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Markets Rebound After Tariff Shock, But Volatility Looms Amid Escalating US Trade War

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Global stock markets staged a sharp recovery on Tuesday after a dramatic sell-off triggered by escalating tariff tensions, but analysts warned that renewed volatility is likely as the U.S.-led trade war continues to deepen.

 

Following a week of intense market losses wiping trillions from global equity values, investors seized the moment to snap up undervalued stocks, hoping for a potential softening of tariff measures. The bounce was led by Wall Street, where the Dow Jones, S&P 500, and Nasdaq all surged over two percent in early trading before moderating slightly.

 

“After three brutal days, markets rallied as traders priced in optimism over potential US-China tariff negotiations,” said Axel Rudolph, analyst at IG. Europe followed suit with strong gains: London’s FTSE 100 jumped 2.7%, Paris’s CAC 40 climbed 2.5%, and Frankfurt’s DAX surged 2.5%.

 

Despite the relief rally, concerns remain high. US President Donald Trump pressed forward with new tariffs—34% on Chinese imports and 20% on EU goods starting Wednesday. Beijing vowed retaliation with a 34% levy of its own, while the EU is preparing countermeasures including up to 25% tariffs on select US products, though bourbon will be spared to protect European wine and spirits from potential American reprisals.

 

Meanwhile, oil markets remained unstable. After rebounding on Monday, prices slid again with West Texas Intermediate down 0.2% at $60.60 a barrel and Brent crude down 0.3% at $64.02.

 

In Asia, Tokyo’s Nikkei 225 skyrocketed 6% following talks between Japanese Prime Minister Shigeru Ishiba and Trump. Nippon Steel shares mirrored the gain after Trump initiated a review of its attempted acquisition of US Steel—a move previously blocked by President Joe Biden. Hong Kong rebounded by 1.5%, clawing back some of Monday’s record 13% drop.

 

Russ Mould, investment director at AJ Bell, described the uptick as “a much-needed recovery,” but cautioned against assuming it would last. “Markets are vulnerable to Trump’s unpredictable strategies, and without clarity, this rebound could be short-lived.”

 

Trump upped the pressure further, threatening an additional 50% tariff on China if it retaliates. Beijing shot back, calling the threat “a mistake on top of a mistake” and vowed not to yield.

 

The trade war’s economic toll has thrust the U.S. Federal Reserve into the spotlight. Economists are split on whether the Fed should slash interest rates to support growth or keep them elevated to fight inflation. According to analyst David Morrison of Trade Nation, markets now expect three or four rate cuts this year, down from earlier expectations of five, reflecting heightened concerns about a tariff-driven slowdown.

 

“The White House risks losing control of the narrative,” Morrison warned. “Without a clear, coordinated trade policy soon, investors may accelerate their retreat from risk assets.”

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