Betting markets have adjusted to lower odds of a recession this year after progress on US-China trade talks.
The chance of an economic downturn fell to 40% after news that the US and China would lower tariffs for 90 days.
Markets broadly are adjusting outlooks on Monday as stocks rally sharply.
Bettors in the prediction markets are dialing back recession views, with the odds of a US downturn falling on the latest trade-war developments.
Big bets on Polymarket and Kalshi predict a 40% chance of recession as of Monday, down from 52% at the end of last week.
Anxiety about the economy is ebbing thanks to progress on trade talks between the US and China over the weekend. Both countries agreed to substantially lower sky-high tariffs for 90 days, temporarily removing a major headwind that has slashed economic and market optimism over the past month.
Polymarket’s recession outlook hasn’t been this low since April 2, a day before the Trump administration unleashed the wave of reciprocal tariffs.
Other parts of the market are also growing more upbeat about the path of the economy through the rest of this year.
While large-cap US indexes surged on the China tariff update, the Russell 2000 also kept pace, climbing as much as 4%. The index is made up of small-cap stocks, which are typically more susceptible to the cyclical swings in the economy.
US crude oil jumped 4% from Friday’s close amid stronger prospects for US and global growth to hold up as the trade war cools. Meanwhile, bond yields rose as investors ditched the ultra-safe government bonds in a broad shift to risk.
At the same time, expectations for the Federal Reserve to cut interest rates this summer have shifted, with CME FedWatch Tool data indicating that the first rate cut will occur in September, pushed back from July.
Just last week, the central bank emphasized major uncertainty about the economy, and analysts warned about a recessionary scenario that could force the Fed to cut rates. With a China trade deal now in the works, a longer timeline on rate cuts suggests that Fed officials have more time before the economy slows enough to demand a response from the central bank.
“This removes a major tail risk from the economic outlook,” Apollo’s chief economist Torsten Slok told Bloomberg TV. “The growth downside risks that everyone is worried so much about, that’s coming from no longer having trade between the US and China, is just no longer the risk that we thought, literally, 24 hours ago.”
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