US President Donald Trump’s sudden announcement of a 90-day halt to most new tariffs, including so-called reciprocal tariffs against European countries, has sent global stocks surging.
The Stoxx Europe 600 benchmark rose as much as 7% early Thursday, reversing the steep losses it had suffered since the beginning of the week amid fears of a spiraling trade war with the United States.
European banks were leading the rebound with the Stoxx 600 Banks index rising as much as 9% and the Financial Services sector index up 8%. Britain’s Barclays BARC was the sector’s top performer with a 12% gain in the late morning.
“It’s a big positive for markets, many are saying that the worst case scenario is now off the table,” Morningstar chief European market strategist Michael Field said. “But the overhang of the trade war is likely to persist for some time.”
After US stocks in the S&P 500 benchmark finished Wednesday’s session nearly 10% higher, futures on the index are pointing to a slightly negative open. While Japan’s Nikkei 225 closed 9% higher, Chinese stocks largely sat out the relief rally as the country remained at the center of Trump’s ire, facing further increased tariffs.
Trump Backs Down
Amid a global equity selloff on Wednesday, Trump announced that most measures laid out on ‘Liberation Day’ would be paused for 90 days and that any country that had not retaliated-- all but China-- would instead face a reduced 10% ‘reciprocal tariff’. At the same time, US tariffs against China were again increased to 125%.
In the 90-day pause, 75 countries are set to engage with US authorities on steps to mitigate the suspended trade barriers, such as moving production to the US or agreeing to increased imports of US goods, chiefly energy.
“A big climb-down from Trump; he was clearly under a lot of pressure from his supporters and the party,” Morningstar’s Field said. Earlier on Wednesday, economists at Goldman Sachs had predicted that the US would enter a recession as a result of Trump’s policies. The investment bank rescinded that prediction immediately after Trump announced the 90-day pause.
Bond Market Turmoil Abates
US Treasury yields fell on Thursday, paring the effects of Wednesday’s dramatic selloff that had pushed yields to a peak of 4.5%. Bond yields move in the opposite direction of bond prices, rising sharply during a bond selloff. The 10-year Treasury yield was at 4.29% on Thursday, while the 30-year yield fell to 4.73% from a peak of 5% on Wednesday.
“Bond market discipline once again has shown itself to be a powerful tool for governments to re-orient their approach,” said Nichola James, managing director in the global sovereign ratings group at Morningstar DBRS. “What we are looking at now though is not an abandonment of fundamental US policy, but an alternative pathway to achieve it, and in this environment, damaging uncertainty for companies continues.”
On Wednesday, investors had sold off US government bonds, calling into question their status as safe assets. In addition, many hedge funds had been forced to liquidate their positions due to the market crash. German government bonds, or bunds, benefited from the flight from US securities. On Thursday, the trend was reversed and the 10-year bund marked an increase in yields to 2.65% from 2.58% a day earlier. Among peripheral government bonds, the Italian 10-year BTP has remained stable at 3.87%, while the BTP-Bund spread is down sharply to 120 points down 7.44% compared to Wednesday.
Sara Silano contributed to this story.
