An electronic board shows Japan's Nikkei 225 stock index in Tokyo on Thursday, April 10.The Associated Press
European and Asian markets surged in a relief rally triggered by U.S. President Donald Trump’s surprise decision on Wednesday to pause additional tariffs on countries willing to negotiate trade deals with Washington.
As “buy” orders flooded in to the point of creating trade bottlenecks on European exchanges, some economists dropped the recession predictions that they made before Mr. Trump’s stunning reversal. Goldman Sachs had put the chances of a U.S. recession at 65 per cent. Its new forecast is 45 per cent.
In midday trading, European time, London’s FTSE-100 index was up 4.2 per cent while Germany’s DAX rose 6 per cent before falling back a bit. The gains reflected unrestrained buying overnight in some of the Asian markets. Japan’s Nikkei index closed up 9.1 per cent, marking one of its strongest ever performances.
Many of the most beaten-down companies came back to life. Shares of the German auto makers Volkswagen, BMW and Mercedes were each up 3 per cent to 5 per cent even though Mr. Trump’s 25-per-cent tariffs on cars and car parts remains in place.
Maersk, the Danish container-shipping giant, climbed 7 per cent on the prospect of global trade not breaking down. Luxury products makers such as France’s LVMH, which gained more than 5 per cent, went on the upswing as the recession forecasts were dialed back. Passenger jet giant Airbus was up 7 per cent for the same reason.
The prices for copper, a key component in electric vehicle batteries, rose 5 per cent and gold went back above US$3,000 an ounce.
But oil lost momentum after a brief surge on Wednesday. Brent crude, the international benchmark, was down 2.6 per cent in midday trading, taking the full-year loss to more than 29 per cent. Traders said that escalating trade war between China and the U.S., which unleashed punitive tariffs against each other this week, made rising demand forecasts risky.
“We may expect oil prices to resume its broader downward trend once the optimism around the recent tariff reprieve fades,” Yeap Jun Rong, market strategist at trading platform IG International, told Reuters. “Demand-side headwinds persist, with China’s growth outlook at risk from the ongoing [tariffs] tit-for-tat.”
While Mr. Trump “paused” additional tariffs on the U.S.’s trading partners for 90 days, he raised the tariff on Chinese goods entering the U.S. to 125 per cent. China’s levy on imports from the U.S. now stands at 84 per cent. Imports to the U.S. from other markets still face baseline tariffs of 10 per cent, though Canada and Mexico are exempt from the levy.
China on Thursday gave no hint that it was willing to downgrade or remove its tariffs against the U.S. to broker peace in the trade war. At the same time, it gave no hint that it would match the higher tariffs imposed by Mr. Trump. China’s foreign ministry spokesperson, Lin, Jian, said Beijing was not interested in a fight “but will not fear if the United States continues its tariff threats. The U.S. cause doesn’t win the support of the people and will end in failure.”
European leaders celebrated the reprieve. “I welcome President Trump’s announcement to pause reciprocal tariffs,” said European Commission President Ursula von der Leyen. “It’s an important step towards stabilizing the global economy.”
On Thursday, she used social media to announce the EU’s suspension of its first countermeasures against Mr. Trump’s tariffs. “We want to give negotiations a chance. While finalizing the adoption of the EU countermeasures that saw strong support from our member states, we will put them on hold for 90 days.”
The EU had planned to hit a variety of U.S. agriculture and industrial goods, including soybeans and motorcycles, with 25-per-cent tariffs in retaliation for the steel and aluminum tariffs that Mr. Trump had announced in February.
Economist Nouriel Roubini of New York University, who is known for his bearish views, issued a rare note of optimism on Thursday morning in an X post. He said Mr. Trump’s “guardrails,” among them market discipline and the thin Republican majority in Congress, who he said fear a full-scale global trade war, were enough to “prevent a U.S./global recession.”
He said that the plunging equity markets were not the only reason behind Mr. Trump’s reversal. He said “more importantly the spike in bond yields and credit spread [especially high yield] and the risk of a disorderly collapse in the dollar” convinced the president to back off.
The White House was clearly alarmed by the steep selloff in U.S. government Treasury bonds, a traditionally safe asset class, in recent days. The yield on 30-year notes briefly traded above 5 per cent, and the 10-year notes went to 4.5 per cent – scaring investors (bond prices and yields move in opposite directions). Rising yields would translate into higher borrowing costs for everything from government debt to mortgages, putting pressure on federal and state budgets and consumers.
On Wednesday, after announcing the tariff pause, Mr. Trump said “I saw last night that people were getting a little queasy,” adding that “The bond market is now beautiful.”
The tariff climb-down does not mean the market rally will endure, analysts said, since growth concerns remain intact – as the oil market indicated today – and the trade war between China and the U.S. shows no sign of ending.
“Now the big issue is whether the U.S. and China find a way to de-escalate their trade war,” Mr. Roubini said. “Markets have rallied in part on the hope that they will. But Trump feels stronger now that he blinked on most trade partners and markets have gone higher while [Chinese President Xi Jinping] can’t lose face.”
- with a file from Reuters