WASHINGTON/BEIJING/BRUSSELS: Global financial markets regained some ground on Tuesday, despite deepening trade tensions between the United States and China, as investors responded to signs of potential negotiations and easing fears of an immediate economic downturn.
The rebound followed a week of steep losses triggered by President Donald Trump’s announcement of sweeping new tariffs.
Speaking from the White House last week, Trump presented a chart detailing tariffs imposed on various countries, escalating his administration’s aggressive trade policy.
The move caused a significant market sell-off and renewed concerns about a global recession.
Beginning Wednesday, a series of high tariffs—some as high as 104 per cent on Chinese imports—will take effect, after Beijing responded with retaliatory measures.
A spokesperson for the Chinese commerce ministry condemned the US approach as “blackmail” and vowed that China will “fight to the end”.
Despite the tensions, markets showed some signs of resilience. The S&P 500 rose by 2.4 per cent in midday trading, while the Dow Jones Industrial Average gained 926 points.
The Nasdaq composite and Canada’s S&P/TSX Composite Index also posted gains. In Europe, shares rebounded from 14-month lows, with Paris stocks climbing 3.5 per cent. Japan’s Nikkei index closed six per cent higher.
Major technology stocks led the rally. Nvidia and Meta Platforms rose five per cent each, while Tesla added four per cent.
The tech sector overall gained 3.5 per cent, with banks and semiconductor indexes rising four and 3.6 per cent respectively.
Despite Tuesday’s optimism, volatility remains high. The CBOE Volatility Index, Wall Street’s so-called “fear gauge”, dipped to 38.59 after peaking at its highest level since August, but remained well above the 30-point threshold associated with high market stress.
Bond markets also reflected cautious confidence. Yields on US Treasury bonds rose for a second straight day, with the 10-year Treasury yield reaching 4.23 per cent, up from 4.15 per cent on Monday and 4.01 per cent late Friday.
The US dollar remained weak amid ongoing uncertainty, while traditional safe-haven currencies like the Japanese yen and Swiss franc held near six-month highs.
Oil prices also edged higher after falling to their lowest level since 2021 on Monday.
China maintained a defiant tone, with Premier Li Qiang assuring European Commission President Ursula von der Leyen in a call that Beijing could withstand external pressures.
“China can fully hedge against adverse external effects, and is fully confident of maintaining sustained and healthy economic development,” he said, according to a Chinese government readout.
Von der Leyen urged restraint and stressed the importance of stability, warning of the need to “avoid further escalation.”
The EU has already proposed countermeasures, including 25 per cent tariffs on selected US goods such as soybeans and sausages, in response to US tariffs on steel and aluminium.
French President Emmanuel Macron called for a de-escalation, stating, “France and Europe never wanted chaos,” while warning that the EU would respond firmly if necessary.
Amid the fallout, the Trump administration has hinted at flexibility. White House economic advisor Kevin Hassett told Fox News the US would prioritise trade deals with allies like Japan and South Korea.
President Trump tweeted about a “great call” with South Korea’s president, raising hopes for a more targeted and less disruptive trade strategy.
However, internal divisions were also on display. Tesla CEO Elon Musk criticised Trump’s trade advisor Peter Navarro, calling him “dumber than a sack of bricks” after Navarro dismissed Tesla as merely a “car assembler.”
Trade experts remain sceptical of the administration’s approach. Francesco Pesole, currency strategist at ING, said markets were “erring on the optimistic side,” noting the fragile nature of the recovery.
