After the about-face
The relief rally has gone global, for now.
Stocks in Asia and Europe have rebounded after President Trump’s drastic U-turn on tariffs. Turmoil in the bond markets has cooled, as investors hope that the president averted crashing the global economy into recession.
But U.S. stock futures are in the red as uncertainty abounds. Businesses and investors have little visibility into the White House’s next moves, even as some corporate leaders take comfort in the markets’ role in prompting the reversal. (More on that below.)
Where things stand: Trump announced a 90-day pause for his most punishing reciprocal tariffs, instead imposing a blanket levy of 10 percent. Even so, the effective tariff rate on imports has increased by 21 percentage points since January, according to Citigroup economists, potentially reigniting inflation.
But Washington and Beijing are still imposing tit-for-tat tariffs — with Chinese import duties now at 125 percent. Businesses and governments are worried that the fight could destabilize global supply chains, drive up inflation and hurt growth, with some wondering if China is a safer trade partner.
The latest:
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S&P 500 futures are lower, after the benchmark index jumped 9.5 percent yesterday in its best one-day performance since 2008. Goldman Sachs and others lowered their odds for a U.S. recession.
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There’s extra focus on today’s Consumer Price Index report, set for release at 8:30 a.m. Eastern. Worth watching: Did Trump’s tariffs on the auto sector cause another jump in used car prices last month?
Bulls see reason to cheer this morning. Many analysts note that the 10 percent tariff would be far less burdensome on companies and consumers. And prolonged market calm would help Trump pursue more tax cuts and deregulation.
Others say that the “Trump put” is alive and well. (That’s shorthand for investors’ belief that the president is willing to reverse policies deemed detrimental to the economy.)
“Uncertainty has gone up, and that can curb some investment and some spending,” Lee Ferridge, the head of macro strategy for North America at State Street Global Markets, told DealBook. But it won’t be enough to prompt a big downturn. “I think the talk about recession will prove extremely premature,” he added.
Ferridge notes that despite the steep sell-off in Treasury bonds and notes, the credit markets didn’t go haywire, unlike during the global financial crisis in 2008 and in the early days of the coronavirus pandemic in 2020. “There were no levels of distress or anything like that with companies,” he said.
But big challenges persist. The tariffs reprieve doesn’t remove the unpredictability hanging over businesses. Before Trump’s reversal yesterday, Delta Air Lines pulled its full-year guidance, while Walmart executives gingerly addressed tariffs at an investor meeting.
The Fed has grown increasingly worried about falling consumer and business sentiment, minutes from the last meeting of the central bank’s governors released yesterday showed. The Fed also signaled that it would refrain from cutting interest rates any time soon as it watches tariff fallout.
For many, it’s hard to maintain any sort of confidence. “Don’t chase this, don’t buy the dip,” Andy Sieg, who heads Citigroup’s global wealth management team, told Bloomberg Television.
HERE’S WHAT’S HAPPENING
House Republicans delay a vote on the budget bill. Speaker Mike Johnson made the move after holdouts from the party refused to get on board with the Trump-backed spending blueprint, citing the legislation’s potentially huge addition to the national debt. Under the reconciliation rules that Republicans are relying on to pass the bill, the House must adopt the same budget resolution as the Senate.
Democratic lawmakers raise questions about trading and the tariff pause. Senators Adam Schiff of California and Elizabeth Warren of Massachusetts were among those who asked whether President Trump’s call for people to buy stocks and later announcement of a pause in tariffs, which sent markets soaring, amounted to manipulation.
Oil prices retreat. Futures tied to West Texas Intermediate, the U.S. benchmark, fell more than 2 percent today. Investors are worried that the continuing U.S.-China trade tensions will sap demand for oil, paring back yesterday’s gains, which were tied to relief that Trump’s move had averted a recession.
A prominent executive from Paul Weiss resigns. Steven Banks, who ran the giant law firm’s pro bono practice, said he would focus on the rights of the homeless by working with two legal nonprofits. His departure comes weeks after Paul Weiss struck a deal with Trump that lifted an executive order that had threatened to severely wound the firm; Banks did not cite the settlement in his statement.
Inside the U-turn
It was the post that moved markets: “I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%,” President Trump wrote on Truth Social yesterday afternoon, setting off the biggest S&P 500 rally in nearly 17 years.
But the path to that unexpected decision was filled with conversations with business and international leaders, efforts to influence Trump on television and meetings with a few presidential advisers. Here’s what happened.
The bond market ultimately forced Trump’s hand, according to The Times. While the president insisted earlier in the day that plunging stocks weren’t a concern — “THIS IS A GREAT TIME TO BUY!!!”, he wrote on Truth Social at 9:37 a.m. Eastern — close advisers were dismayed by the sell-off in Treasury bonds and the dollar, eroding the reputation of both as economic safe havens.
