European markets rallied on Thursday after US President Donald Trump cancelled his plans to impose fresh tariffs on eight European countries, including Germany, France, and the UK. The move was seen as a retreat from the administration’s aggressive trade stance, providing relief to investors.
The FTSE 100 index gained 0.8% to reach a high of 10,225 points, while Germany’s DAX and France’s CAC 40 both rose by 1.4%. The pan-European Stoxx 600 index also climbed 1.4%, and Wall Street is expected to open higher on Thursday.
This marks the first rise in European stock markets this week, after Trump had previously announced plans to hit the targeted countries with new tariffs from 1 February until an agreement was reached for the US to purchase Greenland.
The president withdrew his threat of using military force to acquire Greenland on Wednesday during a speech at the World Economic Forum in Davos, Switzerland. Later that day, he posted on social media that he would not impose the tariffs, claiming to have reached an unspecified deal with NATO Secretary-General Jens Stoltenberg.
Richard Hunter, the head of markets at the trading platform Interactive Investor, described the move as “the return of the Taco trade,” referring to the pattern of Trump often backing down from his trade threats.
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. Investors also took heart from the start of a Supreme Court case into Trump’s attempted removal of Lisa Cook from the board of governors of the Federal Reserve, with conservative justices appearing sceptical of some of the administration’s arguments.
The US dollar was flat against the euro and the pound on Thursday morning in London, with one euro buying $1.1689 and a pound buying $1.3427. Gold prices, which have served as a haven for investors amid concerns about the long-term attractiveness of US assets, 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, Hardman added.
