Risk appetite returned to many markets on Thursday after US president Donald Trump pressed the pause button on tariffs for a host of countries on Wednesday — although his trade battle with China continued.
Gold continued to see strong demand and Google parent Alphabet confirmed a $75 billion investment in data centres — but oil dipped on the escalating US-China trade tensions.
Kathleen Brooks, research director at XTB, said: “The relief rally in markets has spread to Europe. Markets are a sea of green, however, there has been some easing in the rally, particularly for the UK.
“The FTSE 100 opened higher by 6% earlier this morning and is now trading up 4%. European markets are also fading earlier gains, the Eurostoxx index is higher by 5.4%. After an historic rally on Wednesday night for US stocks, US stock index futures are now in the red, suggesting that tailwinds from the tariff threat remain.
“The trade war between China and the US is still in full swing, and tariff levels between the two largest global economies have never been higher. This is weighing on the oil price, which is lower once again on Thursday, and Brent crude is down 2.6% to $63.70 per barrel.
“Reports suggest that China could announce stimulus measures to boost its economy, however, they have not been forthcoming so far. Chinese and Hong Kong stocks also rallied today, although by less than European and US peers. Chinese stocks will benefit from the rest of the world avoiding recession if reciprocal tariffs from the US are moderated, which is why they are joining in the global equity market rally on Thursday …
“This is not quite the calm after the storm, as investors are still affected by intense political policy risk in the US. Equity markets are discounting recession risks on Tuesday, however, there is still a risk premium associated with financial assets. This is why the US stock market recovery rally has stalled, the gold price is higher, and bond markets are treading a very cautious path. We expect this to continue for some time.”
Matt Britzman, senior equity analyst, Hargreaves Lansdown, said: “The White House has finally seen some sense and given a whole host of countries a 90 day pause, with reciprocal tariffs immediately lowered to 10%, while isolating China in a tense battle.
“Was this Trump caving to pressure or his master plan all along? Who knows, but markets ripped on the news with the S&P 500 posting its 9th best day in history and the FTSE 100 opening a more subdued 1.2% higher this morning.
“We still don’t know if this tariff strategy is going to do more harm than good, and this should not be confused with a resolution to the underlying impact on areas like inflation and global growth.
“But it does give a host of countries a chance to come to the table and barter for a deal, while offering companies some much needed time to make whatever supply chain adjustments they can. What this means for the EU is still unclear, but given countermeasures were already declared it could find itself on Trump’s naughty list, as ever we await more clarity.
“Gold continues to be in favour despite investors flocking back into riskier assets. Ongoing tensions with China and the prospect of higher inflation are both acting as demand drivers. It’s rare for Fed minutes to take a backseat, but the world has significantly shifted since their last meeting, so yesterday’s release felt a bit stale. Still, the near unanimous concern over higher inflation and lower growth is unlikely to have changed, adding to the appeal of gold.
“The best move for investors is to stick to their longer-term strategies, there’s plenty of drama still to come.
“Alphabet has reaffirmed plans to spend a massive $75bn this year to expand its data center capacity. There’s genuine concern that investment plans might slow as even the world’s largest companies reassess the landscape, but this is the first clear sign that investing in AI trumps everything else.
“The narrative remains the same: AI is a multi-decade opportunity, and falling behind now could mean the difference between being a leader in ten years or a name of the past. This is clearly positive news for Nvidia, which is set to capture a large share of this year’s AI-related investment.
“Brent crude oil slipped toward $64 a barrel on Thursday, trimming gains from a rebound the day before. Prices are being dragged down by escalating US-China trade tensions after both countries sharply raised tariffs on each other’s goods in their ongoing tit for tat, overshadowing a broader de-escalation of trade tensions.”
Aarin Chiekrie, equity analyst, Hargreaves Lansdown: “Tesco continues to stand out as a British powerhouse, with further sharpening of its proposition helping the group record its highest market share in nearly a decade. Despite a slight pullback in its share price of late, the underlying story looks good as revenue and profits motor higher.
