TLDR:
- Stock futures fell Thursday after Wednesday’s historic rally following Trump’s tariff pause
- Trump raised tariffs on Chinese imports to 125% while pausing other planned trade tariffs
- China retaliated by increasing duties on US goods to 84%
- Markets initially rallied on tariff pause news but fell on concerns about US-China trade confrontation
- Benchmark 10-year Treasury yields remained elevated but showed signs of easing as investors await inflation data
After experiencing one of the most substantial single-day gains since World War II, US stock futures declined Thursday morning. The reversal followed President Trump’s decision to pause many planned tariff increases while significantly escalating duties specifically on Chinese imports.
S&P 500 futures dropped 2% in early trading. Nasdaq 100 futures, which track technology companies particularly sensitive to trade tensions, fell by 2.2%. Dow Jones Industrial Average futures declined by approximately 600 points, representing a 1.5% decrease.
The market’s volatility came just a day after a historic rally. On Wednesday, stocks soared when Trump announced a 90-day pause on what he called “reciprocal tariffs” for most trading partners.
US-China Trade Tensions Intensify
However, the tariff pause excluded China. Instead, Trump raised levies on Chinese imports to an extremely high 125%. This move came after Beijing had already increased its tariffs on US goods to 84% in an earlier retaliatory action.
“The trade war is now turning into a direct confrontation between the US and China,” Rabobank analysts stated in a note to clients. They added that markets could be pulled “in different directions” as escalation and de-escalation occur simultaneously.
Chinese stocks surprisingly ended higher on Thursday. Alibaba and Tencent shares gained value as Chinese markets appeared to ignore immediate trade war risks. This resilience likely stems from investor expectations of stimulus measures from the Chinese government to counteract economic pressure.
While the wider trade war has paused temporarily, analysts warn that risks to the US economy remain. JP Morgan described Trump’s move as “merely the end of the beginning,” suggesting more developments are likely ahead.
Market Impacts Beyond Stocks
The bond market has also attracted attention during this period of trade uncertainty. The yield on the benchmark 10-year Treasury note stood at 4.323% early Thursday. This represents a slight decrease from Wednesday but remains considerably higher than levels below 4% seen at the start of the week.
Despite concerns about buyers potentially fleeing US debt, Wednesday’s Treasury auction of 10-year bonds saw solid demand. This helped ease some fears in the bond market.
Other parts of Trump’s trade policy remain in effect. These include a 10% baseline tariff on most trading partners, 25% duties on steel and aluminum imports, and 25% duties on auto imports.
Analysts caution that these continuing tariffs could still lead to rising prices and slower economic growth in the US economy. The tariff situation remains fluid, with both the US and China indicating some willingness to negotiate.
“We don’t think this is a point of no return for US-China decoupling,” wrote ING economist Lynn Song. “Both sides have signalled to varying extents that they’d prefer negotiations, but the problem is that neither party wants to be seen as backing down.”
Deutsche Bank analyst George Saravelos suggested the administration has become more responsive to market conditions. “Some version of a Trump market put is back. In comments over the last few minutes President Trump mentioned he has been monitoring the bond market,” Saravelos wrote on Thursday.
Investors now await the release of March’s Consumer Price Index (CPI) for insights into inflation trends. Economists surveyed by FactSet expect inflation to have eased to 0.1% month-over-month in March, down from February’s 0.2% pace.
The Bureau of Labor Statistics will release the CPI data at 8:30 a.m. on Thursday. This report, along with weekly jobless claims data, will provide important economic context as markets digest the ongoing trade developments.
The day’s trading will likely be influenced by these economic indicators as well as statements from several Federal Reserve officials scheduled to speak throughout the day.
