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Stocks higher as Trump pulls back from higher EU tariffs
Stock markets are enjoying another relief rally as Donald Trump presses ‘pause’ on higher EU tariffs.
TACO trade triumphs once again
Friday’s price action might seem an awfully long way in the past or UK investors, returning to the world after the bank holiday weekend. But the final trading day of last week saw a brief resurgence of tariff volatility as president Trump announced he would be ‘recommending’ a 50% tariff on EU products from 1st June.
However, on Sunday the president reversed his plans, suspending this until 9th July following a call with EU Commission president Ursula von der Leyen. Stocks have rallied as a result, as investors are strengthened in the belief that the US government isn’t serious about imposing such high tariffs.
Since the first tariff pause back in April, the TACO acronym has become common among investors. It stands for ‘Trump Always Chickens Out’. Each apparent escalation of the trade war has been followed up by a pause, a pattern that was apparent before April when the US president began to make pronouncements about Canada and Mexico, the prelude to his assault on the global trade system on ‘Liberation Day’.
For investors, Friday’s news came out of nowhere. Newsflow on tariffs had dried up since the US-China pause, allowing stocks to continue their recovery, albeit at a much more sedate pace than in April. The dip was rapidly bought once again however, illustrating the belief that these tariffs were more of a negotiating tactic.
Where do we go from here?
Early trading today has seen a positive tone prevail, as markets prepare for the final big name of earnings season, chip giant Nvidia. Aside from this it is a relatively quiet week for markets, with little big data on the schedule.
As May gives way to June we may see more volatility creep back in. Data from May will start to emerge, which may give us a clearer picture on how economies around the globe have responded to the tariff uncertainty of the past two months.
The FTSE 100 is up 15% from its April low, a remarkable performance. It trades at 12.8 times earnings, which leaves it much cheaper than the S&P 500 at 23.5, and the German DAX 40 at 18 times.
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