The bailout flooded financial markets after President Trump suspends penalizing tariffs in dozens of countries as European and Asian stock indexes spiked on Thursday and caught up with a massive rallies in the US the day before.
However, US interests are beginning to decline. According to futures trading, the US stock market is set to open lower, indicating a 2% decline in the S&P 500 index.
Trump said Wednesday that he would suspend so-called mutual tariffs for 90 days as the market has earned “Yippy.”
Countries will not face these additional tariffs anytime soon, but will be subject to a 10% tax. Sector-specific tariffs including a 25% tax on automobiles – certain pain points for large auto exporters such as Japan, South Korea, and Germany are still in place. And although Trump did not return tariffs in China, it is now over 100%.
Trump's suspension of some tariffs has sparked the largest one-day rally for the S&P 500 since October 2008.
Analysts warned that US tariffs remain far higher than before Trump took office, and trade policy is unpredictable.
“Despite the good news, policy uncertainty continues to rise and acts as a resistance to the US economy,” wrote James Rossiter, head of global macro strategy at TD Securities, in a memo. “Companies struggle with planning.”
On Thursday, the bond market continued to reflect investors' attention. The 10-year Treasury yield fell to 4.3% when the sale eased, but as bond prices rose as they fell, it rose compared to the end of last week when 10-year yields fell just below 4%.
Indicators of the value of the US dollar against other major currencies fell by about 1%.
There were other signs of concern about the economic impact of the fierce trade war between the US and China. Oil prices fell about 3%, with international benchmark Brent crude trading at around $63.50 per barrel. Gold prices rose more than 1% to $3,120 per ounce.
In the memo, BNY Mellon strategist Bob Savage described the recent stock movement as “dead cat bouncing.”
It is an “impossible environment” for investors, he wrote, “So the main attitude is to wait and hold cash.
In Asia, the benchmark index on Thursday rose more than 9% in Taiwan and Japan and 6% in South Korea.
In Europe, the Stoxx Europe 600 index jumped over 5%. The German and French markets each achieved more than 5%.
Trade spats with China had few indications of de-escalation. Washington and Beijing exchanged multiple tariffs, pushing the costs of trade to exceptional levels from each other. China leveled its latest Salvo on Wednesday, raising its full tax on US imports to 84%.
President Trump said Wednesday that he didn't think China's tariffs would need to be raised by more than 125%, and that he was hoping that Chinese leader Xi Jinping would reach out to him on the deal. “I can't imagine it. I think we'll have to do more,” he said of the additional charges in China. “No, I don't know.”
In Thursday's trading, stocks listed in Hong Kong won around 2%, while stocks listed in Shanghai won around 1%.
Takashima, executive economist at Tokyo's Nomura Institute, said Trump's latest moves show that it focuses on cutting the US trade deficit and preparing for a trade war with China.
That means that in many countries like Japan and South Korea, “the risk has not been significantly reduced.” This counts China and the US as their top trading partners, Kiuchi said.
The Chinese government is taking steps to stabilize the market. State-owned companies announced Tuesday that they would buy back some shares. This is usually a move that helps raise stock prices. On Thursday, the influential state-run media outlet released a commentary that it is a good time for central banks to cut interest rates and take other measures to support the economy.
Over the past week, Trump's trade broadside has led to a highly volatile market, threatening to overturn global trade. Even after Wednesday's rally, the S&P 500 is about 12% below its February peak. This was the worst start to the index for president's term of office since the dot-com bubble burst in early 2001.
In Asia, this year it fell by about 12% in Japan and over 16% in Taiwan. Korea's Cospi Index is almost flat.
Ryan Young, a senior economist at the Competitive Enterprise Institute, said Trump's tariff pivot was a relief. However, he is concerned that uncertainty about future policy will continue to paralyze long-term investments. The administration's tariff actions “already cause a lot of damage, but this suspension has not reversed it,” Young said. “The market wants stability.”
Berry Wang contributed research from Hong Kong.
