Stock markets soared in afternoon trading as U.S. President Donald Trump announced a 90-day pause on “reciprocal” tariffs, and slashed the rates of others — even as the trade war with China escalated.
In Toronto, the TSX composite index bounced back and forth between loss and gain several times, but took off as soon as news of the pause became public shortly after 1 p.m.
By 2:15, the TSX was up nearly five per cent on the day.
Stocks in New York were also mixed at the opening, then took off in the early afternoon.
By 2:15 p.m., the S&P was up eight per cent, the Dow Jones industrial average was up 6.7 per cent, and the tech-heavy Nasdaq up 9.7 per cent.
The wild ride follows four straight days of big market losses.
Market professionals and analysts suggested that Trump decided to back off after seeing the havoc the trade war was wreaking on markets.
John Canavan, lead analyst at the consultancy Oxford Economics, noted that while Trump said he changed course due to possible negotiations, he had previously indicated that the tariffs would stay in place.
“There have been very mixed messages on whether there would be negotiations,” Canavan said. “Given what’s been going on with the markets, he realized the safest thing to do is negotiate and put things on pause.”
Oil prices also rose after hitting their lowest level since the global COVID-19 pandemic. In trading on the New York Mercantile Exchange, U.S. benchmark West Texas Intermediate oil rose to $61.96 (U.S.) per barrel, a gain of $2.38.
The loonie, meanwhile, is up by more than two thirds of a cent against the American dollar, and is trading at 70.84 cents (U.S.).
The rise in the loonie is largely because investors have been trying to steer clear of U.S. investments to avoid economic uncertainty caused by tariffs, said Shaun Osborne, chief foreign exchange strategist at Scotiabank.
“This is just not a comfortable time to be fully invested in the U. S. right now,” said Osborne, who expects the Canadian dollar to fluctuate in between 69 cents and 71.50 cents (U.S.) for the next few months. Unless, that is, there’s another shift in trade policy.
“I think the worst of this slide in the Canadian dollar is probably behind us, unless … Trump wakes up one morning and it’s back to 25 percent tariffs on all Canadian exports,” said Osborne.
The uncertainty of where U.S. trade policy will go has been causing stock markets, currencies and bond markets to bounce around, said Osborne.
“We’re always dealing with uncertainty. What we don’t have at the moment is conviction about how this tariff war is going to end,” said Osborne. “Is it a situation where these tariffs are there to raise revenue for the next 10 years? … Are they there for leverage to win concessions from trade partners? We just don’t know.”
For most of this week, U.S. government bonds have also been falling at the same time as stocks have plunged.
Usually, stocks and bonds head in opposite directions, but many of the bonds are held by companies or hedge funds who borrow — often heavily — against their usually-reliable value, said Osborne.
Now, lenders are skittish and demanding companies reduce their leverage.
“There are margin calls probably left, right and centre right now,” said Osborne. “This is the kind of environment where … any kind of leverage trade, is going to come under some pressure because of the volatility that we’re seeing in the underlying assets.”
At midnight, Trump’s “reciprocal” tariffs kicked in on dozens of countries, including China, which now faces a 104 per cent tariff on all its exports to the U.S. China announced Wednesday that it was responding in kind, levying an 84 per cent tariff on all imports from the U.S.
In a statement announcing their counter-tariffs, the Chinese Foreign Ministry blasted Trump’s tariffs, especially his decision to ramp the “reciprocal” tax on Chinese imports from 54 per cent up to 104 per cent.
“The U.S.’s practice of escalating tariffs on China is a mistake on top of a mistake, which seriously infringes on China’s legitimate rights and interests,” the ministry said. Trump’s escalation, China said, is “adding insult to injury.”
In a post on Truth Social, Trump encouraged investors to snap up stocks that had fallen for four straight days.
“THIS IS A GREAT TIME TO BUY,” Trump wrote.
In another post, he tried to encourage investors not to panic.
“BE COOL! Everything is going to work out well. The USA will be bigger and better than ever before!,” Trump wrote.
In Europe and the U.K., stocks were also down. In London, the FTSE 100 fell by three per cent. In Frankfurt, the DAX performance index was off by three per cent, while in Paris, the CAC 40 was down 3.5 per cent.
Overnight, markets in Asia were mixed. Tokyo’s Nikkei 225 index fell by just under four per cent, while Hong Kong’s Hang Seng see-sawed, but ended trading up by 0.7 per cent.
More to come …
