China shares rose while Europe and the U.S. slipped as investors bet—or at least hoped—that U.S. President Donald Trump would step back from his most recent aggressive tariff threats. S&P futures were off 0.4% while Hong Kong rose 1.5%.
Are trade tensions rising or falling? Unable to answer that question, investors let markets slip in Europe and the U.S. on Tuesday morning, bumping China.
U.S. President Donald Trump’s recent doubling of steel and aluminum tariffs to 50% and the imposition of new limits on the sale of chip design software to China—as well as his claim that Beijing had “totally violated” the terms of the U.S.-China tariff truce—did little to encourage investors.
Nor did EU threats of retaliation against the metals tariffs, as well as China’s veiled warning that it would “continue to take resolute and forceful measures to safeguard its legitimate rights and interests.”
Still, investor sentiment that Trump’s tariff threats are not as dire as they first appear and that his administration will end up backing off the toughest ones (aka the “TACO” trade) seems to be cushioning the markets from further drops.
“Reports in Washington suggest US President Trump may talk directly with China’s President Xi later this week (after several days of more heated rhetoric between the US and China over trade),” UBS chief economist Paul Donovan said in a Tuesday note. “As Trump has been anxious for the call, and China has not, this may hint at more US retreats over trade taxes as a concession to bring China to the telephone.”
European markets and U.S. futures were down slightly early Tuesday, with the Stoxx Euro 600 dropping 0.2% while S&P futures were off 0.4% before the opening bell. In Asia, markets in China rose: Shanghai rose 0.4% after Monday’s holiday, while Hong Kong’s Hang Seng jumped 1.5%.
“It’s a difficult time to forecast right now given the relentless crossfire of trade headlines. But there’s a growing sense that we’re now on a turbulent but sustained path towards de-escalation,” wrote Deutsche Bank’s global head of macro research Jim Reid. “Even if the US administration remain hawkish on trade, we have already seen there are limits to that approach, particularly in the face of market turmoil and declining approval ratings for President Trump.
Here’s a snapshot of today’s action prior to the opening bell in New York (6:15 a.m. ET):
• The S&P 500 was up 0.4% Monday. The index is up 0.9% YTD.• S&P futures were trading down 0.5% this morning.• The Stoxx Europe 600 was down 0.2% in early trading.• Asia was mixed: Japan was off 0.1%. Hong Kong rose 1.5%. Shanghai was up 0.4%, and India’s Nifty 50 was off 0.7%.• Bitcoin was sitting up at $105,300 this morning.
This story was originally featured on Fortune.com
