[UNITED STATES] On Thursday, global markets rose, the dollar found footing, and a frantic bond selloff stabilized after US President Donald Trump said that he would temporarily lower the high tariffs he had just placed on dozens of countries. Following a days-long market collapse that erased trillions of dollars from global markets and weighed on U.S. Treasury bonds and the dollar, Trump declared a 90-day hold on many of his new tariffs on Wednesday, in a stunning U-turn.
The decision comes amid mounting pressure from business groups and lawmakers, who warned that the abrupt tariff hikes could derail the fragile post-pandemic economic recovery. Analysts note that while the temporary relief is welcome, uncertainty lingers over whether the reprieve will be extended or if it’s merely a tactical pause in a broader trade confrontation.
The move sent Wall Street's "Magnificent Seven" equities adding more than $1.5 trillion in market value overnight, while the S&P 500 and Nasdaq Composite Index had their largest daily percentage advances in more than a decade. However, U.S. futures fell on Thursday, with Nasdaq futures down 0.67% and S&P 500 futures down 0.17%.
Market participants remain cautious, as the underlying trade tensions between the U.S. and its key partners, particularly China and the EU, show no signs of a long-term resolution. Some investors fear that the temporary rollback could be a prelude to even more aggressive measures if negotiations fail to progress.
The dollar had its highest one-day gain against the yen in two months and five against the Swiss franc the previous day, and it maintained the most of those gains in Asia on Thursday.
Japan's Nikkei index increased by 8%, while European futures rose sharply. EUROSTOXX 50 and DAX futures both rose by almost 9%. FTSE futures rose 6%.
The rally in European markets was further buoyed by hopes that the tariff pause could ease inflationary pressures in the region, where policymakers have been grappling with stubbornly high prices. However, economists caution that the relief may be short-lived if global supply chains remain disrupted by existing trade barriers.
"This is a piece of news that stunned market participants due to the size of the move. Obviously, we're seeing a pretty strong risk-on environment as a result of the announcement," said Jeff Schulze, ClearBridge Investments' head of economic and market strategy.
"However, given the tariffs that have been announced and that are staying in place ... that is still going to dramatically increase the average effective tariff rate in the U.S. to close to 20%."
Trump's reversal of the country-specific tariffs is not absolute. The White House announced that a 10% blanket levy on practically all U.S. imports will remain in effect. The announcement does not appear to change existing levies on automobiles, steel, or aluminum. He also increased pressure on China, announcing that he would hike the tariff on Chinese imports to 125% from the 104% level that took effect on Wednesday. China hiked further levies on American imports to 84% on Wednesday and put limitations on 18 US companies, the majority of which are in the defence industry.
The escalating U.S.-China trade standoff has raised concerns about a broader decoupling of the world’s two largest economies, with potential long-term implications for global growth. Supply chain analysts warn that companies may accelerate efforts to diversify production away from China, though finding alternative manufacturing hubs at scale remains a challenge.
"It is impossible to imagine either side backing down in the coming days. But we expect such conversations will eventually take place, but a complete withdrawal of all extra tariffs imposed since Inauguration Day appears improbable," said Paul Ashworth, Capital Economics' senior North America economist.
"Our long-standing assumption that the effective tariff rate on China would settle around 60% still seems like the best bet." Before the onshore opening of Chinese markets, the offshore yuan was last 0.15% down at 7.3570 per dollar, having hit a record low earlier in the week.
The sharp selloff in bonds this week showed some signs of calming on Thursday. The benchmark 10-year Treasury yield was last at 4.3160%, having reached a high of 4.5150% the previous day and increased by 13 basis points. A severe U.S. Treasury selloff in the previous sessions, reminiscent of the COVID-era "dash for cash," rekindled fears of instability in the world's largest bond market.
"Sticky inflation, a patient (Federal Reserve), potential foreign buyer boycotts, hedge fund deleveraging, rebalancing out of bonds into cash, and an illiquid Treasury market are all reasons why Treasury yields continue to move higher," said Lawrence Gillum, chief fixed income strategist at LPL Financial.
Fed policymakers signaled that they will not rush to cut interest rates because they expect higher tariffs to boost inflation, despite concerns that Trump's trade policy will harm economic growth, according to minutes of the central bank's mid-March meeting released on Wednesday.
Markets are now pricing in roughly 80 basis points of rate cuts by December, down from more than 100 bps earlier this week. In other news, oil prices climbed on expectations that tariffs would be paused. Spot gold rose 0.5% to $3,097.52 per ounce.
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