Market update: Relief wave after Trump rolls back from tariffs threats
Susannah Streeter, chief investment strategist, Wealth Club. ‘’Trump’s retreat from his tariff threats is fuelling a relief rally on markets. The Footsie has surged in a sigh of relief as icy geopolitics relations defrost. The DAX in Frankfurt and CAC 40 in Paris are also sharply higher as fractious relations turn friendlier.
Not only has the threat of forced annexation hanging over Greenland evaporated, but the President’s claims that a ‘framework’ has been agreed about the future of the island, indicating rollback in his demand to take over the territory. While the details of this are scant, it appears that mounting opposition among NATO members, and crucially in the Republican party have prompted the climb down in the aggressive stance. Once again US strategy has followed a well-worn pattern – unleash deep threats and try and get compromises to edge forward US interests, which are likely to amount to increasing US military presence in the region and gaining access to crucial minerals. Europe is bruised, and leaders will be keeping their powder dry, with their threat to deploy their anti-coercion instrument still in reserve.
This fresh bout of erratic policymaking from the White House, is still a reminder that geopolitics remain volatile, and investors are still harbouring money in safe havens. Gold initially fell back sharply as Trump retreated from his tariff threats, but prices then began to climb back up. With the US president’s capricious attitude, risks remain high and confrontation with other countries is highly possible. Concerns about mounting US debt and its unsustainable fiscal position are also not going away, which have helped fuel gold’s recent rally.
There’s a slightly better reading for the UK’s fiscal position out today, which will add to Keir Starmer’s relief. Government borrowing came in lower than expected in December thanks to more tax flooding into government coffers, more than offsetting higher public spending. It’s prompted a fresh retreat in gilt yields, indicating that investors are that little bit more confident about buying UK debt.
The tariff retreat looks set to spark another mini spurt of recovery on Wall Street, following on from yesterday’s gains. Fresh immediate inflationary risks have receded, and temporary foes have turned friendly again, lifting sentiment. Investors are waiting for fresh clues about current price pressures. The Fed’s preferred inflation gauge – the Personal Consumption Expenditures report – is expected to show prices remain sticky, but a hotter reading than expected could trip up the rally.’’