Art of the deal or the art of bluff? One thing is for sure: financial
markets will not be getting bored any time soon, given the White House’s recent
tariff U-turn.
On Wednesday, US President Donald Trump surprised markets once again by
announcing that imported products from more than 180 US trade partners would be
subject to a 10% tariff for the next 90 days, in sharp contrast to the
reciprocal tariffs list he had published the previous week. The US
administration suggested that this move would help negotiations with the
countries willing to sign new trade deals.
However, the 90-day Trump tariff pause does not apply to China. Beijing
became the target of new tariffs, and its products are now facing a total rate
of 125%, effective immediately. In a social media post, President Trump said
that he raised tariffs on Chinese imports due to the ‘lack of respect that
China has shown to the World’s Markets’. Just a few hours before Trump’s
reciprocal tariff roll-out, China had announced its plan to raise the tariff
rate on imports from the US to 84%.
Trade War: Strategic
Backtracking or Disorderly Retreat?
Did President Trump ‘blink’ or was it a calculated strategic move? This
question will likely be a topic of debate among market analysts over the next
few days. While White House officials praise Trump for his rapid strategy
shift, some economists suggest that a worrying slump in bond prices had the US
President on the ropes.
Commenting on Trump’s change of strategy, economist Nouriel Roubini wrote on
X that the US President’s decision came on the back of a rise in bond yields
and fears over a potential US dollar (USD) collapse.
Roubini’s words may be on point since the US$29 trillion US Treasuries
market saw the 10-year US Treasury bond yield spiking to 4.51% in the last
couple of days, the highest level recorded in the past two months. High bond
yields mean the US government would have to pay elevated borrowing costs to
refinance its debt. After yesterday’s announcement, the 10-year US Treasury
bond yield fell to 4.27%.
European and Asian Stock
Markets Rally; Optimism Prevails
Financial markets in Asia and Europe got a boost on Thursday, covering some
of the ground lost since ‘Liberation Day’. Investors’ optimism got renewed as
global recession fears retreated, in hopes that the White House’s punitive
reciprocal tariffs could become a thing of the past.
In Asia, Japan’s Nikkei 225 ended the day at 34,609, jumping by 9.13%. South
Korea’s KOSPI rose by 6.60%, closing at 2,445.06, while the Australian
S&P/ASX 200 climbed 4.54%, closing at 7,709.60.
Although the trade war between the US and China seems to be raging on, the
Chinese CSI 300 recorded a 1.31% rise, followed by Hong Kong’s Hang Seng Index,
which soared by 2.06%.
Europe followed suit earlier today, with the UK’s FTSE 100 surging by 6.0%.
Bank and mining-related shares led the charge before the index retreated to
slightly lower levels. Germany’s DAX 40 opened the day 8.0% higher, with the
French CAC40 index also strengthening, registering a 6.5% rise.
US Dollar and Oil Fall; Gold
Prices Rise
The US Dollar Index (DXY) dropped by 0.9% to 101.89, reflecting the
currency’s weakness against its major competitors. The euro gained 0.8% against
the US dollar (EUR/USD), trading at US$1.104. The British pound also rose
against the USD with cable (GBP/USD) trading at US$1.287, at the time of
writing.
Gold prices reached US$3,107 per ounce, soaring 0.8%, potentially due to the
precious metal’s safe-haven status. On the contrary, oil prices dropped, with
the West Texas Intermediate (WTI) oil trading at US$59.96 per barrel (-3.72%)
and Brent oil trading at US$63.235 per barrel (-3.41%). Bitcoin (BTC) also took
a hit, slumping 0.94% and trading at US$81,829.
Written by the FP Markets Research Team
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