Some relief was flowing through global financial markets on Tuesday, with stocks rising to recover a bit of their historic losses after U.S. President Donald Trump dramatically raised the stakes in his trade war last week.
The S&P 500 was up 2.4 per cent in midday trading, though it still remains more than 15 per cent below its record set in February. The Dow Jones industrial average was up 926 points, or 2.4 per cent, as of noon ET, and the Nasdaq composite was 2.4 per cent higher.
The S&P/TSX Composite Index was also up 0.76 per cent midday.
Most megacap and growth stocks gained, with Nvidia and Meta Platforms adding five per cent each, and Tesla rising four per cent. The technology sector rose 3.5 per cent, while indexes tracking banks and semiconductor stocks were up four per cent and 3.6 per cent respectively.
But less than a week after Trump unleashed sweeping reciprocal tariffs that sent world markets into a tailspin, the mood remained fragile.
The CBOE Volatility Index (VIX) — seen as Wall Street’s “fear gauge” — retreated to 38.59 points after rising on Monday to its highest level since last August. A figure over 30 is still generally considered a sign of high volatility.
Markets in Asia, Europe and North America posted gains on Tuesday after days of losses following U.S. President Donald Trump’s announcement of global tariffs. Meanwhile, China vowed to ‘fight to the end,’ and initiated dispute consultations with the World Trade Organization.
In the bond market, U.S. Treasury yields rallied for a second straight day to recover more of their sharp losses from prior months. The yield on the 10-year Treasury rose to 4.23 per cent, from 4.15 per cent late Monday and from just 4.01 per cent late Friday.
The U.S. dollar, which has taken a beating from the tariff turmoil, remained weak against other major currencies. Safe-haven currencies, including the yen and the Swiss franc, held near six-month highs to start Tuesday.
World markets get some reprieve
While fragility remains, world markets saw some reprieve on Tuesday after three days of heavy selling.
In Europe, shares rose from 14-month lows, with Paris seeing a 3.5 per cent gain. The price of crude oil also
pulled higher after touching its lowest level since 2021 on Monday.
The European Commission — set to face 20 per cent tariffs from the U.S. as of Wednesday — said Monday it had offered a “zero-for-zero” tariff deal to avert a trade war with the United States. The commission proposed counter-tariffs of 25 per cent on a range of U.S. goods, including soybeans, nuts and sausages, although other potential items like bourbon whisky were left off the list, a document seen by Reuters showed.
Japan’s blue-chip Nikkei stock index closed six per cent higher, with U.S. Treasury Secretary Scott Bessent tasked with leading trade negotiations with Tokyo, viewed as a positive sign.
Thai stocks dropped nearly five per cent in catch-up selling from a holiday on Monday, while Indonesia returned from a week-long holiday to eight per cent losses.
“Sentiment is rebounding, perhaps on the view that Trump may focus protectionism on China and speed up trade deals elsewhere,” said Francesco Pesole, currency strategist at ING. “Markets may be erring on the optimistic side though.”
‘Battle of wills’ shaping up: analyst
China’s markets rose only modestly after the country’s sovereign wealth funds stepped in to buy shares. Chip-export-dependent Taiwan’s benchmark tumbled five per cent, a day after suffering its worst fall on record.
The Chinese yuan fell to 7.3677 per dollar in the offshore market, the weakest in two months, before rebounding to be slightly stronger than Monday’s close at 7.3393.
Trump dug in his heels over China, vowing additional 50 per cent levies if Beijing does not withdraw the retaliatory tariffs of 34 per cent it announced last week for the U.S. If Trump sticks to his plan, total new U.S. duties on Chinese goods this year could rise to 104 per cent by Wednesday.
China is hitting the U.S. where it hurts by imposing a 34 per cent reciprocal tariff on imports and restrictions on key rare-earth minerals. In response, U.S. President Donald Trump is threatening an additional 50 per cent tariff if China fails to withdraw its measures. Andrew Chang explains the escalation of the trade war between the world’s two largest economies and the potential impact of China’s retaliation.
Trump imposed less expansive tariffs on China in his first term as president, some of which successor Joe Biden maintained.
But with global supply chains in jeopardy, Beijing is under pressure to respond.
“The U.S. side’s threat to escalate tariffs against China is a mistake on top of a mistake, once again exposing the American side’s blackmailing nature,” China’s Commerce Ministry said in a statement. “If the United States insists on having its way, China will fight to the end.”
Trump’s affinity for tariffs risks derailing China’s largely export-led economic recovery given that no other country comes close to the consumption power of the U.S., where Chinese producers sell more than $400 billion worth of goods annually.
“If the tariffs keep going up and up, it becomes a battle of wills and principles rather than economics,” said Xu Tianchen, senior economist for China at the Economist Intelligence Unit.
Trump’s tariffs will be felt particularly keenly as they target the two main strategies Chinese exporters have used to blunt the impact of the trade war: shifting some production abroad and boosting sales to non-U.S. markets.
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Chinese President Xi Jinping this month is scheduled to visit Malaysia, Vietnam and Cambodia, three economies that gained from relocation by Chinese manufacturers to avoid U.S. sanctions during Trump’s first term but which now face steep levies of their own.
Trump has remained defiant that tariffs are needed as “medicine” to alleviate American trade deficits — something most economists don’t believe is an indicator on its own of economic health.
There have been some signs of disquiet expressed by a small number of Republican lawmakers on Capitol Hill, as well as influential Wall Street figures Bill Ackman and Jamie Dimon, and Trump’s own billionaire adviser Elon Musk.
