Stocks soar in relief rally after Trump’s tariff pause

LONDON/SINGAPORE: Global shares surged and a manic bond selloff eased on Thursday after US President Donald Trump said he would temporarily lower some of the hefty duties he had just imposed on dozens of countries.

Following a days-long market rout that erased trillions of dollars from global stocks and jolted US Treasury bonds and the dollar, Trump on Wednesday announced a 90-day pause on many of his new reciprocal tariffs in a shock reversal.

“You’ve had a relief rally after the realisation that market pressure is something that resonates with the US president,” said George Lagarias, chief economist at Forvis Mazars.

“The key takeaway here is that there are limits and thresholds that he (Trump) will likely respect,” Lagarias added.

Trump’s reversal pushed equities higher across the globe, starting with a 9.5 per cent rally in the S&P 500 on Wednesday.

European shares followed suit on Thursday. The pan-continental STOXX 600 index was last up 5.3 per cent, on track for its biggest one-day gain since March 2020.

Major indexes in London, Paris and Frankfurt were up between 4.6 per cent and 5.7 per cent.

In Asia, Japan’s Nikkei advanced more than 9 per cent, while a broader gauge of Asia-Pacific stocks excluding Japan rose 4.5 per cent.

But Wall Street futures took a breather after the towering rally, as investors struggled to come to terms with the US administration’s economic policies.

“The world – political and financial – is looking on with horror, not bemusement, at an administration that prioritises the signing of an executive order for more water-power in shower heads, on the same day that the bond market breaks and investors question the long-term credibility of the administration having flip-flopped on the largest of their policies, tariffs,” said Martin Whetton, head of financial markets strategy at Westpac.

Nasdaq futures NQc1 fell 2 per cent and S&P 500 futures ESc1 were off 1.7 per cent.

Both indexes had clocked their biggest daily percentage gains in more than a decade during Wednesday’s cash session.

The dollar weakened across the board, falling by around 1.5 per cent against the yen and 1.9 per cent against the Swiss franc, having failed to sustain its jump against the two safe-haven currencies in the previous session.

“I think the initial move was just massive short cover, and this has given the world a bit of a breathing space, except for China… because markets were starting to price in the worst-case scenario,” said Khoon Goh, head of Asia research at ANZ.

China and EU discuss trade in response to US’ punitive tariffs

Trump’s about-turn on the country-specific tariffs is not absolute. A 10 per cent blanket duty on almost all US imports will remain in effect, the White House said.

The announcement also does not appear to affect duties on autos, steel and aluminium that are already in place.

The European Union will put on hold for 90 days its first countermeasures against Trump’s tariffs, European Commission President Ursula von der Leyen said on Thursday.

Yet China has shown little sign of backing down, and Trump said he would raise the tariff on Chinese imports to 125 per cent from the 104 per cent level that came into effect on Wednesday.

China on Wednesday raised additional duties on American products to 84 per cent and imposed restrictions on 18 US companies, mostly in defence-related industries.

Investors for now seemed to view the latest escalation of Sino-US trade tensions with a narrow lens, choosing merely to focus on the 90-day window Trump has granted to dozens of countries.

China’s CSI300 blue-chip index rose 1.3 per cent, while Hong Kong’s Hang Seng Index advanced 2.1 per cent.

“I guess at least the relief is now global trade won’t grind to a complete halt,” said Wong Kok Hoong, head of equity sales trading at Maybank said in a note.

“The China + 1 supply chain route (is) still intact. As the rest of the world will be at workable 10 per cent tariffs for 90 days, companies/businesses have time/alternatives to adjust supply chain routes.”

The onshore yuan fell to its weakest level since December 2007 at 7.3518 per dollar, before strengthening in European trade.

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2 per cent band, at its lowest level since September 11, 2023.

BONDS SELLOFF

A steep selloff in US bonds this week also showed some signs of easing on Thursday.

The benchmark 10-year Treasury yield dropped 9 basis points (bps) to 4.3063 per cent, having touched a high of 4.5150 per cent in the previous session.

A violent US Treasury selloff in the previous sessions, evoking the COVID-era “dash for cash”, had reignited fears of fragility in the world’s biggest bond market.

“It makes sense to apply some uncertainty discount on US risk assets,” said Forvis Mazars’s Lagarias.

German Bunds, which had acted as the lone safe haven in the bond market, sold off on Thursday. The 10-year yield was up 6 bps at 2.638 per cent while the two-year rose 13 bps to 1.842 per cent.

Elsewhere, oil prices fell as investors fretted about the continued growth shock from the worsening Sino-US trade war. Brent crude futures were down 2.3 per cent at $63.94 per barrel, while US crude fell 2.5 per cent to $60.82.

Spot gold extended its climb and was last up 1 per cent at $3,113 an ounce.