.
For investors, the primary takeaway is that uncertainty hasn’t disappeared – it’s shifted. If the framework is fleshed out and signed, risk assets could climb. But for now? It’s a calm before the real tests ahead.
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