Stocks surge on tariffs “reprieve”
Not surprisingly, the Trump administration’s decision to pause “reciprocal” tariffs for 90 days to allow for negotiations with trading partners has buoyed equity markets. US stocks surged into the New York close and Asian equities are higher overnight. US 10-year yields, which had risen sharply this week causing unease in the Trump camp it seems, are down around 20bps from yesterday’s highs of over 4.50%, while short-dated bond yields have jumped by around 15bps as the market pares back expectations regarding the scale of Fed rate cuts. In FX, the dollar has recovered from yesterday’s lows of almost $1.11 against the euro to trade at around $1.10 this morning, while sterling has bounced back against both the dollar and the euro, currently trading at around $1.2860 and £0.8550 having fallen to lows of sub $1.2750 and over £0.8650 during the course of yesterday’s session.
The main US equity indices closed between 8% and 12% higher following Trump’s about turn on tariffs, while Asian markets have chalked up sizeable gains of up to 9% overnight. European stocks have opened higher this morning, up around 7% after shedding around 3% yesterday. In European bond markets, German 2- and 10-year yields are around 15bps and 10bps higher respectively at the start of play today, amid a paring back of ECB rate cut expectations, while UK 2- and 10-yields are slightly higher and slightly lower respectively.
With Trump’s latest tariffs announcement, the universal 10% rate introduced last week on Liberation Day will now apply to all countries for 90-days, though the tariff on China has been raised to 125% amid yet a further escalation in the trade war between the two countries. Uncertainly is still likely to remain elevated over the next few months however, despite the reprieve of sorts granted by Trump, which will continue to weigh on economic activity.
The main economic data release today is the latest CPI report in the US. The consensus expects headline and core consumer prices to have risen by 0.1% and 0.3% respectively in March, which would leave the annual rates of inflation at 2.5% and 3.0%, versus 2.8% and 3.1% in February.