US President Donald Trump’s sudden announcement of a 90-day halt to most new tariffs, including so-called reciprocal tariffs against European countries, sent stocks surging in Europe on Thursday. But a weaker US market open saw these initial gains ease.
The Stoxx Europe 600 benchmark rose as much as 7% in early trading but trimmed these gains when the US market opened down. This rally helped reverse some of the steep losses it had suffered since tariffs announced by United States ignited the prospect of a trade war.
The S&P 500 opened around 2.5% lower, while the Nasdaq composite lost around 3% at the start of trading.
Having been the biggest fallers earlier in the week, European banks led the rebound, with Italy’s UniCredit UCG and the UK’s Barclays BARC posting the biggest gains.
“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 says. “But the overhang of the trade war is likely to persist for some time.”
Before European markets opened, 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.
President Donald Trump Backs Down on Tariffs
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 climbdown from Trump; he was clearly under a lot of pressure from his supporters and the party,” Morningstar’s Field says. 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 The investment bank rescinded that prediction immediately after Trump announced the 90-day pause.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 10-year bond 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 4.30% on Thursday, while the 30-year yield fell to 4.77% from a peak of 5% on Wednesday.
“Bond market discipline once again has shown itself to be a powerful tool for governments to reorient their approach,” says 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 initially reversed, with German yields rising, before falling back again to be largely unchanged on Wednesday’s levels.
Sara Silano contributed to this story.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