“Fears of a price war that could squeeze profitability have weighed on sentiment across the sector recently, but it hasn’t materialised yet. Even if it does, Tesco reckons it’s in the most competitive position it’s been in for many years, helped by the ALDI price match and Clubcard prices keeping customers loyal. And despite recent headlines, ASDA doesn’t appear to have the financial firepower to disrupt this dynamic.
“Looking ahead, guidance for this year looks a little conservative, leaving room for positive surprises. With operations focussed on this side of the Atlantic, President Trump’s tariffs pose little threat to disrupt operations directly.
“Shareholder returns remain a key part of the investment story, with dividends and a new £1.5bn share buyback programme backed by strong cash flows. With the valuation sitting below the long-term average, this looks like an attractive opportunity for investors looking to avoid some of the US-led volatility.”
Brooks of XTB added: “Volatility has been assuaged by the pause in tariffs, however, the Vix remains well above the average of 17 for the past 12 months, and it has started to turn higher as we move through this morning. This is worth watching. If the pause in tariffs does not placate markets, then what will?
“Bond market volatility, as measured by BOA’s MOVE index has also backed away from recent highs, however, it remains elevated, which is one reason why bonds have not recovered fully from this week’s steep sell off. UK bonds are outperforming on Thursday, after yields surged sharply in the UK on Wednesday. 30-year UK Gilt yields are down 16bps today, erasing about half of Wednesday’s move. But the 30-year yield is still elevated and remains at January’s highs.
“The 10-year UK bond is also outperforming on Thursday. European yields are higher while US yields are only down slightly. Short term bond yields are higher in Europe, especially in Germany, as safe haven flows drain from the market and as emergency rate cuts are priced out. The bond market is worth watching closely today. A pause on tariffs is not a panacea.
“All imports to the US will still face a 10% tariff rate, China and the US have imposed laughable tariffs on each other and are engaged in a full-blown trade war that shows no signs of slowing down. There is no way of knowing how the next 90 days will go, and which countries will be able to negotiate ‘good’ tariff deals with team Trump. This complicates the outlook for markets and could limit the upside for equities.”
Lizzy Galbraith, political economist at Aberdeen, said: “Despite the elation in financial markets after the 90-day pause on reciprocal tariffs, the average US tariff rate on the rest of the world, and especially on China, has still increased enormously. This could impart a stagflationary risk to the US economy and weigh on growth elsewhere. Recession is still a big risk (perhaps just below 50%).
“In an upside scenario, tariffs could fall back further, with the administration deeply chastened by markets. Economic decision makers could gain more clarity about the outlook, allowing them to adjust to the new trading environment.
“In a downside, the 90-day delay could prove to be just that, with the reciprocal tariffs going back on. Indeed, if Trump finds that negotiations don’t go well, he could reimpose tariffs before then. There could also be further rounds of retaliation between the US and China, or with the likes of the EU and Canada.”
Ray Sharma-Ong, Head of Multi-Asset Investment Solutions – Southeast Asia, at Aberdeen Investments, said:“Companies may struggle to react, invest, and grow meaningfully due to this sudden policy shift, with uncertainty about the form or results of deals reached within the 90-day window. This will make it difficult for the market to price in potential earnings till there is clarity on this.
“Consumers will bear the brunt of the increased net tariff rate, which will rise further after the 90-day period. This will affect demand, economic growth and inflation.
“US-China tensions could escalate further. Treasury Secretary Scott Bessent indicated that the administration plans to reach deals with allies before approaching China as a group, signalling potential penalties for those who try to work with China independently.
“Given the developing situation, our preference is to focus on regions like Japan and India within Asia, as they have not been as affected by the tariff hike as the other nations, are willing to negotiate, and stand to benefit from any trade-related reallocation plans away from China.
“We think monetary measures such as RRR cut, rate cut, PBoC restarting bond purchase, monetized stock market support are likely. An increase to the stock market stabilization fund, and further consumption boosts such as birth/child subsidy are likely as well.
“On the fiscal front, given the government just approved annual bond quotas in March, we may not get new fresh fiscal funding. However, we expect the government to emphasize acceleration of issuance.”