In a welcome and unexpected move, President Donald Trump has called off the impending 50% tariff on goods imported from the European Union. This tariff was supposed to go into effect one week from today. The administration’s decision to delay the tariffs until July 9 comes as a welcome reprieve, and not a moment too soon for American and European markets. These markets have been on thin ice with escalating trade war rhetoric.
Originally, as full-blown trade war 2.0 started brewing, Trump had declared that the EU tariffs would start right away. So he recently announced that he would extend the deadline. This follows three previous suspensions of the “Liberation Day” tariffs and continued bilateral trade talks. This drastic move illustrates just how fast and how far the Trump administration is able to steer the narrative. This maneuver has characterized his pattern of trade negotiation as president.
The announcement comes at a time when investors are grappling with concerns over America’s burgeoning debt, which is projected to increase by nearly $4 trillion over the next decade due to Trump’s and the Republicans’ “Big Beautiful Bill.” On top of that, U.S. markets were closed for Memorial Day on Monday, leaving investors hungering for developments.
Market reactions to Trump’s announcement have been positive. US stock futures are up sharply this morning, with S&P 500 (ES) futures higher by 1.5%, and Nasdaq (NQ) futures up by 1.6%. The other shoe to drop is the 30-year yield, which recently fell back below 5%. Simultaneously, the 10-year yield has dropped under 4.5%, territory that freaked out investors not long ago.
Japan stirred up this otherwise mundane landscape of global debt financing with a radical announcement late last month. Japan has now been overtaken by Germany, for the first time in 34 years, as the world’s largest debt financer. This shift has propelled a rally in Japan’s bonds. Completing this trifecta, the finance ministry has signaled plans to increase its investments in foreign bond markets, further driving this increase. Adding to the mix, the dollar caught a bid on Tuesday, rallying a little more than 0.7%.
Although many are feeling hopeful about this latest tariff delay from Trump, some analysts are warning not to get too comfortable. Nathan Sheets noted, “We view the current period as still the ‘calm before the storm,’ and we expect growth in the second half of the year to weaken.” This more pessimistic view argues that while the crises of today are less acute, economic threats are still very real for many.
Ed Yardeni added further context, stating, “Stock investing is likely to continue to feel like riding a mechanical bull in a rowdy sports bar. Keep focused on not falling off the bull!” His remarks are indicative of the continued whiplash that investors should anticipate in this chaotic market landscape.