Soon after Trump’s morning post, he met with Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Kevin Hassett, the director of the National Economic Council, to discuss the 10-year Treasury yield.
“Well, I thought that people were jumping a little bit out of line,” Trump later told reporters after announcing the pause. “They were getting yippy, you know, they were getting a little bit yippy, a little bit afraid.”
Corporate leaders and others had been making the case for an off-ramp. Business executives and their lobbyists had been calling Susie Wiles, the White House chief of staff, to press for a rethink, according to The Wall Street Journal. Banking officials had also made the case to Republican lawmakers that tariffs were hurting the economy.
Meanwhile, Trump had a call yesterday with President Karin Keller-Sutter of Switzerland, who emphasized how a 31 percent tariff on her country could hit U.S. jobs, according to Swiss officials. And Lutnick spoke with Maros Sefcovic, the European Union’s top trade official, whose bloc had approved major retaliatory measures, according to The Washington Post.
Then there were the TV interviews. Marc Rowan, the C.E.O. of Apollo Global Management who had been a candidate for Treasury secretary, told Andrew on CNBC that the administration’s tariff strategy was “certainly not how I would do it,” while supporting efforts to address trade imbalances, and outlined an alternative strategy for approaching trade. He also warned of the costs of the hard-nosed approach, including short-term uncertainty and long-term damage to America’s reputation.
Jamie Dimon of JPMorgan Chase knew that Trump would be watching his long-scheduled interview yesterday morning on Fox Business with Maria Bartiromo, and used his appearance to warn that a recession was a “likely outcome” of the tariff fight. (The JPMorgan chief added, however, that some tariffs could help U.S. interests like trade imbalances.)
The night before, several Republican senators expressed concern about the tariffs in an interview with Fox News’s Sean Hannity that they knew Trump would be watching. (One, Senator John Kennedy of Louisiana, asked Hannity during a commercial break for “15 seconds to speak directly to the president,” according to The Post.) Trump later spoke with some of them.
Who appeared to hold the most sway: Bessent gained more authority to negotiate trade deals, especially after meeting directly with the president on Sunday aboard Air Force One, The Times reports. He and Vice President JD Vance advised adopting a more structured approach that isolated China but didn’t sock other countries as hard.
Those who appeared to be less closely involved include Peter Navarro, the presidential adviser and trade hawk who favored punishing tariffs, according to The Post, and Jamieson Greer, the U.S. trade representative, who faced a grilling on Capitol Hill before and after Trump’s U-turn.
Ultimately, it was a gut call by Trump. The decision “probably came together early this morning, fairly early this morning,” he told reporters yesterday. He added, “We wrote it up from our hearts.”
That’s despite efforts by administration officials to argue that his reversal was part of a well-planned move. “This was his strategy all along,” Bessent said. “You have been watching the greatest economic master strategy from an American President in history,” Stephen Miller, a deputy White House chief of staff, wrote on X.
A reprieve for A.I.?
Don’t count out artificial intelligence stocks just yet.
Shares in Taiwan Semiconductor Manufacturing Company soared nearly 10 percent today after the chip-making giant — a major supplier to Apple and Nvidia — reported another blockbuster quarter, thanks to robust sales of smartphones and data center servers.
The news allayed some concerns that President Trump’s trade war has crimped the highflying A.I. market. But investors are still wary about what’s ahead.
The bull and bear readings of TSMC’s results: The glass-half-full case is that A.I. investment is alive and well, despite lingering Wall Street worries about some tech giants tightening their belts.
The glass-half-empty case is that customers were merely ramping up orders before Trump’s trade fight. (Trump has placed tariffs on Taiwanese imports, and this week threatened to put a “tax” of up to 100 percent on TSMC unless it builds more factories in the United States, despite its $100 billion U.S. investment pledge.)
There are signs of an A.I. pullback. Microsoft said yesterday that it was “slowing or pausing” some data center investment, including construction of a $1 billion project in Ohio. And the rise of DeepSeek, the Chinese A.I. start-up that has outpaced Silicon Valley rivals despite having fewer resources, is still making others rethink their big spending plans.
TSMC is in the cross hairs elsewhere in Washington. It may need to pay up to $1 billion in fines to settle an investigation into why its chips were found inside a Huawei A.I. processor potentially in violation of U.S. trade restrictions, according to Reuters.
THE SPEED READ
Deals
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Prada reportedly cut its proposed takeover bid for Versace by more than $200 million, to $1.38 billion, because of uncertainty over President Trump’s trade war. (FT)
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Shares in U.S. Steel tumbled after Trump said he didn’t want to see the struggling American company “go to Japan,” casting new doubt on the fate of Nippon Steel’s takeover effort. (Reuters)
Politics, policy and regulation
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