Global equities rallied for a second straight day yesterday while safe-haven assets such as US bonds and the Japanese yen slipped to multi-week lows as investors bet the escalating US-China trade spat would inflict less damage than feared.

The deepening tariff row between the United States and China threatens to disrupt supply chains and undermine the world economy, with Beijing adding $60 billion of US products to its import tariff list in retaliation for US President Donald Trump’s planned levies on $200 billion of Chinese goods

But markets appear to have taken cheer from China’s move to levy only a 10 percent duty on $60 billion of US imports. Washington too removed some 300 Chinese-made items from the list of dutiable goods.

MSCI’s index of global equities rose 0.2 per cent to a two-week high, while emerging stocks too firmed for a second day, led by a one per cent jump in Shanghai markets.

An index of non-Japan Asian stocks also rose one percent.

Government bonds from the United States and Germany, typically instruments that benefit from political or economic turmoil, saw yields race to multi-week highs. US 10-year yields stayed firmly above the key three per cent mark. Analysts noted that US Treasury Secretary Steven Mnuchin last week had invited Beijing to a new round of talks but some also reckon on a more conciliatory stance from China.

“China are out of bullets. The fight is done and dusted. Now it’s just a question of how the Chinese can save face and say ‘alright we’re going to change, going to open up wider access not only to the US but to the EU and Japan’,” said Christopher Peel, chief investment officer at Tavistock Wealth in London.

“Their economy is export-led, they can’t afford for it to go out of control.”

But for now, the yuan was lifted by Premier Keqiang’s pledge, touching its highest level since last Friday at 6.843 per dollar. That in turn allowed an index of emerging currencies to rise for the second day in a row.

In another sign of markets’ new-found optimism, the safe-haven yen slipped to two-month lows against the dollar. The dollar inched higher but stayed close to seven-week lows against a basket of currencies.

Investors also sold government bonds, pushing up yields on United States Treasury bonds to the highest since May while German yields surpassed 0.5 per cent for the first time since mid-June.