Trump decided on Wednesday to postpone “reciprocal tariffs” for 90 days for countries that do not take retaliatory measures! U.S. stocks staged an epic counterattack overnight, with the Nasdaq rising 12% (the second largest single-day increase in history), the S&P 500 closing up 9.5% (the largest increase since 2008), and the Dow Jones rising 7.8% (the largest increase since 2020). The seven giants rose violently, with Tesla +22.7% and Nvidia +18.7% in the mid-term.

In early trading on Thursday, the Nikkei index rose by nearly 9%, the Hang Seng Index rose by 4%, and gold approached the $3,100 mark. Market sentiment has rebounded significantly.

Trump stopped?

The “reciprocal tariffs” of the past week were like a show directed and performed by Trump himself, but the stock market crash, the decline in polls, and the rising expectations of a recession forced him to end this farce ahead of schedule.

Trump himself is a staunch supporter of tariff policies, and tariff policies can be directly implemented through executive orders (bypassing the legislative process of Congress), which is a very useful policy tool and bargaining chip, so subjectively he should not give up easily.

Trump waved the “tariff stick” to threaten to break the original global economic and trade system. On the one hand, he forced the Federal Reserve to cut interest rates and reduce debt costs by creating panic and economic recession, and on the other hand, he forced countries to make more concessions, such as purchasing American goods (such as agricultural products and energy) and US bonds, or appreciating their currencies. If both goals can be achieved, it is undoubtedly a disguised “debt restructuring” of the United States, and whether tariffs are really increased at this time becomes less important. As for the return of manufacturing, it is just a good wish.

It is worth noting that the tariff threat has not really ended so far. The 10% basic tariff still exists, and the tariff policy on some products from Canada and Mexico, as well as automobiles, steel and aluminum, will continue to be implemented, and Trump will also increase tariffs on China to 125%.

But the policies over the past three months have repeatedly hinted that the power of the tariff card will gradually decrease, and Trump, who previously “indiscriminately attacked” the world, may gradually shift his focus to the trade war with China.

Will the US stock market return strongly or rebound in the bear market?

In the past week, Wall Street has made pessimistic predictions about the economic outlook. Goldman Sachs raised the probability of a US recession from 35% to 45%, and JPMorgan Chase predicted 80%. Under the impact of the extremely destructive tariff policy, the market was associated with the stock market crash in 1929 and the subsequent Great Depression, and the best expectation was a mild recession. However, after the tariffs were suspended, the recession expectations cooled moderately.

As for the violent rebound of US stocks yesterday, taking the S&P 500 as an example, the amazing single-day increase can rank among the top ten in history. But it is worth noting that most of the super rebounds in history occurred in the 1930s, 1987, 2008, and 2020, that is, bear market rebounds.

But unlike the previous bear market rebound, this economic and stock market turmoil is neither a cyclical recession nor a sudden event, but is completely driven by Trump’s personal factors, so there is a chance to repair it. If the economy can avoid a recession, the US stock market is expected to completely get rid of the “bear market” and avoid a second wave of decline. With the tariff threat temporarily cooled, economic data will help investors test the economic operation. Pay attention to the US CPI on Thursday and the consumer confidence index on Friday.

But if Trump continues to hit the global economy with tariffs, the Nasdaq 100 index may eventually fall to around 14,000 points.

Putting aside the tariff factor, US technology stocks themselves are also facing the pressure of “revaluation” and “slowing earnings growth”. The US stock earnings season starting this week will give the latest performance guidance, which is crucial to whether the US stock market can continue to rebound.

NASDAQ 100 Weekly Chart

Source: TradingView, Forex.com

Expectations of Fed rate cuts cool slightly

With the reversal of tariff policy, the Fed’s dilemma of “protecting the economy” or “fighting inflation” has eased slightly. The interest rate market expects three rate cuts this year, lower than the four predicted last week. The probability of a rate cut in May has been greatly reduced, while the probability of a rate cut in June is around 75%, but there is still a possibility of a one-time rate cut of 50 basis points. The US dollar index continues to hover around 103, and the downward pressure has not been significantly relieved.

From a longer-term perspective, the process of “de-dollarization” may accelerate. First, even a moderate increase in tariffs will shrink global trade, especially trade between countries and the United States, thereby reducing the circulation and use of the US dollar in the world (there are also risk avoidance considerations); second, if the United States can really reduce its trade deficit, then its financial account surplus will also decrease accordingly, which means that global investors will reduce their risk exposure to assets such as US bonds and US stocks. In any case, the reserve currency status of the US dollar will be affected.

Is gold back to its peak?

After the panic selling in the global market, gold was supported at 2970. The strong rebound on Wednesday once again sounded the charge to hit the historical high.

Regardless of how the tariff policy is interpreted, gold is expected to continue to be favored by central banks, machine heads, and individual investors in an environment full of uncertainty and against the background of “de-dollarization”. We remain optimistic about the outlook for gold above $3050 and pay attention to the upper track of the channel at 3200.

XAUUSD daily chart

Source: TradingView, Forex.com

The Sino-US confrontation is not just a trade war

During Trump 2.0, a cumulative tariff of 125% has been imposed on China, far higher than the 60% claimed during his campaign. China also immediately raised US import tariffs and announced other countermeasures.

Data shows that in 2024, the proportion of the United States in China’s total exports has dropped to 12%, and the proportion of the surplus with the United States in the overall trade surplus has dropped to about 30%, which is much lower than during the first round of the Sino-US trade war in 2018.

In addition, from the perspective of the import categories of both sides, the United States’ imports from China are mainly terminal consumer products such as mobile phones, toys, furniture, and computers. Tariffs will be reflected in prices in a very intuitive way, and it is difficult to find large-scale substitutes for these products. On the contrary, China’s imports are mainly soybeans, natural gas, crude oil, semiconductors, etc., which are intermediate products and have import substitution. Moreover, as a manufacturing superpower, China has huge domestic demand potential, so it can resist tariff shocks to a certain extent.

Unlike the Trump 1.0 period, the current Sino-US confrontation may not just stay at the trade level.

If the purpose of Trump’s tariff war is to force countries to appreciate their currencies and buy more U.S. debt, then the recent depreciation of the RMB is undoubtedly one of the countermeasures, which may also extend the “battlefield” from trade to the financial field. Behind the rapid increase in long-term U.S. Treasury bond interest rates this week, the market speculates that overseas central banks such as China are selling U.S. debt.