(Bloomberg) — European stocks rallied by the most since March 2022, a day after US President Donald Trump paused plans to implement higher reciprocal tariffs on dozens of trade partners, easing concerns for the moment about potential damages from a global trade war.
The Stoxx Europe 600 Index rose 3.7%, trimming earlier gains of as much as 7.3%. All sectors were in the green, with financial services and banks leading gains. France’s CAC 40 advanced 3.8% and Germany’s DAX added 4.5%.
Trump announced a 90-day tariff reprieve Wednesday, providing relief for European stocks that had entered a correction last week. The European Union in return will delay the implementation of its counter tariffs in response to US duties on the bloc’s steel and aluminum exports.
Elsewhere, underlying US inflation unexpectedly cooled in March, a positive for consumers ahead of widespread tariffs that risk contributing to price pressures. The consumer price index, excluding often volatile food and energy costs, increased 0.1% from February, the least in nine months.
There’s some relief but the tariff on imports from China and the uncertainty around negotiations and “other side effects of this volatility could keep a risk premium in most assets,” said Rajeev De Mello, chief investment officer at Gama Asset Management. Trump “will be reluctant to allow a worse episode but I would rather fade the risk-on moves from these levels as the market finds a new equilibrium.”
Trump’s announcement sent US stocks up by the most since 2008 on Wednesday. The S&P 500 fell 4.1% again on Thursday.
“This isn’t the end of the trade war, far from it,” said Susana Cruz, a strategist at Panmure Liberum. “The economic damage is baked in: no one’s rushing to invest in the US, inflation’s ticking higher, and global trade is taking a hit.”
Here is what market participants are saying:
Nicolas Forest, Candriam’s chief investment officer
“My message is that the trade war isn’t over: what Trump did is a tactical withdrawal, not a capitulation. We were getting close to a Liz Truss scenario and that’s why the Trump administration made a reversal: the selloff in the bond market was a real alert, it showed both stress across hedge funds and selling from Asian investors. Let’s bear in mind they have a massive debt to refinance.”
Michael Field, chief equity strategist at Morningstar
“The news of Trump backing down from tariffs is a big positive for markets, with many saying that the worst-case scenario is now off the table. But the overhang of the trade war is likely to persist for some time. Markets have already responded positively to the news, but investors remain wary of increasing tensions with steep tariffs remaining for China.”
