There was a global stock market sell-off that started to ease on Friday despite the U.S. fulfilling a promise to increase tariffs on Chinese goods.
The U.S. hiked tariffs from 10% to 25% on $200 billion worth of Chinese goods at 12:01 a.m. ET Friday. Beijing responded by saying it “deeply regrets” the tariff hike and would take countermeasures, but no specifics were provided.
Markets across the globe initially fell through the night, but were quick to bounce back and trade higher. In Asia, mainland Chinese stocks jumped with the Shanghai composite rising more than 3%. In Europe, the pan-European Stoxx 600 traded nearly 1% higher in early deals with the German DAX up by the same amount. In the U.S., Dow futures initially slipped and pointed to nearly triple-digit losses at the open, but soon recovered.
There will be uncertainty over trade talks that will linger, but some analysts believe investors are still optimistic that the world’s two-largest economies will avoid a full-blown trade war.
“Investors seemingly continue to try to cling to hope that policymakers on both sides opt to deescalate,” Deutsche Bank’s research strategist Jim Reid said in a note Friday.
Reid also commented that President Donald Trump told reporters Thursday that a “deal is still possible,” and that he had received a “beautiful letter” from Chinese President Xi Jinping.
The recovery could also be due to markets already pricing in the tariff hike. The announcement on the increase initially came from Trump on Sunday. That gave investors plenty of time to position assets in their portfolios. Along with that, a number of analysts have also pointed out that the increase in tariffs from 10% to 25% will only really take effect in a few weeks and hence markets are anticipating a deal will come before that.
Goldman Sachs told clients in a note that there is still some wiggle room in the negotiations, which are still set to continue on Friday.
“We note that details in the notice implementing the tariff hike indicate that exports that have already left Chinese ports before May 10 will not be subject to the increase,” said Goldman economist Jan Hatzius.
“This creates an unofficial window, potentially lasting a couple of weeks, in which negotiations can continue and generates a ‘soft’ deadline to reach a deal … This also leaves an opportunity for the two sides to reach an agreement in the next couple of weeks, though challenges remain,” he added.
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