European markets rose on Thursday after Donald Trump cancelled plans to impose fresh tariffs on eight European countries, in what analysts said was a return of the “Trump Always Chickens Out” (Taco) trade.
The FTSE 100 gained 0.8% to a high of 10,225 points, while Germany’s Dax and France’s Cac were up 1.4%. The pan-European Stoxx 600 was also up 1.4% and Wall Street is forecast to open higher on Thursday.
It was the first rise for European stock markets this week, after Trump had previously announced plans to hit Germany, France, the UK, Denmark, Sweden, the Netherlands, Norway and Finland with fresh tariffs from 1 February until an agreement was reached for the US to buy Greenland.
The president only withdrew his threat of using military force to gain Greenland on Wednesday during a speech at the World Economic Forum in Davos, Switzerland. Later on Wednesday he posted on the social network he owns that he would not impose the tariffs after claiming to have reached an unspecified deal with the Nato secretary general, Mark Rutte.
Richard Hunter, the head of markets at the trading platform Interactive Investor, said it was “the return of the Taco trade”.
Global stock markets fell heavily at the start of the week, but US share prices rebounded on Wednesday afternoon in New York.
Neil Wilson, a strategist at Saxo, said: “From the market point of view, it’s the classic Taco trade. The pivot has left markets buoyant as the very real threat of a trade war has receded.”
Jim Reid, the head of macro and thematic research at Deutsche Bank, said the moves were a “big relief rally as investors priced out escalatory scenarios, with financial stress easing across multiple asset classes”.
However, Reid noted that the S&P 500 and the US dollar remained weaker than they were on Friday.
Reid said investors also took heart from the start of the supreme court case into Trump’s attempted removal of Lisa Cook from the board of governors of the Federal Reserve. The allegations against Cook are widely seen as part of Trump’s attempt to force the central bank to lower interest rates. However, conservative justices who have previously backed the White House’s positions appeared sceptical of some of the administration’s arguments.
The US dollar was flat against the euro and the pound on Thursday morning in London. One euro bought $1.1689, while a pound bought $1.3427.
Gold has served as a haven for investors at a time when many have questioned the long-term attractiveness of US assets. Spot gold prices were flat at $4,833 a troy ounce, near record highs.
Lee Hardman, a senior currency analyst at the 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 will remain wary that they could return if talks don’t progress as President Trump desires in the coming weeks and months.
“Avoiding a tit-for-tat trade war is a positive development for the global growth outlook and supports our outlook for stronger growth this year.”
