** Reasons for the decline **
These don't signify a large and permanent drop, but rather uncertainty, with markets awaiting further details and signatures, as explained below:
The reason for the decline, or rather the caution and mixed reactions, stems from several factors:
* Preliminary Nature of the Agreement: Although U.S. Commerce Secretary Howard Lutnick announced a framework agreement, markets recognize that true certainty will only come after official approval from Presidents Donald Trump and Xi. Any preliminary announcement could still be challenged or altered.
* Historical Precedent: In the past, negotiations and agreements have occurred that were subsequently not fully honored or were called into question, particularly by Donald Trump. For example, a report from June 1, 2025, stated that Donald Trump accused China of a "complete violation" of a previously agreed-upon trade deal, which triggered market declines. This historical distrust contributes to the caution.
* Uncertainty Regarding Details: While the possibility of easing U.S. export restrictions was mentioned if China allowed the export of rare earths, the detailed impacts and scope of the agreement are not immediately clear. Markets need concrete information to fully assess the implications.
* Ongoing Trade War and Its Impacts: Chinese exports to the U.S. decreased by 34% in May, the largest decline since the pandemic. This suggests that trade tensions persist, and while efforts towards cooperation are welcome, a true normalization of relations is a long-term process.
While U.S. stock futures saw a decline, the Chinese yuan slightly strengthened, indicating a mixed reaction.
Overall, it can be said that markets welcome the efforts towards cooperation but remain cautious and skeptical, given past experiences and the uncertainty surrounding the agreement's final implementation.