On Wednesday, affected by the news that US President Donald Trump would temporarily suspend high tariffs on multiple countries, a global asset rally swept through the market during the North American afternoon trading session. The stock market rally in the US lasted until the closing bell, and the commodities market saw a rebound. Wall Street continued to monitor the progress of subsequent trade negotiations, with many views suggesting that predicting a V-shaped recovery might be premature.

Market Reaction is Vigorous

Trump's decision seemed to have some clues. On April 7th local time, the market had reported that the U.S. was considering suspending 90-day tariffs on certain countries, which was later denied by the White House.

After the announcement of the news that tariffs would be temporarily suspended in multiple countries, the three major US stock indices surged more than 6% straight away. As the closing time approached, the gains further expanded. The Dow Jones Industrial Average (DJIA) saw its largest increase exceed 3,100 points.

The combined market capitalization of the seven largest tech giants in the U.S. surged by over $1 trillion, significantly alleviating the pressure from the recent sharp decline in technology giants. The stock prices of companies including NVIDIA, Apple, Tesla, and Microsoft increased by nearly double digits.

Meanwhile, the main credit risk indicator in the U.S. fell to its largest extent since April 2020, with the spread of the Markit CDX North America Investment Grade Index narrowing by 11 basis points to 71.4 basis points at one point, indicating reduced credit risk. The Markit CDX North America High Yield Index rose by 2.5 points to reach 103.9 points, which rises when risk decreases.

The commodity market strengthened across the board. International oil prices, previously hit by OPEC+ production increases and recession concerns, rebounded more than 12% from their lows. Both WTI and Brent crude near-month contracts recovered above $60 per barrel. In industrial metals, LME tin and copper surged more than 3%, while LME nickel, zinc, and aluminum rose over 2%.

Goldman Sachs Group withdrew its prediction of an economic recession in the U.S. "Given the additional tariffs imposed on specific countries that took effect this morning, we have shifted to the baseline expectation of a recession," an economist team led by Jan Hatzius said in an updated report on Wednesday. "We are now returning to our previous non-recession baseline forecast."

Outlook

Marko Kolanovic, former chief global strategist at JPMorgan, successfully predicted today's market movements. He predicted on Tuesday that as financial markets plummeted, U.S. President Trump might soon retract some tariffs. "I think the level of 4,800 is where they will really give in," Kolanovic added. "They indeed want to avoid a recession, and we are close to an irreversible situation."

However, he believed that even if Trump did yield to growing pressure from Wall Street, the uncertainty caused by the reckless approach of the government overturning U.S. trade policy has already inflicted lasting damage on the U.S. economy and markets.

Kolanovic said that while avoiding a recession is still possible, some damages won't be easily eliminated. This veteran strategist expressed surprise at the government's aggressive stance on tariffs. Even if Trump made concessions, Kolanovic didn't believe the U.S. stock market would quickly return to its record levels seen in February. "The market has suffered significant damage, and so has the economy. If he takes a step back, we may partially recover, but we won't directly return to the highs."

With historical experiences such as Black Monday in 1987, the bursting of the internet bubble in 2001, and the financial crisis of 2008, single-day rebounds sometimes don't indicate the continuity of the trend. For example, two out of the top five largest daily gains for the NASDAQ index occurred in October 2008, and two happened during the tech stock crash at the turn of the century.

Mark Hackett, chief market strategist at broker Nationwide, said that Trump's suspension of tariffs is absolutely good news because it indicates that the negotiations are in a sufficiently favorable state. "But I want to raise a very important warning, because a 8% rise or fall in the Nasdaq index within 20 minutes isn't much healthier... So I'm being very cautious and can't give you a safety alert."

It is worth noting that while the U.S. stock market rebounded, signs of panic appeared in the U.S. Treasury market. During the Asian trading session on Wednesday, the 10-year U.S. Treasury yield surged above 4.5%, while the 30-year Treasury briefly approached 5%.

U.S. Treasury Secretary Janet Yellen downplayed the volatility in the U.S. bond market on Wednesday, attributing the spike in Treasury yields to normal deleveraging that occurs every few years. "The market will calm down." Yellen attributed this move to companies experiencing losses and having to liquidate assets. "In the fixed-income market, there are some very large leveraged participants suffering losses. They must deleverage. I don't think this is systemic."

JPMorgan Chase raised its probability of a U.S. recession to 80% this week. Jamie Dimon, CEO of the largest U.S. bank, told media in an interview, "If you want the market to calm down, progress needs to be made on issues like tariffs. Trade agreements are very large and complex. They cannot be completed overnight, but you really need a team to handle them to get them done right."

Christopher Hodge, chief U.S. economist at Natixis in New York, believes that through bilateral negotiations, trade currency tariffs may decrease slightly. But in places where the room for tariff cuts is not large, the situation will be more challenging. We may return to Trump's 1.0 version script, with foreign countries agreeing to buy more specific goods from the U.S. This may slightly improve the trade deficit but won't fundamentally change the trade relationship as the government hopes.

(This article comes from Yicai Global.)

Original Source: https://www.toutiao.com/article/7491468473550389770/

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