European and US markets rose on Thursday after Donald Trump canceled his plans to impose new tariffs on eight European countries, in what analysts said was a return of the “Trump Always Chickens Out” taco trade.
The German Dax closed up 1.28%, while the French Cac 40 rose just under 1%. The pan-European Stoxx 600 rose 1.1%, although the UK’s FTSE 100 only rose 0.12%.
In the United States, Wall Street also rose. The Dow Jones Industrial Average rose 0.6% in New York, while the S&P 500 rose 0.55% and the tech-heavy Nasdaq rose about 0.91%.
It was the first rise for European stock markets this week, after Trump had previously announced plans to hit Germany, France, the United Kingdom, Denmark, Sweden, the Netherlands, Norway and Finland with new tariffs starting February 1 until a deal was reached for the United States to buy Greenland.
The president only backed off his threat to use military force to seize Greenland on Wednesday during a speech at the World Economic Forum in Davos, Switzerland. He posted on his own social media site later Wednesday that he would not impose the tariffs after claiming to have reached an unspecified agreement with NATO Secretary General Mark Rutte.
Richard Hunter, head of markets at trading platform Interactive Investor, said it was “the return of taco trading”.
Global stock markets fell sharply at the start of the week, but U.S. stock prices rebounded Wednesday afternoon in New York.
Neil Wilson, strategist at Saxo, said: “From a market point of view, it’s classic taco trading. The turnaround has left markets buoyant as the very real threat of a trade war has diminished.”
Jim Reid, head of macro and thematic research at Deutsche Bank, said the moves were a “major relief rally as investors priced in escalation scenarios, with financial stress easing across multiple asset classes.”
However, Reid noted that the S&P 500 and the US dollar remained weaker than Friday.
Reid said investors were also encouraged by the start of the Supreme Court case over Trump’s attempt to remove Lisa Cook from the Federal Reserve board of governors. The accusations against Cook are widely seen as part of Trump’s attempt to force the central bank to lower interest rates. However, conservative justices who previously supported the White House positions were skeptical of some of the administration’s arguments.
The US dollar was steady against the euro and pound on Thursday morning in London. One euro bought 1.1689 dollars, while one pound bought 1.3427 dollars.
Gold has served as a haven for investors at a time when many have questioned the long-term appeal of U.S. assets. Spot gold prices held steady at $4,833 a troy ounce, near record highs.
Lee Hardman, senior currency analyst at investment bank MUFG, said: “Market participants have expressed initial relief that the threat of US military action or tariffs is off the table at least for now, although they will remain cautious that they could return if talks do not progress as President Trump wishes in the coming weeks and months.
“Avoiding a tit-for-tat trade war is a positive development for global growth prospects and supports our prospects for stronger growth this year.”
